So they plan to make offers on houses near market rate, invent a "fee" to account for the fact that they won't actually be paying market rate, and then turn around and sell the same house at market rate, pocketing the fee.

For this to work at scale a lot of people must be in a situation where they can't afford the holding costs associated with waiting for their house to sell for what it's worth. Or a lot of people's houses have appreciated sufficiently that Zillow's fee is a non-issue. If anyone knows if this is true, I guess Zillow would.