Zillow, one of the most popular online marketplace for real estate and fuel for many daydreams throughout the pandemic- is currently having a tough time. The company recently did a complete reversal earlier in November, when it went on to announce that it would be closing down the company’s subsidiary- Offers- the algorithm inlaid home-flipping arm of its company.
It was also mentioned that the company was trying to offload close to 7,000 homes, and exit the business of iBuying completely. This would bring about $2.8 billion worth of homes. The announcement did come as a huge surprise, with the scale of the company’s massive investments coming up in its iBuying efforts in recent years.
What is Zillow iBuying?
According to an analysis from Insider, around 50% of the homes that are owned by Zillow have been listed for prices below what was paid for them. In the state of Phoenix, close to 93% of the homes that the company purchased was listed for much less than the original price of purchase- with Dallas coming in with 81% of the homes being under the cost price.
In order to work through iBuying, most tech companies usually rely on algorithms which are then used to determine if it would at all be useful to buy a home to then resell. After using some specific data- the condition of the house, the age, and the ZIP code- the algorithm would be able to predict which homes would see an increase in their prices- allowing the technology company to enter into an emerging market early. One could think of it as some large-scale, automated home-flipping.
But then things went awry as Zillow relied on the calculations of computers to buy houses in decent condition on the cheap, spend minimal capital which was then fixed up- after which they sold them for a profit. While it does sound quite good to be true- it probably is the case for the company.