Zillow reportedly has about 7,000 homes that it now needs to unload – many for prices lower than it originally paid
It did a lot of buying, but hasn’t been so great at the selling. This week the company announced that its home-buying division, Offers, had lost more than $300m over the last few months. Offers will now be shut down and about 2,000 people laid off. Zillow reportedly has about 7,000 homes that it now needs to unload; many for prices lower than it originally paid.
iBuying is a nascent industry. A recent report from Zillow found that the four largest iBuyers – Zillow Offers, RedfinNow, Offerpad and Opendoor – were responsible for just 1% of all US home purchases in the second quarter of 2021. (Although that number goes up to 5% in certain fast-growing markets like Phoenix.) But while it’s still in its infancy, there’s a lot of excitement among tech types about the future of algorithm-powered home buying. “There is an arms race right now of who will become the Amazon of real estate,” a real-estate professor at Columbia University recently told Marketwatch. “That’s why all these companies like Zillow or Redfin want to have everything in house.”
Gotcher didn’t explicitly name Zillow but he heavily alluded to them and accused the company of using data harvested from people perusing their dream homes while they are bored on the website. Gotcher said this nameless company then buys a ton of properties in the neighbourhood people are searching for, and overpay for a couple of adjacent properties in order to artificially drive up prices. (Zillow and Redfin have denied doing this and real estate experts have noted they don’t have enough market share for this strategy to work.)
Zillow may not have been explicitly manipulating the market, but it was certainly trying to use technology to outsmart it. In the end, however, the market won. Zillow’s flipping flop should serve as a reassuring reminder that not everything can be automated. There are various reasons why Zillow got burned, including a labour shortage making it difficult to renovate homes. But the biggest issue is that its algorithm simply wasn’t up to snuff. It couldn’t deal with the complexities of pricing in a volatile market and resulted in Zillow overpaying for a lot of property.
While individual homebuyers may not have to compete against Zillow any longer, it’s unlikely that buying a house is going to get any cheaper or easier anytime soon. Those 7,000 houses Zillow is sitting on? Bloomberg reports that they will probably be offloaded to institutional investors like BlackRock rather than regular people. And while Zillow may be ending its iBuying business, the financialization of housing looks set to continue. Big money is gobbling up real estate and leaving many first-time buyers out in the cold.
Source: The Guardian
Written By: Arwa Mahdawi
Date Posted: November 4, 2021