Zillow announced earlier this month that it was shutting down its Zillow Offers iBuyer program. Zillow’s failure illustrates the limitations of technology in the real estate market. Technology is helpful, but it still takes a real estate expert to understand the nuances of the market. And understanding the market allows real estate professionals to help buyers and sellers by properly pricing and selling homes.
Why is Zillow losing money?
Launched in 2006, the popular online search portal, Zillow, grossed $3.3 billion in revenue for 2020. They had 9.6 billion visits by capitalizing on America’s favorite pandemic pastime, home surfing.
Zillow Offers was the iBuying arm of the real estate tech company. This was Zillow’s attempt to take their IDX search platform to the next level. They promised homeowners a quick and easy sale with a cash offer. Their algorithm helped them assess property values in promising neighborhoods. This was supposed to allow the company to buy and resell homes and make a profit on the house flip.
But despite the hot real estate market in 2021, Zillow stock plunged 20% this month when their iBuyer Offers program failed. The company shed about 38% market value last week. This equates to $10 billion. “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated, and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” according to Zillow CEO Rich Barton in a press release.
Does Zillow Offers buy homes at market value?
Barton cited market volatility and “a labor- and supply-constrained economy” as the reason they had to shut down their program. After laying off a quarter of their staff, the company expects to take a downgrade of more than half a billion dollars. They admitted they “unintentionally” overpayed for houses that they’re now struggling to sell.
Zillow’s very own CEO sold his home for 40% less than the “Zestimate.” In fact, even the disclaimer on their website admits that their estimates aren’t accurate, and you need the expertise of an agent.
“The Zestimate® home valuation model is Zillow’s estimate of a home’s market value. It is not an appraisal and it should be used as a starting point. We encourage buyers, sellers, and homeowners to supplement the Zestimate with other research such as visiting the home, getting a professional appraisal of the home, or requesting a comparative market analysis (CMA) from a real estate agent.”
Zillow Offers reviews also show that while homeowners received an initial cash offer that was enticing, after inspections and a significant service fee, the competitors purchase price was disappointing. When listing on the open market with an experienced REALTOR®, home sellers will walk away with more money than they usually will with an iBuyer. Plus, they’ll have a professional looking out for their best interests.
Why tech can’t hold a candle to a true expert
The company’s decision to abandon Zillow Offers says a lot about the limitations of technology within the real estate space. Algorithms and data may help identify where Americans are looking to buy. But they aren’t able to predict where real estate prices are headed. Nor can they tell you whether a specific home will sell quickly or not.
For that, you need boots-on-the-ground, local real estate experts to assess properties, as well as the surrounding neighborhood market. This is exactly what I and my team can do, and something tech companies can’t replicate. We’ve been navigating the unpredictability of the real estate market for over 35 years. We’re always focused on the success of our loyal clientele.
Homes aren’t like stocks
“The nature of the real estate market is unpredictable. It always has been. Shifts can happen even week to week. To properly price and sell a home, you’ve got to continually adapt and change your strategy. That’s why it’s not surprising that Zillow wasn’t able to keep up — technology and algorithms can only take you so far,” stated Michele Harrington, Chief Operating Officer of First Team Real Estate. “At the end of the day, it takes an intuitive human being to ride the market shifts and ensure profits are viable for the buyers and sellers that the market is ultimately serving.”
In all, Zillow bought about 10,000 homes during Q3 2021 and is still in contract to buy another 8,172 homes. However, it only sold about 3,000 homes during the same period according to a shareholder letter. The company has blamed the lack of contractors and supply shortages for their failure. Experienced REALTORS® know what repairs are necessary to sell for a profit. We will also help you complete them on a viable timeline.
The tech company’s algorithm couldn’t predict the slowdown in price appreciation. Plus, they were attempting to treat homes like stocks that are sold and traded in seconds, not over a period of weeks or months. That’s why Zillow Offer’s average gross loss was nearly $80,000 for every house it sold in the third quarter.
Simply put, buying and selling houses is an art, not a science. And out-of-touch tech companies like Zillow, Opendoor, Offerpad, Redfin, and more aren’t equipped to take on the real estate transaction and better serve homebuyers and sellers. If you want to do it right and capture top profits, it takes a trained professional.