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> Zillow gave homeowners a free put option: Whenever Zillow's offer was above market, the homeowner would take it; otherwise the homeowner could freely ignore i

> Zillow gave homeowners a free put option: Whenever Zillow's offer was above market, the homeowner would take it; otherwise the homeowner could freely ignore it. Sorry for the possibly dumb question, but doesn’t this just describe buying things in any financial market? Your offer will only be accepted in cases where nobody else is willing to pay more.

DwnVoteHoneyPot 5y ago
Yeah, it’s not correct to call it a put option. A put option has a time component where you are guaranteed a contract price while the market price fluctuates. Zillow is an example just bad bidding (due to bad valuation model)
dragonwriter 5y ago
> Sorry for the possibly dumb question, but doesn’t this just describe buying things in any financial market? Your offer will only be accepted in cases where nobody else is willing to pay more. This isn't a financial (securities and derivatives) market, nor is that behavior specific to financial markets. OTOH, in financial markets, you are dealing with masses of interchangeable items (e.g., every share of IBM is the same); whereas with real estate every individual item is different. In financial markets, you typically have (some) other participants order data for the same asset as a pricing signal. It's a lot easier, when you are willing to give an offer on any item in the market, to be way off in real estate than financial markets without knowing it till you try to flip the assset.
88913527 5y ago
In a financial market (e.g: stocks) 1 share owned an individual investor is just as good as 1 share owned by an institutional investor: they have identical representation. The financialization of housing glosses over the fact the some houses will have foundational issues, need new roofs in a year, etc but you can't see that when you treat all houses as if they were shares, which seems like Zillow did, or by the nature of the asset class, sellers with low-quality product dumped for high prices. Maybe Zillow went wrong because they deployed too much capital too quickly. With the opportunity to be selective, they could have found homes with 'good bones' that were under-priced. But if the executives mandated X billions of purchases in Y months, you move downstream to progressively less good deals, due to your own insatiable demand, when housing stock is already extremely low. That's not the AI/ML team's fault. That's you simply taking what you can get.
bradleyjg 5y ago
In a commodity market (all goods are fungible) pricing is easy to come by. For idiosyncratic goods it’s harder to get someone to make you an offer. The traditional way of doing price discovery in those cases was an auction. Zillow was willing to give a price upfront with no commitment, even in the sense of face time with a charismatic salesperson. That’s valuable for the seller and dangerous for the buyer.

DwnVoteHoneyPot 5y ago

Yeah, it’s not correct to call it a put option. A put option has a time component where you are guaranteed a contract price while the market price fluctuates. Zillow is an example just bad bidding (due to bad valuation model)

dragonwriter 5y ago

> Sorry for the possibly dumb question, but doesn’t this just describe buying things in any financial market? Your offer will only be accepted in cases where nobody else is willing to pay more. This isn't a financial (securities and derivatives) market, nor is that behavior specific to financial markets. OTOH, in financial markets, you are dealing with masses of interchangeable items (e.g., every share of IBM is the same); whereas with real estate every individual item is different. In financial markets, you typically have (some) other participants order data for the same asset as a pricing signal. It's a lot easier, when you are willing to give an offer on any item in the market, to be way off in real estate than financial markets without knowing it till you try to flip the assset.

88913527 5y ago

In a financial market (e.g: stocks) 1 share owned an individual investor is just as good as 1 share owned by an institutional investor: they have identical representation. The financialization of housing glosses over the fact the some houses will have foundational issues, need new roofs in a year, etc but you can't see that when you treat all houses as if they were shares, which seems like Zillow did, or by the nature of the asset class, sellers with low-quality product dumped for high prices. Maybe Zillow went wrong because they deployed too much capital too quickly. With the opportunity to be selective, they could have found homes with 'good bones' that were under-priced. But if the executives mandated X billions of purchases in Y months, you move downstream to progressively less good deals, due to your own insatiable demand, when housing stock is already extremely low. That's not the AI/ML team's fault. That's you simply taking what you can get.

bradleyjg 5y ago

In a commodity market (all goods are fungible) pricing is easy to come by. For idiosyncratic goods it’s harder to get someone to make you an offer. The traditional way of doing price discovery in those cases was an auction. Zillow was willing to give a price upfront with no commitment, even in the sense of face time with a charismatic salesperson. That’s valuable for the seller and dangerous for the buyer.