ZECIMATED: Zillow iBuyer Program Ends in Catastrophe
Published On: November 16, 2021 Posted by: Jeremy Peterson
Zillow has a large footprint in the real estate industry. Its recent purchase of ShowingTime, the showing schedule tool used by most local Realtors, and its prominent place as a syndicated site for MLS listings to be advertised gives it an outsized influence on market players here in Utah.
One program that many market participants have watched with consternation is Zillow’s iBuyer program. For the past two years Zillow has not only been a conduit for market information, but made itself a market participant by purchasing homes on a large scale. Anticipating rising prices, Zillow would offer sellers a price for their home, then do minor clean up and relist the properties for sale in hopes of catching the appreciation.
This program worked well for them up until recently when they reported that the company lost over $400 million on homes it has sold between August and October. To make matters worse, the company had closed on 8,200 more homes it planned to sell in the coming months and now anticipates they will sell those homes at a 5%-7% loss. Or in other words, hundreds of millions more in losses.
So what went wrong? It appears that Zillow has fallen victim to the classic blunder of treating housing as a homogeneous commodity that can be purchased and sold enmasse via technology. Housing isn’t like buying grain or corn futures. Each home is unique, has its own history, its own maintenance record, and occupies a unique plot of land. As such, no two houses are alike.
The company offered a mea culpa during a recent earnings call where they admitted their predictive software couldn’t accurately forecast house prices in a market. And thus, they purchased billions of dollars of houses now to sell them for less than that. It is an ignominious end to their program and will result in 25% of their company work force being let go. The company share price reflects the damage done.
This is another example of how professional realtors, like myself and my colleagues, can help home owners safely navigate an ever changing market. The promises of technology can be exciting but pure dependency on it can leave blind spots that could spell disaster. Don’t fly blind it today’s market. If you are thinking of buying or selling a home, give me a call at 801-390-1480.