Zillow Exiting Its Home-Flipping Division

Last week, the home mortgage industry was shocked with the announcement “Zillow Exiting Its Home-Flipping Division“. This decision resulted in a reduction of 25% of Zillow’s staff. This is a sudden about-face exit from the housing market from a company that launched this division in 2017. Yet, as unexpected as this announcement may have been, the reasons behind the departure are even more curious.

In mid-October, the company initially reported a slowdown of their purchasing as they faced a deluge of backlogged inventory¹. Then, Zillow’s quarterly earnings last week revealed that their exit from the business would result in a total write-down of more than $540 million. A substantial contributing factor to this write-down was their realization that they bought homes during the last quarter for home prices much higher than it now believes it can sell them. Understandably, this raised many questions about the reliability of Zillow’s home price estimates. As Bloomberg’s Patrick Clark wrote, in his recent reporting, “The episode is a cautionary tale for what happens when an overconfident company uses (home price estimate) algorithms to supersize an old-fashioned business”².

Are Online Home Price Estimators Unreliable?

Does this mean online home price tools and estimators of home values (like Zillow) are unreliable? The answer is NO! While studies showed Zillow’s early estimates were off as much as 14%, more recent studies show a very respectable 2% error rate as the company matured. Ultimately, Zillow’s biggest mistake (and the cautionary tale for us) is how they used or did not use their data. As the housing market heated up early this year, Zillow found themselves not purchasing as many homes as their executive team “felt was necessary to make iBuying profitable”². Instead of listening to their data, they tweaked their algorithm to be more aggressive; a lot more aggressive. Suddenly, Zillow began buying house after house, acquiring more than 10,000 homes in the third quarter. They purchased more homes than they could process, resell and paid more for the homes than they were worth.

What Can We Learn From Zillow's Missteps?

So what can we learn from Zillow’s missteps?

First, much of the online data available on home values is good but never trust just one source and don’t assume the highest valuation number you see represents your home’s worth.
Second, don’t make any decisions regarding your home based on the highest estimate found online.
Third, seek outside sources to validate your assumptions. While we can learn much from online resources, we should always talk to professionals who work with this data daily. I can learn a lot from WebMD, but I still want my doctor to give me my diagnosis.

So what is your home worth and what options do you have with potential increased equity? The GOOD NEWS – you don’t need to try and answer these questions by yourself.

Revival Lending – Certified Mortgage Advisors

At Revival Lending, we are Certified Mortgage Advisors. We will work to design a customized loan to facilitate your goals. At times, that means advising our clients not to refinance because sometimes the best mortgage you can get is the one you already have. We want to earn your business over a lifetime and not just through a one-time transaction. Therefore, we promise to take the time to truly understand your goals and help you map out a plan to use your mortgage and home to reach them. Set up an appointment with us today. I promise you will not be disappointed. Call 714-257-5284 or email us to schedule a complimentary mortgage review today.

(1) https://www.cnn.com/2021/10/18/homes/zillow-halting-home-buying/index.html

(2) https://www.bloomberg.com/news/articles/2021-11-08/zillow-z-home-flipping-experiment-doomed-by-tech-algorithms