11/04/2021

There's More to Buying and Selling Than the Click of a Button on Spreadsheets: Zillow

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The real estate industry news has lately had quite a few stories about Zillow's "pause" in buying homes.  As the days went by, the "pause" was just another word for Zillow's decision to stop buying homes--why? because it made too many bad decisions about pricing, the market, and a third reason, what I consider to be its faulty reliance on its own automated valuation tool.  Zillow only recently became a real estate brokerage (in 2021) after many years of being a third party data aggregator, showing listings online in the way many companies did by obtaining permission from the various MLS's across the country, and by then offering advertising of these listings to the Realtors who listed them in the first place (for a price of course)  so that prospective buyers and sellers would have another portal by which to find listings and possibly a future agent.  You've probably heard of "Zestimates", their early automated valuation tool which was typically inaccurate, for various reasons.  One of the major reasons was that, as a non-broker, Zillow was not using the full information gained by subscribers to the Realtor MLS, but drawing from the "bare bones" information of the public property tax records.  Value of a property can be in the subjective eyes of the beholder, aside from the schooled requirements and standards used in the professional appraisal industry, and this intuitive factor was quite elusive to Zillow's valuation tools.  

And it continued along this same path after becoming a licensed brokerage (something it used to claim would never happen) and Zillow proceeded to buy, buy, and buy more properties with the intention of "buy, fix and sell".  Until in recent weeks it hit the "pause" button, and now its leadership says:

“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,” CEO Rich Barton said in a statement.

Barton said that Zillow will instead focus on “creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.” (Quote from Realtor Magazine, Nov. 3, 2021, their sources from “Zillow Stock Dives After Analyst Highlights Two-Thirds of Homes Bought Are Underwater,” MarketWatch (Nov. 1, 2021); “Zillow Quits iBuying, Will Lay Off 25% of Staff,” The Real Deal (Nov. 2, 2021) and “Zillow Quits Home-Flipping Business, Cites Inability to Forecast Prices,” The Wall Street Journal (Nov. 2, 2021) [Log-in required.])

Ultimately, I think that the reference to "the pain points of buyers and sellers" is an acknowledgement that the purchase and sale of homes is indeed a human process, one that is full of an unfolding series of steps connected to what can be quite emotional associations and psychological
factors whether one is acquiring a home, or leaving it after many years.  

Make no mistake, automated valuation tools are widely used, not just by Zillow, and have been for a number of years.  But some can be much more accurate, especially when used in conjunction with market knowledge that comes from experience, "feet on the ground", and solid professional knowledge connected to working people.

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

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