72 ms·

Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

589 points by swatkat 5y ago

blondie9x 5y ago
Does anyone know where most of these homes were purchased? This kind of practice where companies buy large quantities of houses should be banned. It isn't fair for first time or second time home buyers, non-corporate buyers essentially.
MisterBastahrd 5y ago
I was getting offers from multiple online realtors to buy my house, as-is, for 38% more than I paid for it in 2019.
zwkrt 5y ago
Anyone whose main income is from other peoples rent has an incredible amount of explaining to do if they want to claim that they are anything but a useless leech.
- azth 5y ago
  And so are money lenders, correct?
  - Thetawaves 5y ago
    Of course.
    - pbourke 5y ago
      Car rentals? Tool rentals? Camera equipment rentals? Leeches, all of them?
      - LordDragonfang 5y ago
        You're being disingenuous. All of those things you listed fulfill a temporary or geographically localized need, and are very short term. On the other hand, people often spend an entire generation in one apartment. Those categories are wholly unalike each other, and it's clear because the category of actually short term housing also exists, hotels. Likewise, long term car rentals exist, they're called leases.
        grayhatter 5y ago
        The point I was trying to make, so I assume the person you replied to see it the same. Is that no one else really attempts to explain the context around the assertion. Everyone previous is happy to blame people who are winning the game, labeling anyone who's not losing as a cheater. No one else is willing to explain why or how they're cheating. Which, if you don't know all the rules, and exploits looks like complaining not about the exploitation, but about even playing. So a fair interpretation is that every game must be cheating. It's not disingenuous to not already know the ways people try to control others to make some money. It's disingenuous to pretend like you've already made a point you haven't.
        LordDragonfang 5y ago
        The assertion is that rent seekers are "leeches", providing no value, while extracting value for themselves. It's very hard to prove the existence of a negative. That's the context. Note that no one said "cheating", that's context you read in yourself. It's interesting that you haven't made a single attempt to provide an actual counterpoint of your own, of what value rent seekers actually provide, especially since you're complaining that no one else is explaining their position. "No one" attempts to explain, including yourself?
        grayhatter 5y ago
        > The assertion is that rent seekers are "leeches", providing no value, while extracting value for themselves. It's very hard to prove the existence of a negative. That's the context. Note that no one said "cheating", that's context you read in yourself. You wouldn't be proving a negative. The assertion is that doing so (extracting value without providing any) is bad requires that bad thing to be stated. It's bad because opportunity cost, it's bad because people have to exchange currency for goods or services, it's bad because houses being in possession of money is itself immoral. These aren't negatives that need to be proved. As for cheating, what should I call acting so that others don't get a chance to participate? > It's interesting that you haven't made a single attempt to provide an actual counterpoint of your own, of what value rent seekers actually provide, especially since you're complaining that no one else is explaining their position. "No one" attempts to explain, including yourself? I don't have an assertion I want to make. Nothing other than to point out the problematic rhetoric. As an example, pointing out that 2+2=6 is invalid, or unconvincing because if you only have 1,2 and another for 3,4 can't reach 6. Does contribute, because the assertion that 2+2=6 is bad to leave unchallenged. Just like me making an assertion that 2+2=5 which would also be wrong. I don't know enough about the housing market in CA to make an any argument I'd want to stand behind. But I'm willing to say, just owning and renting property isn't enough to call them malicious, leaches, nor shitty.
- pbourke 5y ago
  > Anyone whose main income is from other peoples rent has an incredible amount of explaining to do if they want to claim that they are anything but a useless leech What would you envision as the alternative to tenanted apartment complexes? Let’s say you could wave a wand and outlaw rental housing as a business. Do you think the world would be a better or worse place?
  - LordDragonfang 5y ago
    Not GP, but wiping out the externalities of property being used as a capital investment vehicle instead of for its inherent utility seems like it would inarguably, in any rational market system, make housing more affordable. It's self-evident that it would be better for anyone without a vested interest in denying the housing needs of the many. If there absolutely must exist a category of housing that is rented and not owned, that's where the state can step in. Housing, like healthcare, is a commodity with perfectly inelastic demand in the aggregate. Offering such a commodity up to the "free" market is irrational in any system except one that values ability to make a profit over human rights.
    - aaronwall 5y ago
      There are a lot of cross currents there. The old people with a reverse mortgage & the taxpayer subsidizing the associated losses. People who put much of their excess savings into an appreciating home they planned to sell to fund their retirement as they moved elsewhere to somewhere cheaper, but now have a home which as a step function is worth far less. People who would be quickly underwater if the property market tanks deciding to jingle mail, leading to blighted streets for those who stayed. Local property taxes pay for schools, fire departments, police, etc. As far as the state being a perfect provider to step in ... in the US about half of healthcare spending is fraud. That the bill is passed onto someone else is a big slice of that (along with ignoring antitrust laws, local CON laws, illegal to import pharmaceuticals directly as a consumer, etc). I used to live near Chicago as a kid & recalled this https://en.wikipedia.org/wiki/Cabrini%E2%80%93Green_Homes https://en.wikipedia.org/wiki/Cabrini%E2%80%93Green_Homes "At first, the housing was integrated and many residents held jobs. This changed in the years after World War II, when the nearby factories that provided the neighborhood's economic base closed and thousands were laid off. At the same time, the cash-strapped city began withdrawing crucial services like police patrols, transit services, and routine building maintenance. ... On July 17, 1970, Chicago police patrolman Anthony N. Rizzato and Sergeant James Severin were shot and killed by gang members while patrolling community housing for an all-volunteer "Walk and Talk" project. As the officers proceeded across the Cabrini–Green baseball field, the assailants opened fire from an apartment window. The purpose of the shooting was to seal a pact between two rival gangs." Which land will the free or subsidized housing go on? Will the people spending a grand or two a month in property taxes want the elevated crime levels near their own front door?
- seanmcdirmid 5y ago
  Being a landlord actually involves a lot of work and risk. If it were free money, everyone would do it and it wouldn’t be free money anymore. I don’t have the nerve or free to be a landlord myself, but I’m sure I own some small parts property management companies via the index funds I own shares in.
  - LordDragonfang 5y ago
    As someone who previously worked for, and is also the child of, landlords, I can attest to the fact that, yes, there is some work and some risk, but you're wildly overselling it. The reason "everybody" doesn't do it is that in order to do it, you have to already have money (even if you can do it on a loan, the terms won't be favorable unless you have significant starter capital). At that point, it's basically free money, yes, to the extent that you can pay someone to do all the actual work for you and still make a comfortable income.
    - grayhatter 5y ago
      Why is that, specifically, wrong? I'm going to reply to your other comment as well, but I'd like to drive this point/idea to a conclusion as well.
      - LordDragonfang 5y ago
        Are you asking why, in a system that its supporters claim is a meritocracy, it wrong for it to be easier for the rich to get richer than for the poor to achieve parity, given equal merit? Is that a rhetorical question, or are you about to argue in favor of the ethics of feudalism? Because bridging that ethical divide would take more than a simple hacker news comment. edit: Ah, to more directly address you point earlier, and lay it out in simple ethical terms: withholding essential goods (housing) from others is a moral wrong according to consequentialist ethics systems. Doing things with a motivation of greed (profit) is also considered a moral wrong in intent-based ethics systems. The agreed upon axiom that they contribute nothing in return means there is no moral good to outweigh the moral wrong in either system, so in combination it is a net moral wrong. This really shouldn't need to be spelled out.
- dang 5y ago
  Please do not post flamewar comments to HN. It's not what this site is for, and it destroys what it is for. If you'd please review https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it. We detached this subthread from https://news.ycombinator.com/item?id=29090845 https://news.ycombinator.com/item?id=29090845.
TheMagicHorsey 5y ago
So what's the consensus? If you are in the market for a home, chill out and wait for a crash?
dang 5y ago
The previous thread on this, from earlier today: Zillow seeks to sell 7k homes for $2.8B after flipping halt - https://news.ycombinator.com/item?id=29081118 https://news.ycombinator.com/item?id=29081118 - Nov 2021 (521 comments) It seems the current article adds significant new information, so we won't treat it as a follow-up (or dupe).
seanmcdirmid 5y ago
For some reason I can't reply to dang's comment, but this is Zillow basically saying they are giving up completely on flipping, whereas the article this morning said that they were pulling back and delaying buying more houses to flip (not giving up, but in trouble). So this is pretty big additional news from the context of this morning's article.
- onlyrealcuzzo 5y ago
  7k homes isn't going to move the national market remotely. There were rumors that Zillow was trying to test if they could manipulate small markets - and they were trying to buy a significant portion of listings in those markets. If true - in those areas - they could get completely destroyed if they list a lot of places at once. And if true - I hope they get a huge fine for trying to manipulate the housing market.
  - 93po 5y ago
    As fucked up as it is, I'd be surprised if it was illegal
slownews45 5y ago
"pushing total losses on those houses to more than $550 billion." How can this even be possible? These numbers make zero sense.
- sedatk 5y ago
  *million, not billion.
- seanmcdirmid 5y ago
  Definitely a typo where an extra three zeroes were added to the $550 million loss headline.
woeirua 5y ago
This is kind of a big deal in the real estate sector. The only reason that Zillow would sell everything right now is if they believed that the carrying costs of the properties until they (eventually) sell would eat all of their profits. They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly. There's no way that OpenDoor doesn't follow them out the door here in the next couple of months. The business model is exactly the same. Anecdotally I haven't seen any reason to think OpenDoor is doing much better around here. This coupled with the Fed tapering could cause the real estate market to cool pretty quickly. If you're buying a home right now, make sure you're moving somewhere you're willing to live for a while and that you're not going to be in financial duress if your home loses 20% of its value.
- beamatronic 5y ago
  Agree 100%... I'm astonished that a large corporation trying to get into this business, would "bite off more than they could chew". Don't they have MBAs and financial models to assess this sort of thing?
  - dragonwriter 5y ago
    > Don't they have MBAs and financial models to assess this sort of thing? All models are wrong, some are useful. Zillows were wrong, and apparently not useful.
    - deleted 5y ago
      [deleted]
  - seanmcdirmid 5y ago
    Isn't Zillow more like a post-IPO startup than a bigcorp? If so, it makes complete sense that they might "bite off more than they could chew," (e.g. Pets.com) a lot of startups end that way.
    - 5y ago
muttantt 5y ago
Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a unit that Zillow bought. The algorithms are fooling themselves... Opendoor matches Zillow who matches Opendoor and that's how you get ever increasing offers. Edit: oh, and now Zillow has that unit on the market, priced 14% lower than they paid for it, after 3 price cuts so far. Edit 2: Phoenix/Scottsdale AZ market
- AareyBaba 5y ago
  I suspect the 'AI software' running these companies is using linear regression to predict housing prices and one of the inputs is the price of similar houses nearby.
  - c141charlie 5y ago
    What could possibly go wrong with that approach? :-)
  - danrocks 5y ago
    Maybe some reinforcement learning algorithm running as well, where the maximum reward is winning the bid. Hence the algorithm just goes and lays waste on other bidders. Gotta get that infinite reward!
    - mrfox321 5y ago
      I doubt RL is involved. That would be soooo risky. Bidding algorithms can model the price of winning the auction, you can maximize profit without fancy RL
  - nitwit005 5y ago
    I recall in one of the previous crashes it turned out a firm had a model that couldn't handle homes going down in value. A linear model is superior to that.
d136o 5y ago
Sigh… It’s interesting that they blame the ML models, on the one hand it seems like a perfect example of ML gone wrong, on the other hand losses at this scale (hundreds of millions) don’t just signal that some data scientist’s model was not accurate enough… who’s running the ship over there? The ML model? Also I’m really curious about the geographic distribution of their inventory… let’s do some Data Science on this blow up!
- nradov 5y ago
  It's not really ML gone wrong, more like a misapplication of the technology. No one who understands ML ever claimed it could produce accurate forecasts of chaotic systems.
  - SomewhatLikely 5y ago
    Weren't there headlines recently about a Google deep learning model producing the most accurate weather forecasts? Weather after all is the system from which chaos theory was first inspired.
bufferoverflow 5y ago
And to think, Zillow has so much data that we don't have access to. And they still failed to buy the most profitable properties.
tppiotrowski 5y ago
"The surprising exit, announced with pedestrian quarterly profits, thrashed shares in another rough trading session Tuesday, a day after an analyst said two-thirds of the homes it bought are underwater." https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS The fed chart shows almost hockey stick growth in housing prices this year. How can the Zillow properties be underwater, did they just massively overpay up-front?
- edrxty 5y ago
  Yes, yes they did. The vertical part of the hockey stick is EVERYWHERE. Homework: go on zillow and find the most depressing row house in urban Detroit/Cleveland/wherever with enough pricing history to have a graph. You will see that exact same line shape. Literally everything has doubled since around 2014. Completely bombed out crackhouses were a 300-500% ROI in that period. You couldn't lose money even if you set the structure on fire. The past year has eclipsed that though. Everything has gone up massively and for seemingly no reason. For comparison, since 2014 the US population has increased 4%. Also, people aren't moving from somewhere to fill up your town, go on a random city subreddit and you'll see a different local mythology to explain the prices. It's happening everywhere though. There's literally no significant area that's seeing an exodus with decreasing prices. Not California, not libruhl lockdown states, not Texas, it's happening everywhere.
  - rafale 5y ago
    I wonder if Black Rock will fare better than Zillow. My understanding is that they are not planning to sell/flip, rather rent then and hold on them forever.
    - RayVR 5y ago
      BlackRock entered the market as a landlord all the way back in 2011. They are fine. Not only that, they have real investment knowledge. Zillow and OpenDoor are a bunch of amateurs that thought they could turn "data scientists" into quant traders.
  - 5y ago
lancemurdock 5y ago
Everyone in big tech knows product direction comes top down with tons of product reviews along the way. There is no way you have this big of a screw up without major culture issues or more likely, leadership wanted to gamble and didn't think it would be this bad. The workforce gets the consequences for leaderships decisions
dredmorbius 5y ago
Numerous other submissions / articles: https://www.wsj.com/articles/zillow-quits-home-flipping-business-cites-inability-to-forecast-prices-11635883500 https://www.wsj.com/articles/zillow-quits-home-flipping-busi... https://finance.yahoo.com/news/zillow-shuts-down-home-flipping-200500342.html https://finance.yahoo.com/news/zillow-shuts-down-home-flippi... https://www.businessinsider.com/zillow-homebuying-unit-shutting-down-layoffs-2021-11 https://www.businessinsider.com/zillow-homebuying-unit-shutt... https://www.cnbc.com/2021/11/02/zillow-shares-plunge-after-announcing-it-will-close-home-buying-business.html https://www.cnbc.com/2021/11/02/zillow-shares-plunge-after-a... https://www.seattletimes.com/business/real-estate/zillow-to-close-its-home-flipping-division-lay-off-25-of-staff/ https://www.seattletimes.com/business/real-estate/zillow-to-...
pezzana 5y ago
> ‘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 tells investors. That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where you can't figure out how heavy the money bags that get dropped at your door will be. No, it's the bad kind of unpredictability where you can... lose money. Reading between the lines, I conclude that Zillow sees a major shakeout in real estate on the horizon. They've already been hit with losses and see a lot more where that came from. In an effort to get ahead of whatever is approaching, the company is making an abrupt exit from the home flipping business. Zillow was founded in 2006, as the last US housing market bubble was furiously inflating. It has seen a complete cycle of boom/bust. If anybody knows the US residential real estate sector, it is Zillow.
- totablebanjo 5y ago
  A counterpoint to your last statement is that if Zillow really knew residential real estate they wouldn’t have had such large losses this quarter. It really calls into question their pricing algorithm, but I give them credit for actually trying to get into buying and selling properties.
- andromeda-brain 5y ago
  I’d be more inclined to believe this if it wasn’t painfully obvious how much Z was overpaying for homes in the last half year, especially when all the other iBuyers saw the market slow down and reduced their offers accordingly. Seems much more likely that we can take them at face value and Zillow’s forecasts were just bad. Zillow hasn’t ever bought and sold homes (until now). That’s not their business.
  - pezzana 5y ago
    According to Forbes, Zillow has been buying homes since 2018: > In April 2018, the company entered the fledgling on-demand home buying market (often referred to as ibuying) with a service called Zillow Offers. Prospective sellers in 11 markets (and growing) can go to the Zillow listing for their own home and ask for an offer. Within two days they’ll be sent a price derived from the Zestimate and other algorithms. Two local experts also provide input on each house, and if the seller likes the initial offer, a Zillow employee comes to inspect the property. (If a home is in poor condition the offer may be withdrawn or lowered.) https://www.forbes.com/sites/samanthasharf/2019/07/01/rich-barton-zillow/ https://www.forbes.com/sites/samanthasharf/2019/07/01/rich-b...
missedthecue 5y ago
Big ups to hedge fund short seller Jim Chanos for calling this one way back in 2019. https://twitter.com/WallStCynic/status/1192663938720292864 https://twitter.com/WallStCynic/status/1192663938720292864 Steve Eisman, the short seller who was Mark Baum in 'The Big Short' also predicted this in 2019. https://www.cnbc.com/2019/08/08/big-short-investor-steve-eisman-says-zillow-has-one-of-the-most-flawed-business-models-hes-seen.html https://www.cnbc.com/2019/08/08/big-short-investor-steve-eis...
- dreyfan 5y ago
  With the complete rout today of -11.5% and the additional -11.0% aftermarket on Zillow's stock, it's still up +95% from when Chanos made that comment. Calling bullshit simply isn't worth the hassle these days (e.g. see Tesla and cryptocurrency fans). Better to figure out how to identify the top and keep opinions to yourself.
  - missedthecue 5y ago
    Short selling is one of those things in life where being right can make you worse off.
- nojito 5y ago
  Chanos has been net-long for a while now and I wouldn't be surprised if Eisman isn't too.
oceanghost 5y ago
Anecdotally: Zillow quoted a number for a house that I was selling right at the peak of all this, pending inspection. They couldn't come around and look at it though for about 6 weeks. By that time the market had turned and they said they weren't interested.
- alex504 5y ago
  When was the peak in your view? What market is this? Thanks
  - oceanghost 5y ago
    So Cal (Riverside County), and I'd say I felt like things were starting to peak in August. This is completely subjective of course.
silisili 5y ago
I don't get Zillow's play here. They were for a long time the de facto neutral party everyone used to look at houses. Great. Then they got into doing contracts apparently, still OK. Then they started competing against people and overbidding everyone, at the height of what appears to be the biggest housing boom of my lifetime. This was not only apparently financially dangerous, but an act that puts them in a bad light, publicity wise. I cannot think of how anyone thought this was an OK idea.
- sumedh 5y ago
  > I cannot think of how anyone thought this was an OK idea. I guess they assumed flipping houses would have more revenue and profits.
- _fat_santa 5y ago
  I think Zillow saw the numbers going up in the housing market and got FOMO. It's crazy to think an institution like this would get FOMO, but I think what happened is in 2020 they saw housing prices go through the roof, thought to themselves "hey we have all of this data, we can make a quick buck here" and piled in only to now get burned.
  - siruncledrew 5y ago
    It makes sense there could have been internal shareholder/executive pressure to continue expanding into other aspects of housing markets to further entrench their positions against competitors, but hedging their bets backfired in some areas, and now is the retrospective time to cut their losses and refocus on their strengths.
  - notjesse 5y ago
    They started ZO back in 2018. I think the bigger concern was the amount of growth and threat Opendoor presented them. There was a vision that they will fundamentally change the sector and make Zillow an equivalent of what the White Pages is to Google. So yes it was FOMO, but not based on quickly appreciating real estate.
jklein11 5y ago
I'm a little bit confused about what their strategy was. As I understand it, house flippers usually buy houses, do some renovations to add value and then sell in under a year at a higher price. It sounds like Zillow tried to buy homes and hold them until they appreciated? Was there any data that supported that this would be successful?
- yellow_postit 5y ago
  They were also trying to make upgrades and expecting they could lower the costs through scale eg give painters steady work at lower rates because they were a single party with lots of inventory.
busterarm 5y ago
All of the 'Owned by Zillow' listings here in the Miami area are _really_ shabby flips. They'll basically redo the kitchen and leave the rest of the property looking like garbage and then ask for a 15% markup. Also they prioritize those listings now, with no way to filter them out, so when looking at houses I end up just scrolling past several pages to get to other listings that I actually want to see. It's amazing that this whole scheme has made their traditional user experience worse at the same time.
- whymauri 5y ago
  I can't imagine having Zillow's financial resources and losing money in the Miami market, of all places. Dear god that place is hot (real estate and weather!).
qbasic_forever 5y ago
That's about 2k employees in the Seattle area that will be looking for a job very soon. Who's hiring in the area? Amazon had a bad quarter too so I wonder if they're cooling off a bit on recruiting and hiring for a moment. Might be nice to have a Seattle area hiring/job opportunity thread of some sort to help folks.
- fortylove 5y ago
  Were these mostly SDEs? If any Zillow employee is reading this: best of luck! This must be hard to go through.
holografix 5y ago
When will governments step in to stop historic low interest rates from preventing anyone not bathing in cash from buying a home? It’s a grotesque situation in Australia with property appreciating by exorbitant amounts every month to keep up with the rate of cash printing.
- nsv 5y ago
  In the US at least, the fed plans to raise rates by 2023.
m0zg 5y ago
I think they might know something we don't. Such as, for example, that loan rates are about to go up a lot, which if inflation is not "transitory" (which it isn't) they will. They already did go up some. Most people can't count to save their lives, but $1M at 2.5% APR is about $4K monthly (borderline doable for quite a few folks on 2 incomes), whereas at 16% (historical peak) it's something like $13.5K (not really doable beyond the top 1%). In spite of their large loss, this could prove to be a wise divestment under that scenario. If loans get a lot more expensive (which happened during Carter and then Reagan years, see "stagflation"), the housing market will tank right away and people will be desperate to lock in at least some of the gains they thought they had, creating excess supply. Not a good environment for flipping, especially at the mid- to low end of the market. The game of musical chairs seems to be coming to an end, and Zillow has just grabbed a chair. Three legged and busted chair, but a chair nevertheless.
WisNorCan 5y ago
It would be fascinating to hear the insider perspective. What exactly went wrong at Zillow with their approach? What were they not able to solve that OpenDoor could? This assumes that OD isn't a house of cards.
samfisher83 5y ago
You had bunch a smart ass physics phds pricing sub prime mortgages as aaa debt. It's just history repeating itself.
- RayVR 5y ago
  Except this time it's a bunch of "data scientists" that went through bootcamps or one year masters programs and have zero understanding of the market or trading.
sys_64738 5y ago
I don't get what Zillow's business model is or how they make any money. In the market where I live houses are going for crazy prices and under contract almost as soon as they hit the market.
djanogo 5y ago
Sold my house at the peek few months back to Zillow, they then sold it about 8% loss last month. The $/sqft price Zillow paid us is THE highest for our city EVER under <1mil price, and the record still stands after 5 months. Didn't make any sense to us at the time on why Zillow (and also Opendoor) was making such a high offer, the process was very smooth AND fast. Too bad they won't be around.
- deleted 5y ago
  [deleted]
- thomasjudge 5y ago
  What market?
filmgirlcw 5y ago
A friend of mine had a really bizarre experience with Zillow’s ibuy. First, he sold right his condo through them right before the pandemic (Jan. 2020), but then, literally a week before his 90 day closing period was up, they pulled out, blaming public health orders [1] even though they would never be in his house and it was literally a matter of paperwork. They did this as a way to get out of their contracts and hedge their bets. Flash forward eight or nine months, the housing market explodes and they triple down on their iBuys. My friend sells his home again, again with Zillow (I couldn’t believe he chose them either), and they offer him more than they did in Jan. 2020 (he sold sometime in 2021). Even with the extra mortgage payments he had to make, he still ended up making some money on the deal. Clearly, these companies were in over their heads, making bad decisions on algorithms and not doing real due diligence. The fact that they had an out 18 months ago and stopped doing this, only to triple down and lose $550m in a quarter is just staggering. [1]: https://www.forbes.com/sites/brendarichardson/2020/03/28/zillow-redfin-opendoor-and-realogy-suspend-ibuyer-programs-as-coronavirus-weakens-housing-market/?sh=4358c0395856 https://www.forbes.com/sites/brendarichardson/2020/03/28/zil...
vkat 5y ago
We recently went through buying a Zillow owned house in Phoenix AZ and response and attitude from the selling agent and zillow was pathetic. They took 3 full days to send the signed contract after they told us we our offer was accepted. Couldn't get the inspection done within first 9 days(inspection contingency is 10 days) of signing the contract and only got a response when we said we were going to cancel escrow. Got the inspection complete on the 10th day and there were so many issues with the house and repairs done that we felt it was not worth the negotiation to sort it out with Zillow and decided to back out. Not sure if this is a general trend but my agent was fed up and he said he will never deal with Zillow again. This was 3 weeks ago.
- fred_is_fred 5y ago
  Was the agent a Zillow employee?
  - vkat 5y ago
    The seller agent was a Zillow employee since the home is owned by Zillow. My agent was not a Zillow employee.
- johnvanommen 5y ago
  You get what you pay for. I tried using a discount broker back in the day, my experience was similar to yours.
  - vkat 5y ago
    My agent was traditional and would get a standard 2.5% commission if I went through with the purchase.
paxys 5y ago
Their vast trove of data predicted (probably correctly) that flipping houses in this environment is a sound financial strategy. The trouble is they couldn't also predict the massive operational complexity that comes with it. Planning renovations, sourcing materials, finding and scheduling contractors all involve a lot more than writing clever code.
rileymat2 5y ago
Does anyone have any insight into how you could lose so much money in a market that was quite hot? It says they paid too much, but how could you lose that much with any sane strategy?
aurizon 5y ago
Zillow walks on thin ice - a cracking sound is heard, they look down - an Oh Shit moment occurs. What now? tread with care, head for the shore, slide feet hope... All over the USA/Canada - ROW? people will hold their breath, then a few places raise interest rates - how many people are there on this(Larsen?) ice shelf. Will we get a crackling downwards cascade???? May you live in interesting time....
calltrak 5y ago
Don't worry black rock ( look them up on yahoo finance) with 20 trillion dollars stolen from the american people via the privately owned federal reserve will buy up all the houses in America.
- missedthecue 5y ago
  BlackRock manages the assets of pensions and 401ks. They are literally in the business of making returns for the middle class.
  - Factorium 5y ago
    The Fed hired Blackrock to manage the QE program. They are basically in charge of printing US dollars and buying their own assets. And we think crypto is bad... We should just end the Fed and replace it with a giant algorithm, with crowdsourced and transparent consumer price data. Maybe a few humans to keep the lights on, and to figure out how a 4K TV is better 'value' than a 1080p TV, etc.
    - missedthecue 5y ago
      BlackRock was hired to run the feds open market bond operations. BlackRock are experts at buying bonds off the open market which is why they were hired. BlackRock does not have control over the money supply.
enlyth 5y ago
Good riddance, I hope this company burns to the ground The software developers working for this company knowingly tried to make algorithms to flip and profit off of something that should be a human right Replacing carpets and painting walls, trying to flip for a 20% profit, the people running Z must be geniuses As a millennial looking at 2 bedroom flats selling for £575k (780k usd, not far from a million dollars) in my area, I cannot help but have tears of joy when corporations who hope to profit off of our desperate housing situation get hit by reality straight in the face Ask yourself who benefits from housing prices rising. If you lie to yourself that it's people who are trying to move up the housing ladder, remember that your flat appreciating 50% in 2 years means the house you want to move into by selling your flat also appreciates 50%, so you win nothing It's the rent seeking leeches of society that think that by buying a "portfolio" of houses, they can live out their lives without contributing society in any way Anyone arguing against this has either a dog in the race, or loose screws in the head
- emodendroket 5y ago
  Well I sold my house in Massachusetts, moved to California, and bought a new one this year and I definitely think the extreme liquidity of housing made it much easier, plus without the equity I doubt I would have been able to afford it. But yes obviously it’s not favorable for anyone who doesn’t already own. I do think there is a place for a service like this even in a less frothy market. Like a trade in for a car, there’s definitely some percentage of people willing to accept a deal that is not the top one if it means they can cash out faster and with less hassle.
- AussieWog93 5y ago
  In defense of Zillow, they weren't looking to buy a "portfolio" of houses - they bought as many as they sold, and didn't have any net negative effect on housing supply. Yes, they're profiting off of a bad situation, but they're not the cause of it. Bev from the local council's planning department, as well as Michael Caton's horrific propaganda piece, has done more damage than every flipper combined.
  - arcticfox 5y ago
chiefalchemist 5y ago
What % of the market were Zillow purchases? And what effect has it had on prices overall? I mean one comp sale can effect 5, 10, 30+ homes, yes? All therefore also overpriced, and so on.
bumblebee1 5y ago
I suppose ai should stick to crappy chat support bots and deepfakes for a while. Prepare for more colossal failures like this one. Self driving cars killing people are not painful enough but once money are lost investment will dry out.
rel2thr 5y ago
their statement a couple weeks ago made it sound like the business was fine and they were just pausing due to a labor shortage... what happened in the past 2 weeks to make this radical shift?
beckman466 5y ago
damn they got the algorithm wrong.
seaourfreed 5y ago
Ooops
emodendroket 5y ago
Alluded to in the article, but Opendoor doesn’t appear to share Zillow’s problems.
remote-dev 5y ago
Despite the ethics behind the business, I thought Zillow Offers was going to be hugely successful. My guess is a few factors go into why it might not have been successful: 1. ZO overpaid for homes, offering over asking price for most homes 2. During the pandemic, housing inventory/supply (the number of houses for sale) tanked. This hurt Zillow's primary business, which thrives on the velocity of the market 3. ZO continued to purchase homes during the pandemic, overpaying, and adding huge liabilities 4. The inevitability of increasing interest rates could (probably will) cause housing market fluctuations that leave Zillow-owned homes in the red for awhile Zillow was leveraging their primary business to make Zillow Offers work. Unfortunately, a really bad year makes it difficult to justify the huge liability.
iandanforth 5y ago
In a similar vein it's common knowledge in the used car business that Carvana overpays for vehicles. I wonder if/when they will implode or stop buying direct.
sytelus 5y ago
TLDR; According to CEO they tried to estimate current price vs price 6 months down after a flip and their estimates had been way off. When house doesn't sell at higher price, it creates inventory, monthly loss on rent value and volatility in balance sheet which is not good for a public company. So basically their algorithms had a lot of noise and scale wasn't still large enough to smooth it out for balance sheet. This is however surprising to me. During COVID, house prices have gone amok. A lot of buyers are now buying 10-20% over asking and waiving everything. Prices are going up 10% every 6 month in my area. If in this market if you can't make money buy flipping, I don't know how you can make money ever.
- bobthepanda 5y ago
  Zillow was at least a huge contributor to buyers needing to do the 10-20% over asking and waiving everything, so I wouldn't necessarily call that an indication of market health.
telotortium 5y ago
Get around paywall: https://archive.ph/dy69K https://archive.ph/dy69K
lightsurfer 5y ago
This may be how it all starts. Zillow's CEO tweeted a few months ago that house prices were completely irrational in some areas. Who would have thought it was HAL 9000?
adamqureshi 5y ago
algo vs algo with boom and BUST cycle and the net effect people get fired. AI is NOT the holy grail. AI will not have ALL the answers , humans still have value and will continue to adapt to the new world order. Innovation should not come at the cost of people. We still need to survive reproduce spend time with our family / friends and put food on the table. And have a lil fun on the way. -2cents
emails4vg 5y ago
Wondering if this is a tipping point? One thing is for sure, zillow’s competitors will get super careful. And this should bring some sanity go the market
- EastOfTruth 5y ago
  They are about 1/10th of a percent of the US market... hope that is enough
jliptzin 5y ago
I wonder who's to blame more, the person who came up with this idea, or the one tasked with executing it.
spoonjim 5y ago
How did Zillow lose money in this market?
qwertyuiop_ 5y ago
And yet the Fed keeps printing the easy money. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL
- booleandilemma 5y ago
  That graph is alarming.
whatever1 5y ago
Another machine learning success story. Why do you need on the ground agents with knowledge of the market when you can use the Big Data?
speby 5y ago
If you want to know what happened, who was involved, watch for various high-profile exists from Zillow over the next little while (and including, but not only, the higher-level layoffs that will be included in the short-term 25% workforce reduction).
WalterBright 5y ago
Every few years, people learn once again that housing prices don't always go up and the owners cannot dictate prices. Supply + demand. It's the law!
brightball 5y ago
When I saw Zillow doing this, I honestly thought it was for a different reason than pure profit on houses. I thought they wanted to take over the MLS. The reason that local realtor groups will never get displaced by a Zillow is that in almost every area, those local realtors control access to the MLS. But...if a company like Zillow could come along and get a significant number of listings in an area that weren't represented on the MLS then Zillow could start to replace the MLS in that area without fear of being cutoff by the local realtor group. To see that all they were trying to do was make money flipping houses...I'm honestly a little shocked. But, this gets me back to my belief that Redfin is the only tech company in real estate with a real chance to be disruptive.
darepublic 5y ago
Playing poker with your hand face up
KingMachiavelli 5y ago
What I really want to know is if the housing and real estate market's are so hot, why do REITs offer such terrible returns? How can hot housing areas have appreciation of >15% while REITs offer ~4% returns?
- dgemm 5y ago
  A cursory glance at what assets REITs own would help you answer that question.

589 points by swatkat 5y ago

Does anyone know where most of these homes were purchased? This kind of practice where companies buy large quantities of houses should be banned. It isn't fair for first time or second time home buyers, non-corporate buyers essentially.

MisterBastahrd 5y ago

I was getting offers from multiple online realtors to buy my house, as-is, for 38% more than I paid for it in 2019.

zwkrt 5y ago

Anyone whose main income is from other peoples rent has an incredible amount of explaining to do if they want to claim that they are anything but a useless leech.

azth 5y ago
And so are money lenders, correct?
- Thetawaves 5y ago
  Of course.
  - pbourke 5y ago
    Car rentals? Tool rentals? Camera equipment rentals? Leeches, all of them?
    - LordDragonfang 5y ago
      You're being disingenuous. All of those things you listed fulfill a temporary or geographically localized need, and are very short term. On the other hand, people often spend an entire generation in one apartment. Those categories are wholly unalike each other, and it's clear because the category of actually short term housing also exists, hotels. Likewise, long term car rentals exist, they're called leases.
      - grayhatter 5y ago
        The point I was trying to make, so I assume the person you replied to see it the same. Is that no one else really attempts to explain the context around the assertion. Everyone previous is happy to blame people who are winning the game, labeling anyone who's not losing as a cheater. No one else is willing to explain why or how they're cheating. Which, if you don't know all the rules, and exploits looks like complaining not about the exploitation, but about even playing. So a fair interpretation is that every game must be cheating. It's not disingenuous to not already know the ways people try to control others to make some money. It's disingenuous to pretend like you've already made a point you haven't.
        LordDragonfang 5y ago
        The assertion is that rent seekers are "leeches", providing no value, while extracting value for themselves. It's very hard to prove the existence of a negative. That's the context. Note that no one said "cheating", that's context you read in yourself. It's interesting that you haven't made a single attempt to provide an actual counterpoint of your own, of what value rent seekers actually provide, especially since you're complaining that no one else is explaining their position. "No one" attempts to explain, including yourself?
        grayhatter 5y ago
        > The assertion is that rent seekers are "leeches", providing no value, while extracting value for themselves. It's very hard to prove the existence of a negative. That's the context. Note that no one said "cheating", that's context you read in yourself. You wouldn't be proving a negative. The assertion is that doing so (extracting value without providing any) is bad requires that bad thing to be stated. It's bad because opportunity cost, it's bad because people have to exchange currency for goods or services, it's bad because houses being in possession of money is itself immoral. These aren't negatives that need to be proved. As for cheating, what should I call acting so that others don't get a chance to participate? > It's interesting that you haven't made a single attempt to provide an actual counterpoint of your own, of what value rent seekers actually provide, especially since you're complaining that no one else is explaining their position. "No one" attempts to explain, including yourself? I don't have an assertion I want to make. Nothing other than to point out the problematic rhetoric. As an example, pointing out that 2+2=6 is invalid, or unconvincing because if you only have 1,2 and another for 3,4 can't reach 6. Does contribute, because the assertion that 2+2=6 is bad to leave unchallenged. Just like me making an assertion that 2+2=5 which would also be wrong. I don't know enough about the housing market in CA to make an any argument I'd want to stand behind. But I'm willing to say, just owning and renting property isn't enough to call them malicious, leaches, nor shitty.
pbourke 5y ago
> Anyone whose main income is from other peoples rent has an incredible amount of explaining to do if they want to claim that they are anything but a useless leech What would you envision as the alternative to tenanted apartment complexes? Let’s say you could wave a wand and outlaw rental housing as a business. Do you think the world would be a better or worse place?
- LordDragonfang 5y ago
  Not GP, but wiping out the externalities of property being used as a capital investment vehicle instead of for its inherent utility seems like it would inarguably, in any rational market system, make housing more affordable. It's self-evident that it would be better for anyone without a vested interest in denying the housing needs of the many. If there absolutely must exist a category of housing that is rented and not owned, that's where the state can step in. Housing, like healthcare, is a commodity with perfectly inelastic demand in the aggregate. Offering such a commodity up to the "free" market is irrational in any system except one that values ability to make a profit over human rights.
  - aaronwall 5y ago
    There are a lot of cross currents there. The old people with a reverse mortgage & the taxpayer subsidizing the associated losses. People who put much of their excess savings into an appreciating home they planned to sell to fund their retirement as they moved elsewhere to somewhere cheaper, but now have a home which as a step function is worth far less. People who would be quickly underwater if the property market tanks deciding to jingle mail, leading to blighted streets for those who stayed. Local property taxes pay for schools, fire departments, police, etc. As far as the state being a perfect provider to step in ... in the US about half of healthcare spending is fraud. That the bill is passed onto someone else is a big slice of that (along with ignoring antitrust laws, local CON laws, illegal to import pharmaceuticals directly as a consumer, etc). I used to live near Chicago as a kid & recalled this https://en.wikipedia.org/wiki/Cabrini%E2%80%93Green_Homes https://en.wikipedia.org/wiki/Cabrini%E2%80%93Green_Homes "At first, the housing was integrated and many residents held jobs. This changed in the years after World War II, when the nearby factories that provided the neighborhood's economic base closed and thousands were laid off. At the same time, the cash-strapped city began withdrawing crucial services like police patrols, transit services, and routine building maintenance. ... On July 17, 1970, Chicago police patrolman Anthony N. Rizzato and Sergeant James Severin were shot and killed by gang members while patrolling community housing for an all-volunteer "Walk and Talk" project. As the officers proceeded across the Cabrini–Green baseball field, the assailants opened fire from an apartment window. The purpose of the shooting was to seal a pact between two rival gangs." Which land will the free or subsidized housing go on? Will the people spending a grand or two a month in property taxes want the elevated crime levels near their own front door?
seanmcdirmid 5y ago
Being a landlord actually involves a lot of work and risk. If it were free money, everyone would do it and it wouldn’t be free money anymore. I don’t have the nerve or free to be a landlord myself, but I’m sure I own some small parts property management companies via the index funds I own shares in.
- LordDragonfang 5y ago
  As someone who previously worked for, and is also the child of, landlords, I can attest to the fact that, yes, there is some work and some risk, but you're wildly overselling it. The reason "everybody" doesn't do it is that in order to do it, you have to already have money (even if you can do it on a loan, the terms won't be favorable unless you have significant starter capital). At that point, it's basically free money, yes, to the extent that you can pay someone to do all the actual work for you and still make a comfortable income.
  - grayhatter 5y ago
    Why is that, specifically, wrong? I'm going to reply to your other comment as well, but I'd like to drive this point/idea to a conclusion as well.
    - LordDragonfang 5y ago
      Are you asking why, in a system that its supporters claim is a meritocracy, it wrong for it to be easier for the rich to get richer than for the poor to achieve parity, given equal merit? Is that a rhetorical question, or are you about to argue in favor of the ethics of feudalism? Because bridging that ethical divide would take more than a simple hacker news comment. edit: Ah, to more directly address you point earlier, and lay it out in simple ethical terms: withholding essential goods (housing) from others is a moral wrong according to consequentialist ethics systems. Doing things with a motivation of greed (profit) is also considered a moral wrong in intent-based ethics systems. The agreed upon axiom that they contribute nothing in return means there is no moral good to outweigh the moral wrong in either system, so in combination it is a net moral wrong. This really shouldn't need to be spelled out.
dang 5y ago
Please do not post flamewar comments to HN. It's not what this site is for, and it destroys what it is for. If you'd please review https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it. We detached this subthread from https://news.ycombinator.com/item?id=29090845 https://news.ycombinator.com/item?id=29090845.

TheMagicHorsey 5y ago

So what's the consensus? If you are in the market for a home, chill out and wait for a crash?

dang 5y ago

The previous thread on this, from earlier today: Zillow seeks to sell 7k homes for $2.8B after flipping halt - https://news.ycombinator.com/item?id=29081118 https://news.ycombinator.com/item?id=29081118 - Nov 2021 (521 comments) It seems the current article adds significant new information, so we won't treat it as a follow-up (or dupe).

seanmcdirmid 5y ago

For some reason I can't reply to dang's comment, but this is Zillow basically saying they are giving up completely on flipping, whereas the article this morning said that they were pulling back and delaying buying more houses to flip (not giving up, but in trouble). So this is pretty big additional news from the context of this morning's article.

onlyrealcuzzo 5y ago
7k homes isn't going to move the national market remotely. There were rumors that Zillow was trying to test if they could manipulate small markets - and they were trying to buy a significant portion of listings in those markets. If true - in those areas - they could get completely destroyed if they list a lot of places at once. And if true - I hope they get a huge fine for trying to manipulate the housing market.
- 93po 5y ago
  As fucked up as it is, I'd be surprised if it was illegal

slownews45 5y ago

"pushing total losses on those houses to more than $550 billion." How can this even be possible? These numbers make zero sense.

sedatk 5y ago
*million, not billion.
seanmcdirmid 5y ago
Definitely a typo where an extra three zeroes were added to the $550 million loss headline.

woeirua 5y ago

This is kind of a big deal in the real estate sector. The only reason that Zillow would sell everything right now is if they believed that the carrying costs of the properties until they (eventually) sell would eat all of their profits. They must be seeing flashing red signs across the board that there's a slowdown in the market and that scenario is exactly what will play out if they don't exit quickly. There's no way that OpenDoor doesn't follow them out the door here in the next couple of months. The business model is exactly the same. Anecdotally I haven't seen any reason to think OpenDoor is doing much better around here. This coupled with the Fed tapering could cause the real estate market to cool pretty quickly. If you're buying a home right now, make sure you're moving somewhere you're willing to live for a while and that you're not going to be in financial duress if your home loses 20% of its value.

beamatronic 5y ago
Agree 100%... I'm astonished that a large corporation trying to get into this business, would "bite off more than they could chew". Don't they have MBAs and financial models to assess this sort of thing?
- dragonwriter 5y ago
  > Don't they have MBAs and financial models to assess this sort of thing? All models are wrong, some are useful. Zillows were wrong, and apparently not useful.
  - deleted 5y ago
    [deleted]
- seanmcdirmid 5y ago
  Isn't Zillow more like a post-IPO startup than a bigcorp? If so, it makes complete sense that they might "bite off more than they could chew," (e.g. Pets.com) a lot of startups end that way.
  - 5y ago

muttantt 5y ago

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a unit that Zillow bought. The algorithms are fooling themselves... Opendoor matches Zillow who matches Opendoor and that's how you get ever increasing offers. Edit: oh, and now Zillow has that unit on the market, priced 14% lower than they paid for it, after 3 price cuts so far. Edit 2: Phoenix/Scottsdale AZ market

AareyBaba 5y ago
I suspect the 'AI software' running these companies is using linear regression to predict housing prices and one of the inputs is the price of similar houses nearby.
- c141charlie 5y ago
  What could possibly go wrong with that approach? :-)
- danrocks 5y ago
  Maybe some reinforcement learning algorithm running as well, where the maximum reward is winning the bid. Hence the algorithm just goes and lays waste on other bidders. Gotta get that infinite reward!
  - mrfox321 5y ago
    I doubt RL is involved. That would be soooo risky. Bidding algorithms can model the price of winning the auction, you can maximize profit without fancy RL
- nitwit005 5y ago
  I recall in one of the previous crashes it turned out a firm had a model that couldn't handle homes going down in value. A linear model is superior to that.

d136o 5y ago

Sigh… It’s interesting that they blame the ML models, on the one hand it seems like a perfect example of ML gone wrong, on the other hand losses at this scale (hundreds of millions) don’t just signal that some data scientist’s model was not accurate enough… who’s running the ship over there? The ML model? Also I’m really curious about the geographic distribution of their inventory… let’s do some Data Science on this blow up!

nradov 5y ago
It's not really ML gone wrong, more like a misapplication of the technology. No one who understands ML ever claimed it could produce accurate forecasts of chaotic systems.
- SomewhatLikely 5y ago
  Weren't there headlines recently about a Google deep learning model producing the most accurate weather forecasts? Weather after all is the system from which chaos theory was first inspired.

bufferoverflow 5y ago

And to think, Zillow has so much data that we don't have access to. And they still failed to buy the most profitable properties.

tppiotrowski 5y ago

"The surprising exit, announced with pedestrian quarterly profits, thrashed shares in another rough trading session Tuesday, a day after an analyst said two-thirds of the homes it bought are underwater." https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS The fed chart shows almost hockey stick growth in housing prices this year. How can the Zillow properties be underwater, did they just massively overpay up-front?

edrxty 5y ago
Yes, yes they did. The vertical part of the hockey stick is EVERYWHERE. Homework: go on zillow and find the most depressing row house in urban Detroit/Cleveland/wherever with enough pricing history to have a graph. You will see that exact same line shape. Literally everything has doubled since around 2014. Completely bombed out crackhouses were a 300-500% ROI in that period. You couldn't lose money even if you set the structure on fire. The past year has eclipsed that though. Everything has gone up massively and for seemingly no reason. For comparison, since 2014 the US population has increased 4%. Also, people aren't moving from somewhere to fill up your town, go on a random city subreddit and you'll see a different local mythology to explain the prices. It's happening everywhere though. There's literally no significant area that's seeing an exodus with decreasing prices. Not California, not libruhl lockdown states, not Texas, it's happening everywhere.
- rafale 5y ago
  I wonder if Black Rock will fare better than Zillow. My understanding is that they are not planning to sell/flip, rather rent then and hold on them forever.
  - RayVR 5y ago
    BlackRock entered the market as a landlord all the way back in 2011. They are fine. Not only that, they have real investment knowledge. Zillow and OpenDoor are a bunch of amateurs that thought they could turn "data scientists" into quant traders.
- 5y ago

lancemurdock 5y ago

Everyone in big tech knows product direction comes top down with tons of product reviews along the way. There is no way you have this big of a screw up without major culture issues or more likely, leadership wanted to gamble and didn't think it would be this bad. The workforce gets the consequences for leaderships decisions

dredmorbius 5y ago

Numerous other submissions / articles: https://www.wsj.com/articles/zillow-quits-home-flipping-business-cites-inability-to-forecast-prices-11635883500 https://www.wsj.com/articles/zillow-quits-home-flipping-busi... https://finance.yahoo.com/news/zillow-shuts-down-home-flipping-200500342.html https://finance.yahoo.com/news/zillow-shuts-down-home-flippi... https://www.businessinsider.com/zillow-homebuying-unit-shutting-down-layoffs-2021-11 https://www.businessinsider.com/zillow-homebuying-unit-shutt... https://www.cnbc.com/2021/11/02/zillow-shares-plunge-after-announcing-it-will-close-home-buying-business.html https://www.cnbc.com/2021/11/02/zillow-shares-plunge-after-a... https://www.seattletimes.com/business/real-estate/zillow-to-close-its-home-flipping-division-lay-off-25-of-staff/ https://www.seattletimes.com/business/real-estate/zillow-to-...

pezzana 5y ago

> ‘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 tells investors. That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where you can't figure out how heavy the money bags that get dropped at your door will be. No, it's the bad kind of unpredictability where you can... lose money. Reading between the lines, I conclude that Zillow sees a major shakeout in real estate on the horizon. They've already been hit with losses and see a lot more where that came from. In an effort to get ahead of whatever is approaching, the company is making an abrupt exit from the home flipping business. Zillow was founded in 2006, as the last US housing market bubble was furiously inflating. It has seen a complete cycle of boom/bust. If anybody knows the US residential real estate sector, it is Zillow.

totablebanjo 5y ago
A counterpoint to your last statement is that if Zillow really knew residential real estate they wouldn’t have had such large losses this quarter. It really calls into question their pricing algorithm, but I give them credit for actually trying to get into buying and selling properties.
andromeda-brain 5y ago
I’d be more inclined to believe this if it wasn’t painfully obvious how much Z was overpaying for homes in the last half year, especially when all the other iBuyers saw the market slow down and reduced their offers accordingly. Seems much more likely that we can take them at face value and Zillow’s forecasts were just bad. Zillow hasn’t ever bought and sold homes (until now). That’s not their business.
- pezzana 5y ago
  According to Forbes, Zillow has been buying homes since 2018: > In April 2018, the company entered the fledgling on-demand home buying market (often referred to as ibuying) with a service called Zillow Offers. Prospective sellers in 11 markets (and growing) can go to the Zillow listing for their own home and ask for an offer. Within two days they’ll be sent a price derived from the Zestimate and other algorithms. Two local experts also provide input on each house, and if the seller likes the initial offer, a Zillow employee comes to inspect the property. (If a home is in poor condition the offer may be withdrawn or lowered.) https://www.forbes.com/sites/samanthasharf/2019/07/01/rich-barton-zillow/ https://www.forbes.com/sites/samanthasharf/2019/07/01/rich-b...

missedthecue 5y ago

Big ups to hedge fund short seller Jim Chanos for calling this one way back in 2019. https://twitter.com/WallStCynic/status/1192663938720292864 https://twitter.com/WallStCynic/status/1192663938720292864 Steve Eisman, the short seller who was Mark Baum in 'The Big Short' also predicted this in 2019. https://www.cnbc.com/2019/08/08/big-short-investor-steve-eisman-says-zillow-has-one-of-the-most-flawed-business-models-hes-seen.html https://www.cnbc.com/2019/08/08/big-short-investor-steve-eis...

dreyfan 5y ago
With the complete rout today of -11.5% and the additional -11.0% aftermarket on Zillow's stock, it's still up +95% from when Chanos made that comment. Calling bullshit simply isn't worth the hassle these days (e.g. see Tesla and cryptocurrency fans). Better to figure out how to identify the top and keep opinions to yourself.
- missedthecue 5y ago
  Short selling is one of those things in life where being right can make you worse off.
nojito 5y ago
Chanos has been net-long for a while now and I wouldn't be surprised if Eisman isn't too.

oceanghost 5y ago

Anecdotally: Zillow quoted a number for a house that I was selling right at the peak of all this, pending inspection. They couldn't come around and look at it though for about 6 weeks. By that time the market had turned and they said they weren't interested.

alex504 5y ago
When was the peak in your view? What market is this? Thanks
- oceanghost 5y ago
  So Cal (Riverside County), and I'd say I felt like things were starting to peak in August. This is completely subjective of course.

silisili 5y ago

I don't get Zillow's play here. They were for a long time the de facto neutral party everyone used to look at houses. Great. Then they got into doing contracts apparently, still OK. Then they started competing against people and overbidding everyone, at the height of what appears to be the biggest housing boom of my lifetime. This was not only apparently financially dangerous, but an act that puts them in a bad light, publicity wise. I cannot think of how anyone thought this was an OK idea.

sumedh 5y ago
> I cannot think of how anyone thought this was an OK idea. I guess they assumed flipping houses would have more revenue and profits.
_fat_santa 5y ago
I think Zillow saw the numbers going up in the housing market and got FOMO. It's crazy to think an institution like this would get FOMO, but I think what happened is in 2020 they saw housing prices go through the roof, thought to themselves "hey we have all of this data, we can make a quick buck here" and piled in only to now get burned.
- siruncledrew 5y ago
  It makes sense there could have been internal shareholder/executive pressure to continue expanding into other aspects of housing markets to further entrench their positions against competitors, but hedging their bets backfired in some areas, and now is the retrospective time to cut their losses and refocus on their strengths.
- notjesse 5y ago
  They started ZO back in 2018. I think the bigger concern was the amount of growth and threat Opendoor presented them. There was a vision that they will fundamentally change the sector and make Zillow an equivalent of what the White Pages is to Google. So yes it was FOMO, but not based on quickly appreciating real estate.

jklein11 5y ago

I'm a little bit confused about what their strategy was. As I understand it, house flippers usually buy houses, do some renovations to add value and then sell in under a year at a higher price. It sounds like Zillow tried to buy homes and hold them until they appreciated? Was there any data that supported that this would be successful?

yellow_postit 5y ago
They were also trying to make upgrades and expecting they could lower the costs through scale eg give painters steady work at lower rates because they were a single party with lots of inventory.

busterarm 5y ago

All of the 'Owned by Zillow' listings here in the Miami area are _really_ shabby flips. They'll basically redo the kitchen and leave the rest of the property looking like garbage and then ask for a 15% markup. Also they prioritize those listings now, with no way to filter them out, so when looking at houses I end up just scrolling past several pages to get to other listings that I actually want to see. It's amazing that this whole scheme has made their traditional user experience worse at the same time.

whymauri 5y ago
I can't imagine having Zillow's financial resources and losing money in the Miami market, of all places. Dear god that place is hot (real estate and weather!).

qbasic_forever 5y ago

That's about 2k employees in the Seattle area that will be looking for a job very soon. Who's hiring in the area? Amazon had a bad quarter too so I wonder if they're cooling off a bit on recruiting and hiring for a moment. Might be nice to have a Seattle area hiring/job opportunity thread of some sort to help folks.

fortylove 5y ago
Were these mostly SDEs? If any Zillow employee is reading this: best of luck! This must be hard to go through.

holografix 5y ago

When will governments step in to stop historic low interest rates from preventing anyone not bathing in cash from buying a home? It’s a grotesque situation in Australia with property appreciating by exorbitant amounts every month to keep up with the rate of cash printing.

nsv 5y ago
In the US at least, the fed plans to raise rates by 2023.

m0zg 5y ago

I think they might know something we don't. Such as, for example, that loan rates are about to go up a lot, which if inflation is not "transitory" (which it isn't) they will. They already did go up some. Most people can't count to save their lives, but $1M at 2.5% APR is about $4K monthly (borderline doable for quite a few folks on 2 incomes), whereas at 16% (historical peak) it's something like $13.5K (not really doable beyond the top 1%). In spite of their large loss, this could prove to be a wise divestment under that scenario. If loans get a lot more expensive (which happened during Carter and then Reagan years, see "stagflation"), the housing market will tank right away and people will be desperate to lock in at least some of the gains they thought they had, creating excess supply. Not a good environment for flipping, especially at the mid- to low end of the market. The game of musical chairs seems to be coming to an end, and Zillow has just grabbed a chair. Three legged and busted chair, but a chair nevertheless.

WisNorCan 5y ago

It would be fascinating to hear the insider perspective. What exactly went wrong at Zillow with their approach? What were they not able to solve that OpenDoor could? This assumes that OD isn't a house of cards.

samfisher83 5y ago

You had bunch a smart ass physics phds pricing sub prime mortgages as aaa debt. It's just history repeating itself.

RayVR 5y ago
Except this time it's a bunch of "data scientists" that went through bootcamps or one year masters programs and have zero understanding of the market or trading.

sys_64738 5y ago

I don't get what Zillow's business model is or how they make any money. In the market where I live houses are going for crazy prices and under contract almost as soon as they hit the market.

djanogo 5y ago

Sold my house at the peek few months back to Zillow, they then sold it about 8% loss last month. The $/sqft price Zillow paid us is THE highest for our city EVER under <1mil price, and the record still stands after 5 months. Didn't make any sense to us at the time on why Zillow (and also Opendoor) was making such a high offer, the process was very smooth AND fast. Too bad they won't be around.

deleted 5y ago
[deleted]
thomasjudge 5y ago
What market?

filmgirlcw 5y ago

A friend of mine had a really bizarre experience with Zillow’s ibuy. First, he sold right his condo through them right before the pandemic (Jan. 2020), but then, literally a week before his 90 day closing period was up, they pulled out, blaming public health orders [1] even though they would never be in his house and it was literally a matter of paperwork. They did this as a way to get out of their contracts and hedge their bets. Flash forward eight or nine months, the housing market explodes and they triple down on their iBuys. My friend sells his home again, again with Zillow (I couldn’t believe he chose them either), and they offer him more than they did in Jan. 2020 (he sold sometime in 2021). Even with the extra mortgage payments he had to make, he still ended up making some money on the deal. Clearly, these companies were in over their heads, making bad decisions on algorithms and not doing real due diligence. The fact that they had an out 18 months ago and stopped doing this, only to triple down and lose $550m in a quarter is just staggering. [1]: https://www.forbes.com/sites/brendarichardson/2020/03/28/zillow-redfin-opendoor-and-realogy-suspend-ibuyer-programs-as-coronavirus-weakens-housing-market/?sh=4358c0395856 https://www.forbes.com/sites/brendarichardson/2020/03/28/zil...

vkat 5y ago

We recently went through buying a Zillow owned house in Phoenix AZ and response and attitude from the selling agent and zillow was pathetic. They took 3 full days to send the signed contract after they told us we our offer was accepted. Couldn't get the inspection done within first 9 days(inspection contingency is 10 days) of signing the contract and only got a response when we said we were going to cancel escrow. Got the inspection complete on the 10th day and there were so many issues with the house and repairs done that we felt it was not worth the negotiation to sort it out with Zillow and decided to back out. Not sure if this is a general trend but my agent was fed up and he said he will never deal with Zillow again. This was 3 weeks ago.

fred_is_fred 5y ago
Was the agent a Zillow employee?
- vkat 5y ago
  The seller agent was a Zillow employee since the home is owned by Zillow. My agent was not a Zillow employee.
johnvanommen 5y ago
You get what you pay for. I tried using a discount broker back in the day, my experience was similar to yours.
- vkat 5y ago
  My agent was traditional and would get a standard 2.5% commission if I went through with the purchase.

paxys 5y ago

Their vast trove of data predicted (probably correctly) that flipping houses in this environment is a sound financial strategy. The trouble is they couldn't also predict the massive operational complexity that comes with it. Planning renovations, sourcing materials, finding and scheduling contractors all involve a lot more than writing clever code.

rileymat2 5y ago

Does anyone have any insight into how you could lose so much money in a market that was quite hot? It says they paid too much, but how could you lose that much with any sane strategy?

aurizon 5y ago

Zillow walks on thin ice - a cracking sound is heard, they look down - an Oh Shit moment occurs. What now? tread with care, head for the shore, slide feet hope... All over the USA/Canada - ROW? people will hold their breath, then a few places raise interest rates - how many people are there on this(Larsen?) ice shelf. Will we get a crackling downwards cascade???? May you live in interesting time....

calltrak 5y ago

Don't worry black rock ( look them up on yahoo finance) with 20 trillion dollars stolen from the american people via the privately owned federal reserve will buy up all the houses in America.

missedthecue 5y ago
BlackRock manages the assets of pensions and 401ks. They are literally in the business of making returns for the middle class.
- Factorium 5y ago
  The Fed hired Blackrock to manage the QE program. They are basically in charge of printing US dollars and buying their own assets. And we think crypto is bad... We should just end the Fed and replace it with a giant algorithm, with crowdsourced and transparent consumer price data. Maybe a few humans to keep the lights on, and to figure out how a 4K TV is better 'value' than a 1080p TV, etc.
  - missedthecue 5y ago
    BlackRock was hired to run the feds open market bond operations. BlackRock are experts at buying bonds off the open market which is why they were hired. BlackRock does not have control over the money supply.

enlyth 5y ago

Good riddance, I hope this company burns to the ground The software developers working for this company knowingly tried to make algorithms to flip and profit off of something that should be a human right Replacing carpets and painting walls, trying to flip for a 20% profit, the people running Z must be geniuses As a millennial looking at 2 bedroom flats selling for £575k (780k usd, not far from a million dollars) in my area, I cannot help but have tears of joy when corporations who hope to profit off of our desperate housing situation get hit by reality straight in the face Ask yourself who benefits from housing prices rising. If you lie to yourself that it's people who are trying to move up the housing ladder, remember that your flat appreciating 50% in 2 years means the house you want to move into by selling your flat also appreciates 50%, so you win nothing It's the rent seeking leeches of society that think that by buying a "portfolio" of houses, they can live out their lives without contributing society in any way Anyone arguing against this has either a dog in the race, or loose screws in the head

emodendroket 5y ago
Well I sold my house in Massachusetts, moved to California, and bought a new one this year and I definitely think the extreme liquidity of housing made it much easier, plus without the equity I doubt I would have been able to afford it. But yes obviously it’s not favorable for anyone who doesn’t already own. I do think there is a place for a service like this even in a less frothy market. Like a trade in for a car, there’s definitely some percentage of people willing to accept a deal that is not the top one if it means they can cash out faster and with less hassle.
AussieWog93 5y ago
In defense of Zillow, they weren't looking to buy a "portfolio" of houses - they bought as many as they sold, and didn't have any net negative effect on housing supply. Yes, they're profiting off of a bad situation, but they're not the cause of it. Bev from the local council's planning department, as well as Michael Caton's horrific propaganda piece, has done more damage than every flipper combined.
- arcticfox 5y ago

chiefalchemist 5y ago

What % of the market were Zillow purchases? And what effect has it had on prices overall? I mean one comp sale can effect 5, 10, 30+ homes, yes? All therefore also overpriced, and so on.

bumblebee1 5y ago

I suppose ai should stick to crappy chat support bots and deepfakes for a while. Prepare for more colossal failures like this one. Self driving cars killing people are not painful enough but once money are lost investment will dry out.

rel2thr 5y ago

their statement a couple weeks ago made it sound like the business was fine and they were just pausing due to a labor shortage... what happened in the past 2 weeks to make this radical shift?

beckman466 5y ago

damn they got the algorithm wrong.

seaourfreed 5y ago

Ooops

emodendroket 5y ago

Alluded to in the article, but Opendoor doesn’t appear to share Zillow’s problems.

remote-dev 5y ago

Despite the ethics behind the business, I thought Zillow Offers was going to be hugely successful. My guess is a few factors go into why it might not have been successful: 1. ZO overpaid for homes, offering over asking price for most homes 2. During the pandemic, housing inventory/supply (the number of houses for sale) tanked. This hurt Zillow's primary business, which thrives on the velocity of the market 3. ZO continued to purchase homes during the pandemic, overpaying, and adding huge liabilities 4. The inevitability of increasing interest rates could (probably will) cause housing market fluctuations that leave Zillow-owned homes in the red for awhile Zillow was leveraging their primary business to make Zillow Offers work. Unfortunately, a really bad year makes it difficult to justify the huge liability.

iandanforth 5y ago

In a similar vein it's common knowledge in the used car business that Carvana overpays for vehicles. I wonder if/when they will implode or stop buying direct.

sytelus 5y ago

TLDR; According to CEO they tried to estimate current price vs price 6 months down after a flip and their estimates had been way off. When house doesn't sell at higher price, it creates inventory, monthly loss on rent value and volatility in balance sheet which is not good for a public company. So basically their algorithms had a lot of noise and scale wasn't still large enough to smooth it out for balance sheet. This is however surprising to me. During COVID, house prices have gone amok. A lot of buyers are now buying 10-20% over asking and waiving everything. Prices are going up 10% every 6 month in my area. If in this market if you can't make money buy flipping, I don't know how you can make money ever.

bobthepanda 5y ago
Zillow was at least a huge contributor to buyers needing to do the 10-20% over asking and waiving everything, so I wouldn't necessarily call that an indication of market health.

telotortium 5y ago

Get around paywall: https://archive.ph/dy69K https://archive.ph/dy69K

lightsurfer 5y ago

This may be how it all starts. Zillow's CEO tweeted a few months ago that house prices were completely irrational in some areas. Who would have thought it was HAL 9000?

adamqureshi 5y ago

algo vs algo with boom and BUST cycle and the net effect people get fired. AI is NOT the holy grail. AI will not have ALL the answers , humans still have value and will continue to adapt to the new world order. Innovation should not come at the cost of people. We still need to survive reproduce spend time with our family / friends and put food on the table. And have a lil fun on the way. -2cents

emails4vg 5y ago

Wondering if this is a tipping point? One thing is for sure, zillow’s competitors will get super careful. And this should bring some sanity go the market

EastOfTruth 5y ago
They are about 1/10th of a percent of the US market... hope that is enough

jliptzin 5y ago

I wonder who's to blame more, the person who came up with this idea, or the one tasked with executing it.

spoonjim 5y ago

How did Zillow lose money in this market?

qwertyuiop_ 5y ago

And yet the Fed keeps printing the easy money. https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL

booleandilemma 5y ago
That graph is alarming.

whatever1 5y ago

Another machine learning success story. Why do you need on the ground agents with knowledge of the market when you can use the Big Data?

speby 5y ago

If you want to know what happened, who was involved, watch for various high-profile exists from Zillow over the next little while (and including, but not only, the higher-level layoffs that will be included in the short-term 25% workforce reduction).

WalterBright 5y ago

Every few years, people learn once again that housing prices don't always go up and the owners cannot dictate prices. Supply + demand. It's the law!

brightball 5y ago

When I saw Zillow doing this, I honestly thought it was for a different reason than pure profit on houses. I thought they wanted to take over the MLS. The reason that local realtor groups will never get displaced by a Zillow is that in almost every area, those local realtors control access to the MLS. But...if a company like Zillow could come along and get a significant number of listings in an area that weren't represented on the MLS then Zillow could start to replace the MLS in that area without fear of being cutoff by the local realtor group. To see that all they were trying to do was make money flipping houses...I'm honestly a little shocked. But, this gets me back to my belief that Redfin is the only tech company in real estate with a real chance to be disruptive.

darepublic 5y ago

Playing poker with your hand face up

KingMachiavelli 5y ago

What I really want to know is if the housing and real estate market's are so hot, why do REITs offer such terrible returns? How can hot housing areas have appreciation of >15% while REITs offer ~4% returns?

dgemm 5y ago
A cursory glance at what assets REITs own would help you answer that question.