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6 NOV

Why Zillow got out of purchasing homes and what does it mean?

Why Zillow got out of purchasing homes and what does it mean?

 

Zillow in the last year started a division to start buying homes.  It was a mess.  This week they folded the division and laid off 25% of their workforce. Here are 5 reasons it didn’t work.

 

1. Real Estate is harder than it looks.  There is close to a 90% failure rate starting as a Realtor, and Zillow buying and selling their own homes was basically starting in that business.  Our job is hard enough in that we are part mental health therapist, negotiator, marketer, dealing with legal contracts.  All while not getting paid unless performance is there.  It looks easy but like most businesses, it isn’t.

2. Labor shortages. The supply chain of product and people put extreme pressures on flipping homes. That meant holding homes longer, dealing with contractors, and changing costs.

3. The Zestimate.  Valuations are part science and part art. I’ve always claimed that it’s problematic (how Zestimate’s can cost you thousands) with extremes at the +/- 30% level. It’s very difficult to understand local subdivisions and condos. Imagine trying to do that across the country. They couldn’t possibly know all the ins and outs of what is happening in each community. If it doesn’t work in a historic appreciating market, than it wasn’t going to ever work.

4. Losing focus on core business.  Co-Star which is a commercial search (private) is going to get into the business and is well funded. Not taking the eye off what they do had to be a factor.

5. Risk Factor. They reportedly owned 7,000 homes.  Imagine if that was 70,000 or 700,000.  A market swing or heavy inflation was becoming a risk that they were not willing to take.

Posted in Open House Blog on November 6, 2021 at 9:40 am.

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