When iBuyers Are Forced To Become
Large Scale Sellers
Hello friends,
Coming off an 8-8 season the Arizona Cardinals entered 2018 seeking a quarterback to lead the franchise. With the 10th overall selection in that year's NFL draft they chose Josh Rosen from UCLA as the man for the job. That following season the Cardinals underperformed, finishing 3-10 with Rosen at the helm. Arizona's front office was faced with a dilemma: double down on possible faulty data from the year previous OR terminate the experiment and pivot to a new direction.
This past week Zillow acknowledged exactly how expensive incorrect data can be to an organization.
"Stay in your lane" - LaVar Ball
Growth At Any Cost
The Seattle based real estate conglomerate began its iBuyer program in 2018 with the launch of Zillow Offers. Traditionally a home seller lists their property with a real estate agent who then works to procure a buyer. iBuyers look to speed up this process by providing customers a quick sale opportunity in which the platform buys the property, typically does some light rehab prior to then listing for sale.
When executed properly this can be a benefit to all parties, as not all owners have the means to complete needed repairs or the time to wait out a standard closing, By relying on their vast amounts of data Zillow hoped their pricing algorithm would be accurate enough to allow for satisfactory bids on the buy side while leaving enough cushion to the upside when it came time to sell.
Home Buying on Steroids
Over the next three years Zillow bought tens of thousands of homes throughout the country, with a majority of transactions occurring in large metros such as Houston, Dallas and Phoenix. However despite a rising real estate market nationwide, many homes Zillow bought were eventually relisted at prices below what they paid. The pricing algorithm too often was offering sellers too good of a deal!
To compound matters a backlog of rehab projects began to accumulate. For anyone that's tried to hire a contractor recently you know how frustrating their schedules can be. Now multiply that by 10,000 and spread it across multiple cities. That is where Zillow found themselves.
iSeller
It was announced Zillow Offers would be pausing further acquisitions as of October, and this week the company decided to axe the division all together. 2,000 jobs will be eliminated, billions of dollars of share holder value is gone and 7,000 homes remain on their books. It's reported the company seeks an institutional buyer who they can off load to for $2.8 billion, a steep discount to what they were purchased for.
The Arizona Cardinals acknowledged they had errored. In a shocking move they traded away the quarterback drafted just one season previous and turned to Kyler Murray, another draft pick. Today they sit atop the NFL standings and are widely applauded for their willingness to end a failed experiment. Time will tell what Zillow's Kyler Murray will be.
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Steven Luttman
Broker/Owner SJLincoln Realty
35 Bath Street, Ballston Spa NY 12020
(518) 309-8584