The goal of this program was to buy properties directly from Sellers and then re-sell them for a profit.
Before looking at the interesting facts and numbers associated with this news, we want to acknowledge the people who are affected by this.
Zillow’s workforce will be reduced by 25%. Many people will be laid off and our heart goes out to them. We certainly wish them only the best.
Within our company we are not surprised by Zillow’s announcement. We observed many cases where they over-paid for a property, re-listed it for an unrealistic price, dropped the price over time to meet the market, and then sold at an amount much less than what they paid.
It actually became difficult to find specific scenarios where they sold the home for more than their acquisition cost. It was not uncommon to see losses of $50,000 per home or more.
Here is a quote from their CEO: “Our observed error rate has been far more volatile than we thought possible. Fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in.“
In the third quarter of 2021 alone, their iBuying division lost $328 million.
Bottom line, their valuations were off.
It is a reminder that pricing requires a hyper-local scientific approach versus a generic algorithm
Homes are not commodities. Each home is highly unique. Each has its own highly unique location, features, amenities, condition and timing.
Homes can’t be priced like a book or a plane ticket. Every unique feature must be taken into account.
Nationally, Zillow has about 7,000 homes in backlog which it hopes to sell over the next several months.
Other players remain in the iBuying game and we are more than happy to help you understand those options if you are curious.