Zillow Stops Buying Houses After Losing Hundreds of Millions in Quarter 3
Zillow was the second largest iBuyer, or institutional buyer, prior to pulling the plug on home buying. They had previously announced that they would be putting a pause on home buying for the remainder of the year in October, but in their Q3 earnings call they made it a permanent decision. After the announcement, the stock price plummeted from around $98 down to about $66 a share. The company announced they lost hundreds of millions of dollars in their home buying venture and said that future revenue and profit would be too volatile if they continued down this path.
What Mistakes Were Made
Zillow was using their Zestimate algorithm to come up with values to purchase homes. While Zillow is the number one holder of real estate data, they still weren’t able to accurately predict prices using an algorithm. Not only do they own do they own the Zillow/Trulia sites, but they also own ShowingTime. ShowingTime is a program used by many real estate agents and companies to schedule showings for listings. On top of that, ShowingTime also has a data driven system called Info Sparks, which allows agents to look up market details in customizable areas.
With all of that information at hand, Zillow was still unable to use an algorithm to accurately predict values. This says a lot. There are so many details that go into coming up with a value and strategy to sell your home. When Zillow threw in the towel on their iBuying, they were losing tens of thousands of dollars on average. A study found that about 2/3 of their homes listed in October were on the market for less than what the company paid. Phoenix’s market saw a staggering 93% of homes it had listed below their purchase price. San Diego was no different. I did a very small search of the homes they owned in 91913 (Chula Vista) because I noticed they were purchasing quite a few homes there. 7 of the 36 single family homes on the market were owned by Zillow. All 7 of those homes were listed lower than what they paid and the homes were sitting.
Do I Think There is a Place for iBuyers?
Despite Zillow’s costly downfall on the home buying front, I do think that there is a place for iBuyers. Seeing as how they are running a business, iBuyers intend on making a profit. In order to do that, they need to buy homes at a discount. There is a really small percentage of the population where selling to an iBuyer truly makes sense, but that is probably less than 5% of sellers. If you are a typical seller, you are much better off preparing and listing your home, unless you can go back in time and have Zillow buy your home for way over market value!