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Zillow believed their own BS and got screwed
Posted by: GGD
Date: November 03, 2021 01:27PM
They were willing to pay their "Zestimate" price for homes in their house flipping business, found out that their estimates didn't reflect reality that well.

[www.marketwatch.com]

Quote

‘It’s really a toy’: Zillow closes home-flipping business. What does that say about the reliability of its Zestimate home-valuation tool?

Zillow used Zestimate to help guide the prices it paid for homes through its now-shuttered home-flipping business

Zillow’s ZG, -21.79% experiment in home-flipping has blown up in its face — and the company is blaming the “unpredictability” of home prices.

Now, some are asking about the reliability of the company’s so-called Zestimates, which provides an estimate of a home’s value based on a proprietary formula. Zillow says a Zestimate is published for around 100 million homes nationwide.

In announcing its latest quarterly earnings on Tuesday, Zillow Z, -22.99% confirmed that it will “wind down” its Zillow Offers division that focused on buying homes, refurbishing them and then selling them, hopefully for the profit. But the profit piece was missing.

‘They had a vision where every Zestimate you would see on the website would be like a live bid.’
— D.A. Davidson analyst Tom White

During the most recent quarter, Zillow’s Homes segment, which includes Zillow Offers, recorded a nearly $422 million loss before taxes. That’s up from a roughly $76 million loss a year earlier. Reports have suggested that the company has already begun offloading some 7,000 homes, with a majority fetching a price below what Zillow paid for the properties.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Zillow Group co-founder and CEO Rich Barton said in the earnings release.

The company said closing its iBuying business segment will “take several quarters” and involve a 25% reduction in the company’s workforce.

In light of the challenges Zillow faced with its home-buying efforts, some people took to social media to call into question the accuracy of the Zestimate tool. “It’s really a toy,” said Mike DelPrete, a real estate analyst who tracks the iBuying sector. “It’s meant to drive people’s interest in property.”

The Zestimate, which first debuted in 2006, played a role in Zillow’s home-buying operations. “We leveraged the Zestimate in our Zillow Offers operations the same way we encourage the public to use it: as a starting point,” Zillow spokesperson Viet Shelton told MarketWatch in an email.

However, Zillow had more ambitious plans in mind for merging its Zestimate model with its iBuying division. In February, Zillow announced that the Zestimate would represent “an initial cash offer” for certain eligible homes across 20 cities, including Phoenix, Miami, Denver, Nashville, Houston and Los Angeles.

“Presenting the Zestimate as a cash offer to qualifying homes up front will save time, reduce friction and provide greater transparency — getting us closer to our vision of helping customers transact with the click of a button,” Zillow chief operating officer Jeremy Wacksman said in the announcement.

Consequently, to some, the recent turn of events suggest Zillow’s experiment failed.

“Zillow used to talk about how they had a vision where every Zestimate you would see on the website would be like a live bid, and you could just hit the bid and sell your home for that amount,” said D.A. Davidson analyst Tom White. “This move out of iBuying suggests that’s not going to happen.”
...
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Re: Zillow believed their own BS and got screwed
Posted by: Gareth
Date: November 03, 2021 01:37PM
Quote
GGD
They were willing to pay their "Zestimate" price for homes in their house flipping business, found out that their estimates didn't reflect reality that well.

We tried to "take advantage" of Zillow's home buying a couple times. But they weren't interested in my triplex (that we live in by ourselves - no renters). And they weren't interested in my wife's rental (single family home) since it had a tenant in it that we couldn't kick out due to COVID. That would have been the real win for us, as for a long time, Zillow's "Zestimate" was about 50% higher than it should have been (no idea why, and at some point they finally corrected that on their own). And for some reason, the house next to my wife's rental (another SFR), they had as a condo and thus despite being bigger, was valued much lower (I was nice and corrected Zillow's information on that one and its "Zestimate" shot up).
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Re: Zillow believed their own BS and got screwed
Posted by: M A V I C
Date: November 03, 2021 01:42PM
I doubt it has much to do with the Zestimate. The pandemic made some big shakeups. Remote work, eviction and foreclosure moratoriums have played a huge part in this.




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Re: Zillow believed their own BS and got screwed
Posted by: rz
Date: November 03, 2021 01:52PM
We just sold our old house. The Zestimate was about 15% higher than what we ultimately sold it for. We listed it close to the Zestimate price and got almost no showings. We dropped the price once, and got more showings but no offers. Had to drop it again before we finally got an offer. House down the street had almost the same experience. Their initial listing was higher than our ( their house was bigger) and they ultimately sold for about 15% less.
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Re: Zillow believed their own BS and got screwed
Posted by: Acer
Date: November 03, 2021 02:00PM
I thought it was common knowledge to anyone serious about real estate that Zillow's model tended to be too high. Maybe in hot markets where everyone is bidding above asking they were closer.
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Re: Zillow believed their own BS and got screwed
Posted by: btfc
Date: November 03, 2021 02:16PM
“ The Zestimate was about 15% higher than what we ultimately sold it for. “

Their estimates seemed to run about 15-20% high for the areas where I follow the real estate market.
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Re: Zillow believed their own BS and got screwed
Posted by: space-time
Date: November 03, 2021 02:19PM
Houses around here sell for more than any estimate you find. Crazy.

I could sell my house for 250k more than I paid 18 months ago.
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Re: Zillow believed their own BS and got screwed
Posted by: GGD
Date: November 03, 2021 02:22PM
Quote
btfc
“ The Zestimate was about 15% higher than what we ultimately sold it for. “

Their estimates seemed to run about 15-20% high for the areas where I follow the real estate market.

Buy high and sell low, how to make a killing get killed in Real Estate.
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Re: Zillow believed their own BS and got screwed
Posted by: Paul F.
Date: November 03, 2021 02:23PM
Their Zesitimate on my house is 2.5 times what I paid for it just a few years ago. I'd be happy if it was wrong by 40%.



Paul F.
-----
A sword never kills anybody; it is a tool in the killer's hand. - Lucius Annaeus Seneca c. 5 BC - 65 AD
----
Good is the enemy of Excellent. Talent is not necessary for Excellence.
Persistence is necessary for Excellence. And Persistence is a Decision.

--

--

--
Eureka, CA
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Re: Zillow believed their own BS and got screwed
Posted by: Ombligo
Date: November 03, 2021 02:35PM
as long as those zestimates are never tied to taxation value, I'm happy because it makes me feel richer than I am.



“No persons are more frequently wrong, than those who will not admit they are wrong.” -- François de La Rochefoucauld

"Those who cannot accept the past are condemned to revise it." -- Geo. Mathias
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Re: Zillow believed their own BS and got screwed
Posted by: Paul F.
Date: November 03, 2021 03:01PM
Quote
Ombligo
as long as those zestimates are never tied to taxation value, I'm happy because it makes me feel richer than I am.

LOL... that's a fair point.



Paul F.
-----
A sword never kills anybody; it is a tool in the killer's hand. - Lucius Annaeus Seneca c. 5 BC - 65 AD
----
Good is the enemy of Excellent. Talent is not necessary for Excellence.
Persistence is necessary for Excellence. And Persistence is a Decision.

--

--

--
Eureka, CA
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Re: Zillow believed their own BS and got screwed
Posted by: N-OS X-tasy!
Date: November 03, 2021 03:28PM
Zillow: Kool-Aid?
Also Zillow: Yes, please, thanks!

smiley-laughing001



It is what it is.
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Re: Zillow believed their own BS and got screwed
Posted by: mikebw
Date: November 03, 2021 03:49PM
smiley-score010
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Re: Zillow believed their own BS and got screwed
Posted by: rgG
Date: November 03, 2021 04:30PM
Part of their problem was they didn’t factor in the lack of help available to renovate those houses they bought.
Even paint and cleaning and minor repairs have to be done by someone and they didn’t have crews on standby.
In other words, they didn’t know what the Hell they were doing, just like a lot of first time flippers but on a much grander scale.





Roswell, GA (Atlanta suburb)
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Re: Zillow believed their own BS and got screwed
Posted by: cbelt3
Date: November 03, 2021 04:36PM
IMHO, the concept of a single family home as an investment vehicle by corporations was a large part of the drive up in home pricing in the last few years. We're seeing the bubble springing a leak. Happy to see the profiteers losing their shorts.

The subprime mortgage market's collapse in '08 destroyed a large number of working class neighborhoods. This is going to have a similar result. People are going to be 'underwater'.
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Re: Zillow believed their own BS and got screwed
Posted by: rz
Date: November 03, 2021 05:03PM
Quote
GGD
Quote
btfc
“ The Zestimate was about 15% higher than what we ultimately sold it for. “

Their estimates seemed to run about 15-20% high for the areas where I follow the real estate market.

Buy high and sell low, how to make a killing get killed in Real Estate.

Well, we sold it for 15% under the Zestimate, but for 2.5x what we paid for it ~15 years ago. Not a killing, but not bad appreciation.
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Re: Zillow believed their own BS and got screwed
Posted by: Ombligo
Date: November 03, 2021 05:39PM
A lot of people are going to get hurt when this market craziness settles down. Many sold their homes for a tidy profit but then had to use that profit to buy a new home. They traded a properly valued home that was building equity for one that will soon be underwater. It will be years, if ever, before they will get to where they were before selling at what they thought was a profit.

At least one of the primary drivers of this insane market was bitten hard by it. May they suffer like those they victimized.



“No persons are more frequently wrong, than those who will not admit they are wrong.” -- François de La Rochefoucauld

"Those who cannot accept the past are condemned to revise it." -- Geo. Mathias
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Re: Zillow believed their own BS and got screwed
Posted by: mattkime
Date: November 03, 2021 06:03PM
Quote
Ombligo
A lot of people are going to get hurt when this market craziness settles down. Many sold their homes for a tidy profit but then had to use that profit to buy a new home. They traded a properly valued home that was building equity for one that will soon be underwater. It will be years, if ever, before they will get to where they were before selling at what they thought was a profit.

Isn't that true of all property purchases? You need to own it for a few years before you'd recoup the transaction costs involved in selling.

The drop in value isn't really a problem unless they need to cash out of property ownership all together.



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Re: Zillow believed their own BS and got screwed
Posted by: GGD
Date: November 03, 2021 06:30PM
Quote
rz
Quote
GGD
Quote
btfc
“ The Zestimate was about 15% higher than what we ultimately sold it for. “

Their estimates seemed to run about 15-20% high for the areas where I follow the real estate market.

Buy high and sell low, how to make a killing get killed in Real Estate.

Well, we sold it for 15% under the Zestimate, but for 2.5x what we paid for it ~15 years ago. Not a killing, but not bad appreciation.

And to clarify, my comment was meant toward Zillow and their "flipping" not towards you.
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