Big News in Real Estate: Zillow Shuts Down iBuying Permanently

The big news in real estate today is that Zillow is killing its Zillow Offers division. They are not going to buy more houses. In addition, they are laying off 2000 employees by cutting this division (25% of their total staff). Of course this brings up lots of questions and speculation and concern. If you care about my opinion, read on. If not, that’s cool too. 

1)Is this an indication of a looming crash?  NO. This is one player that, quite frankly, was employing a bad model, licking their wounds. 

2) Why didn’t their model work? Shouldn’t the market cover their margins? They frequently offered above market  (site unseen), hit sellers with big fees, put money into a house based on an “inspection” by non-licensed home inspectors, put lipstick on the proverbial pig and then tried to resell at a price to cover a margin. Very often, those homes sat because they were never prepared, analyzed or even viewed by an actual, professional, experienced local agent. I viewed many homes listed by Zillow and they simply were not prepared for market. They sat. They had systematic price reductions that very quickly got the house below what they paid for it. 

3) But isn’t Zillow the expert on pricing?  Realtors have said for years now that a computer algorithm can’t price a home. Pricing is nuanced. There are all kinds of things that go into accurate pricing. It is an art form. Computers can’t do it. This failure proves that their model doesn’t work. It does not prove that our market doesn’t work. Remember that a market, a true market, is psychology wrapped around money and habits and opinions of people. It is not a computer model. It is behavior. 

4) “Market Makers” get too big for their britches. In this article, Allen Parker, Zillow’s CFO said their goal was to be a market maker. They were buying too high, on purpose. Taking losses on individual homes and then in aggregate, on purpose. They were trying to flex and push people to their model, cut out the traditional agent. Look at ALL the ads they made for this program. They wanted to recreate the way houses were sold and then, subsequently, bought. It didn’t work because there is NO substitute for actual experts. Period. 

Bottom lines:

1)No substitute for local experts

2) Agents need to quit buying their own information back from Zillow. They are NOT in it for you. They were trying to cut you out altogether. They failed. Now quit trying to help them.

3) Zillow pricing is NOT accurate. They believed in their own model and now 2000 people are losing their jobs.

4) This is not an indication of a crash. This is a company that failed at a flawed idea. It was an unprofitable, grand plan and they ran out of money. 

If you want to discuss further, I’d love to get coffee with you. If you want some help with your particular situation, from a local expert that will still be here in 5 years, give me a shout.