Big news was announced this week when Zillow stated they will no longer be buying or making Instant Offers to buy homes across the country. In early October they announced they were putting the program on hold due to backlogs of homes, labor and material shortages. They had too much inventory on their books. It now seems that these issues, along with improper valuations, have taken a larger toll on the company and turned the profits and business model upside down. Zillow had a huge run up in buying of homes across the country after hitting pause during much of 2020 and the Covid crisis. Now, they’ve come to find out that buying and selling homes is more complicated than they thought. Something they recognized 15+ years ago but decided to ignore when Wall Street and large financial companies were plowing money into their company.
While Zillow is not alone in the Instant Offer, iBuying, model, they were a dominant player in the small share of iBuying in our area and around the country. Most iBuying programs don’t operate in Washington for a number of reasons. First and foremost, our home prices are high, relative to many other regions in the country. Second, many of our homes and neighborhoods are not formulaic in pricing. Each neighborhood has unique characteristics and those affect home values. The variation in our home’s sizes, features, character and styles also affect values and market appeal. Many iBuying programs are offered only on more specific home sizes, locations, age and styles. If there are 200, similarly sized, 2-story homes built by the same builder in fairly similar communities, it’s much easier to evaluate and predict present and future values for a home. But formulas don’t work in our areas and many others. You need hands on experience for proper valuations. These errant valuations have been good for those homeowners who were able to sell their homes to Zillow, but it shows that assessing a home’s value is part science and part art. The art takes people and time to master.
Zillow has been improving their valuation models over the past several years. By their own admissions in the beginning, their Zestimates were off by 20%, + or -, almost 50% of the time. In the last 5-7 years their valuations were more like 5-7% variable, high or low. Yet even with 5-20% annual appreciation across the country, their valuations still weren’t close enough to stem their losses. The latest estimates show they were losing 6% per home bought. For a while, they accepted and attributed the losses to marketing–we’re capturing more eyeballs, we’re connecting sellers with agents who are paying us $5,000-$25,000/month for seller leads, so we’ll make up the losses on those lead revenues or future market share. Sadly, like all businesses must learn, you can’t lose money on most of your sales and make it up in volume. At some point the zeal of Wall Street’s money slows and a return on investment is demanded.
I don’t consider this a uniquely Zillow issue. Having been in this business for 34 years, I’ve seen many cycles and also understand the many nuances to this business. It is much harder to be in this business, running a business, than it looks like from the outside. Lots of Wall Street Fin-Tech companies want to get into the Real Estate market and continue to try and disrupt the industry. Like all businesses, technology and change are inevitably changing the process but for all the monies spent, it still turns out that most home buyers and sellers look for a referral of a trusted advisor or go back to a trusted advisor to buy or sell a home. Most Buyers who don’t have their own agent/advisor either bought a new construction home, without an agent to represent them, or regretted not having someone to help them navigate, understand and capitalize on the market when they bought or sold. This is not a swipe left, swipe right process and those who seek to promote it as such only show their lack of true knowledge of what you need to know and how the real estate industry operates.
This is and will continue to be a people business. Our homes, our security, our identities are wrapped up in many to most real estate sales and thinking an automated chat bot or algorithm can handle the variables and nuances is naive to ignorant. Yes, technology does make it simpler, smoother and easier to conduct. It doesn’t replace the need for a trusted advisor and guide to help you through the innumerable steps and potential pitfalls of “figuring it out” or trusting a bot or algorithm to complete this with you.
Zillow isn’t going away; they’ll continue to work to capture eyeballs and pair the “what’s my home worth” homeowner to an agent willing to pay them $1,000’s a month or now, a per sale percentage even higher than before. Their hope is still to draw homeowners into their system to help them get a new mortgage for their new home or do the title and escrow work for the sale of the home you’re seeking a value for. They just won’t be buying your home in the near future. I have no doubt they will resurrect that step in a few more years. My concern is that Zillow, and all other Fin-Tech companies, don’t really want to help you. They only want to steer you to people who are paying them for your name and an introduction. Your satisfaction isn’t their goal. Capturing your information so it can be sold to someone else, so they make money on you, regardless of what next steps you actually take is their goal. I don’t think that’s what most home buyers or sellers are looking for–to be digitized data, sold to the highest bidder without regard for your actual needs or goals. If that’s progress and the main goal of the disruptors, which it seems it is, then I hope you’ll join me in seeking a better way, a personal and personable way. Seeking to understand your needs, goals and fears and walking the path to success beside, in front and behind you, to the end. Technology helps us, but people helping people is what this business is truly about.