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What’s going on with Zillow?

In Buyers, Sellers by Doug Phelps

In case you missed it, online real estate listing service, Zillow, announced the end of its iBuyer program, just three years after its launch.  As a reminder, iBuyers are online well-funded real estate investors and venture capital companies that buy homes for cash at wholesale prices directly from an owner.  Basically, Zillow created an algorithm and they bought and sold properties based on their results.  There are many iBuyer services creeping up and like those, Zillow’s launch was not without error.  Personally, I think under the right circumstances iBuyer platforms are appropriate for some sellers but it’s not a blanket solution right for everyone.  Zillow will now be going back to just being a listings platform and the iBuyer division will be closed.  Below are some reasons why their iBuyer platform may have failed, from my perspective as an Realtor:  

Lack of human touch

Basically it comes down to whether sellers are looking for cash or convenience. Some sellers like iBuyers because a sell of their property is guaranteed, but that doesn’t always give them the best price or advice.  The problem was that Zillow, and value algorithms in general, lack the human touch that can be vital to real estate transactions.  As advanced as technology is, there are just certain things it will never be able to do.  iBuyers typically are not advocating for the seller in a deal, like an agent would.  They pay out, and then the transaction is over. 

Inaccurate pricing

This may have been the largest downfall for Zillow. Basically, their algorithm priced homes inaccurately, and many times, the company would buy homes for an asking price that wasn’t reflective of what the market was allowing.  This is a surefire way to lose in real estate.  The principles are easy, yet pulling it off needs experience, strategy and ingenuity.  As a Realtor, pricing a property right is extremely key to getting it to move.  Pricing can also be strategic as well.  For example, it’s a common practice to put a home on the market for slightly less than appraisal with the idea that a bidding war will happen and the home will sell for a certain amount anyway.  Algorithms don’t think like that.  Algorithms also don’t know that if there is a flaw in the home then it will likely not sell for asking, unless a change is made.  

Unprecedented Real Estate Market

This one isn’t Zillow’s fault, but just a fact of the market.  Over the past 2 years we’ve seen changes with the pandemic, lack of inventory, mass moving and other socioeconomic changes that has made it a bumpy ride for anyone who watches the market.  Many algorithms are based on historical values, trends and other patterns and what has happened the last few years is an outlier to say the least.  In Denver alone this past Summer, Zillow bought 500 properties and sold many of them for under their original buying price which is a bad deal in real estate.  In a high activity real estate market it can be difficult to know what is coming next and that surely threw Zillow, and many other iBuyers, for a loop.     

Does Zillow or another iBuyer platform still confuse you?  Are you in the market to buy or sell your home?  Call and text me at (720) 323-4176 or email me at [email protected]

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