“A tough day at Zillow” as they shut down iBuyer program

In its third-quarter meeting with shareholders, the Zillow Group announced that they will be shutting down their iBuyer program, Zillow Offers. This comes just weeks after they announced that the program was going on hold for the rest of 2021. What does the announcement mean for the market and the future of iBuyers in general?

Zillow first started Zillow Offers back in 2018. They invested a huge amount of money in the space, following in the footsteps of companies like Opendoor and Redfin. Despite large amounts of institutional investment in the program, even as early as 2019 Zillow Offers was losing an average of $5,000 on every home they sold. Zillow froze the program when COVID struck, but then started it up again when the housing market started to take off in spring 2020.

That proved a very costly mistake. Zillow stock has dropped by around 30% since making the announcement, and they announced that they will be laying off around 2,000 employees as part of their move away from iBuying.

Clearly, Zillow’s pivot from big data to flipping houses did not work out. Their failure to turn a profit highlights the eternal truth that residential real estate is local. Their Zestimate algorithm was supposed to accurately predict the value of homes. But it was not accurate enough for a volatile market like the current one. What is more, not even the best algorithm can make up for the specialized local knowledge that an expert real estate broker affords. Big data and advanced algorithms cannot predict the future quite yet.

Whether Zillow Offers’ failure is a nail in the coffin for iBuyers in general remains to be seen. Some reporters and investors are looking to rival Opendoor to fill the gap created by the demise of Zillow Offers. With better technology and more cautious investment, iBuyers could very well see success.

As for Zillow, they are falling back on the data and lead generation services that were the foundation for their success in the first place. If nothing else, the story of Zillow Offers is a striking cautionary tale of hubris.

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