A real estate agent is credited with exposing Zillow's home-flipping business model.
In the 2-minute viral video, the Nevada-based agent, Sean Gotcher lays out a hypothetical scenario involving a billion-dollar company that buys entire neighborhoods and flips the houses for a quick dollar profit.
In his hypothetical situation, Gotcher wondered what would happen if the unnamed company created its own neighborhood comps (comparable home prices) to artificially drive up the prices of the homes it was selling.
Gotcher provides an example: the company purchased 30 homes for $300,000 each. Then purchased a home for $340,000 in the same neighborhood. That extra $40,000 would artificially increase the comps in the neighborhood.
"What that just did is create a new comp," Gotcher said.
The video has since garnered over 3 million views and is credited with accelerating the collapse of Zillow's "iBuying" model.
However, both Zillow and Redfin denied overpaying for houses to drive up the comps.
"Intentionally overpaying for homes would be a terrible business model," a Redfin spokesperson said.
Zillow has since halted its iBuying program and has stopped purchasing homes in areas such as Atlanta and Dallas.
The company is looking to sell off 7,000 homes for $2.8 billion -- much lower than what Zillow originally paid for the homes.
Watch Gotcher's video below.