Zillow Made A Costly Mistake
One of my favorite quotes all time comes from world-champion boxer Mike Tyson. The quote goes a little something like this, “Everyone has a plan until they get punched in the face.” Well, getting punched in the face is exactly what happened to Zillow Inc., metaphorically, of course. There is always going to be ideas that sound flawless on paper, but will never truly work. If every cocktail napkin idea turned into a success, there would be a lot less workers and more CEOs. Unfortunately for Zillow Inc., their good-on-paper idea of iBuying homes failed.
Zillow’s iBuying Service
Zillow has now pulled the cord on their “revolutionary” iBuying real estate system. The corporation tried to expand outside of a traditional multiple listing service and into the home-flipping market. However, they were met with catastrophic failure. The ambitious effort of getting into the home-flipping market could potentially impact the company for years to come. Their biggest issue came as their pricing algorithms led them to purchase homes at, or above, actual home value.
With the iBuying system proving to ultimately be their biggest downfall to date, the company expects tremendous losses. After reporting the sale of over 7,000 homes the corporation has purchased, Zillow expects to lose as much as $570 million dollars in 2021. Zillow is also completely eliminating the home-flipping branch of its company, cutting over 25% of its workforce. Zillow Offers, the name of the iBuying branch, showed a $380 million dollar loss in Q3 of 2021. This loss resulted in an 11% drop is stock price in little over one trading session, and caps off a rough year for Zillow shareholders.
Zillow And The Real Estate Market
The CEO of Zillow, Rich Barton, reiterated that it has became too risky for Zillow to continue to operate the way they have. After slightly adjusting the pricing algorithm for Zillow Offers, the company got into the hot real estate market, just as it was cooling off. While they are not alone in their inability to predict housing prices, they were the most aggressive corporation. This also leads to them being the biggest loser. With Zillow’s failure on astronomical levels, it brings up the question: Is the real estate market coming to its first slowdown since the pandemic?
Zillow has been around for a little over 15 years, and is the most well-known real estate platform in America. However, CEO Barton had sought after more ambitious goals that would lead them away from just a listing service. With Zillow being mostly known for home listings and Zestimates, Barton pushed the idea of becoming a home-flipping juggernaut. With goals of buying up to 5,000 homes a month by 2024, the company seemed destined to make the switch to a high-tech home company. However, we are now witnessing one of the biggest meltdowns for a single real estate company in recent memory.
Zillow In Retrospect
Rich Barton came off as arrogant that this would be the future of real estate. In August, he made several comments about how iBuying was going to be the future of real estate. After touting that the traditional way of buying and selling homes was “dreadful and dreaded,” it has came back to bite him. With customers willing to bypass potential bidding wars, Zillow Offers was supposedly the solution. However, the real estate market price rally that has been the last 18 months was Zillow’s ultimate financial downfall.
Higher than expected rates of conversion would make any real estate professional ecstatic. But, in the case of Zillow, it led to the purchase of 9,700 homes in the third quarter. However, they had no one able to do their home flipping work. They then realized that they had overpaid and were stuck with homes at a loss. Zillow has misjudged the real estate market, and is in serious financial trouble because of it.