They will lay off 25% of their employees in the process. When they paused the program two weeks ago, they blamed construction shortages, but now they say that they just haven't been able to predict prices accurately.
Anecdotally, I notice a lot more price reductions on listings than I was seeing a few months ago.
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Sounds like the zestimate algorithm had some faulty assumptions
I was skeptical months ago. I kept seeing them buy properties at $450k and sell for $425k a few months later. Rental property type SFRs. Kept wondering what they were up to or if I was missing something.
Shocker. Tech company thinks it knows more than it does and gets into trouble.
Most of these tech moguls are little more then confidence men, and when their massively overinflated egos lead them into a new field than the one they got lucky in, they tank. Not hard to see why a company with little to no relationship with actual real estate would fail when it entered that market.
Yeah, the problem with these strategies is two fold...The first is that they have a very low margin of safety. They are probably buying $200k-$300k properties in buttfuck nowhere Idaho, doing a quick face lift, and trying to sell them for a 20% profit. 20% of $200-300k is very little in the real estate world...if they buy a property that has more issues than they initially thought it could be thousands of dollars in repairs and their cost of carry is probably $1500-$2000+ per month...a 6 month delay in their schedule is already $10k+ which is probably a quarter or more of their profit. The second issue is that they probably rely heavily on data (particularly sales data) to find undervalued properties to flip; however, there is very important data that they can't collect such as what is the condition of the property? They could be buying properties that they think is undervalued based on their sales data, but in reality the property is a gut job...not a face lift. Unless they are hiring seasoned general contractors to do walkthroughs before each purchase...but this seems expensive. The second data that they can't pull is finding the right renovation team that is reliable and reasonably priced. Contractors in construction have a notorious reputation for price gouging, walking off jobs, and just flat out taking your deposit and leaving especially at the home owner level. You need an experienced general contractor who knows that particular market and reasonable construction costs to run the renovation. There's a reason the big national developers like Tishman/related have full teams dedicated to specific regions in the US and only focus on those regions...real estate construction/development is a local business. These idiots thought that because they have a ton of "data" they could discover arbitrage opportunities.
This is not what I have seen.
I saw them buy houses that were never on the market for $400k. Do nothing but “broom clean”, and list for $440k. Sell two months later for $385k.
Every single one I have seen was like this. In markets like San Diego, Carlsbad, Denver, Co Springs.
I was always thinking... wtf are they doing this for?
first it was Wall Street, now its tech that'll cause the next housing crisis!
The 25% reduction in workforce is likely a misunderstanding of what is actually happening. I would imagine that is associated with the management and flipping side of the process not the internal Zillow staff. Much of which are likely to be 1099 contractors.
Big facts. For anyone investing in Zillow this is probably a decent buying opportunity. They’re not going anywhere + still basically own the resi market in terms of data/attention
My thoughts exactly, they're going to book a one-time loss and move on, their core business is essentially unchanged (they might have even learned a thing or two from this) and future cash flows shouldn't be affected too much.
They're laying off a lot of engineering, acquisitions, finance, and portfolio management employees - the overwhelming majority are W-2 employees. Zillow Offers was a massive segment of their business.
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