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The big difference here is that the counterparty is deciding which orders get filled. Zillow could be right 99% of the time, but that 1% of the time where they

by treis 5y ago

The big difference here is that the counterparty is deciding which orders get filled. Zillow could be right 99% of the time, but that 1% of the time where they're overpaying are the transactions that for sure will go through. And indeed if you go to /r/realestate anecdotally that is what happened. People would get offers from Zillow/Opendoor etc and talk to agents to see what they would list it at. If Zillow was higher than what the agents said they went with Zillow. If not they'd list it and sell it the old fashion way.

lordnacho 5y ago
Yeah, it's remarkable. You'd think that "I'll buy your house immediately" should be at a worse price than the guy who insists on the old school inspection and due diligence. In fact it might not be a bad strategy to simply start with that... see if there's desperate people needing the money fast, and use your corporate heft to both sweep up the deal (brand) and patiently dump it back into the ordinary market, pocketing the spread as a liquidity premium. One thing I remember my first boss saying is that it's hard to get a good trade on. Attractive deals have several interested parties. If you're getting a lot of trades, they might not be good ones.
- treis 5y ago
  Zillow's ambitions were bigger than that. They wanted to get enough inventory so that they could capture the 6% of the transaction going to agents. Plus a chunk of the miscellaneous fees that go to Mortgage brokers, inspectors, appraisers, and so on. For that they needed volume and the way to get volume in real estate is pay more than other people. I find it hard to believe that everyone there didn't realize that they were burning money. I saw it personally when looking to buy a house a couple years ago. There were a couple Zillow flips out there where the numbers obviously didn't add up. Whether or not they truly believed that it would work eventually or if it was just a way towards higher compensation/promotions/stock price or whatever is anyone's guess. But I suspect pretty much everyone involved from the person banging out ML models up to the CEO knew what was going on.
  - lordnacho 5y ago
    One thing I thought about is alternative scenarios. If the house market had rocketed up for whatever reason, Zillow could have made a pile of cash without having a sensible strategy. Then the articles would be talking about what geniuses they were and ML trampling traditional real estate. They would double down and when the market calmed, all the same issues would reappear. Perhaps that's actually what happened, because the house market has been buoyant recently, and they seem to have had the iBuyer business for a few years?
  - htrp 5y ago
    Startup mentality right? Lose money on each unit and make it up on traction.....

by treis 5y ago

lordnacho 5y ago

Yeah, it's remarkable. You'd think that "I'll buy your house immediately" should be at a worse price than the guy who insists on the old school inspection and due diligence. In fact it might not be a bad strategy to simply start with that... see if there's desperate people needing the money fast, and use your corporate heft to both sweep up the deal (brand) and patiently dump it back into the ordinary market, pocketing the spread as a liquidity premium. One thing I remember my first boss saying is that it's hard to get a good trade on. Attractive deals have several interested parties. If you're getting a lot of trades, they might not be good ones.

treis 5y ago
Zillow's ambitions were bigger than that. They wanted to get enough inventory so that they could capture the 6% of the transaction going to agents. Plus a chunk of the miscellaneous fees that go to Mortgage brokers, inspectors, appraisers, and so on. For that they needed volume and the way to get volume in real estate is pay more than other people. I find it hard to believe that everyone there didn't realize that they were burning money. I saw it personally when looking to buy a house a couple years ago. There were a couple Zillow flips out there where the numbers obviously didn't add up. Whether or not they truly believed that it would work eventually or if it was just a way towards higher compensation/promotions/stock price or whatever is anyone's guess. But I suspect pretty much everyone involved from the person banging out ML models up to the CEO knew what was going on.
- lordnacho 5y ago
  One thing I thought about is alternative scenarios. If the house market had rocketed up for whatever reason, Zillow could have made a pile of cash without having a sensible strategy. Then the articles would be talking about what geniuses they were and ML trampling traditional real estate. They would double down and when the market calmed, all the same issues would reappear. Perhaps that's actually what happened, because the house market has been buoyant recently, and they seem to have had the iBuyer business for a few years?
- htrp 5y ago
  Startup mentality right? Lose money on each unit and make it up on traction.....