Scholarly Journal Article

IMPORTANT: Minimum 4 scholarly journal article sources in APA (including in-text parenthetical citations) needed. No title page, no abstract, nor running header needed. INSTRUCTIONS: (for full article: https://www.cnn.com/2020/02/21/business/zillow-rich-barton-risk-takers/index.html) Zillow is Losing Millions on Selling Homes. But Its Risk-Taking CEO Isn’t Worried 14 days ago 7 replies Melanie Baker Charles Benedict Dare Abiola Last 18 hours ago Key words and Definitions Risk – the possibility of financial loss. Risk aversion – an individual’s tolerance for taking risks. Risk/return tradeoff – the financial principle that states you must be compensated with the possibility of higher returns before you are willing to accept higher levels of risk. Summary: Key Points in the Article. The online real estate matchmaking site Zillow recently launched a new initiative. In 2018 Zillow moved from being just an online advertising platform to a firm that buys properties directly from sellers. Interested sellers can contact Zillow, receive an offer, and close within a week or two. Zillow does light cosmetic work and resells the homes. Zillow CEO Rich Barton calls the model, dubbed iBuying, a “new frontier in real estate.” Barton’s vision is to make selling a home as easy as selling a car. Zillow wants to remain the best-known site for real estate and smaller competitors were beginning to offer iBuying, essentially forcing Zillow into this market. Zillow charges sellers a 7.5% fee if they decide to sell directly to Zillow.

Comparable real estate sales commissions are about 6% but it can takes months, or even years, to sell a home. The venture is not without risk. Zillow loses an average of $1,512 plus interest expenses and holding costs on each home it buys, or a total of $312 million in before tax losses for this division in 2019. However, Barton believes the venture will generate $20 billion in revenue in the next three to five years. Zillow intends for the program to be profitable and serve as a gateway into other revenue sources including providing title insurance and earning referral fees. Thinking Critically Questions Regarding the Financial Manager’s Primary Goal from the Lecture Note: 1. Is Zillow CEO Rich Barton willingness to lose money on iBuying consistent or inconsistent with “Selecting value creating projects” 2. What are the risks Zillow faces with their strategy? Is it a smart financing decision? 3. What are some synergistic benefits that might emerge from iBuying?