On October 18th, Zillow announced that it will not be signing any new contracts through its iBuying division Zillow Offers in 2021. According to Zillow COO Jeremy Wacksman: “ … we now have an operational backlog for renovations and closings. Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.”
Now, if you’re been even remotely interested in real estate in the last few years, this announcement may have come as a shock. Some version of - What happened to Zillow Offers? – is likely going through your mind.
The shutting down of Zillow Offers comes on the heels of poor performance in the two weeks prior to the announcement. According to a Business Insider report, approximately 64% of the nearly 1,000 homes that Zillow bought and recently listed were now being listed for lower than the company paid for them.
By the end of the third quarter, Zillow stocks fell by almost 20%, which was the lowest price-per-share in the previous 12 months of trading. And as a consequence of shutting down Zillow Offers, Zillow will lay off approximately 25% of its staff. But how did it get to this point?
It started in 2018 when Zillow entered the iBuying market and bet big on utilizing its AI to estimate home value and future prices. iBuyers are deep-pocket online buyers that utilize various technologies to quickly identify homes worth flipping and buying directly before performing some light remodeling, repairs, and renovations, and then flipping the houses for a profit.
Zillow’s algorithm Zestimate compiled various data sets like county tax records and information from listing services to estimate the value of a home. An upgraded version of the algorithm from 2019 incorporated image-recognition technology that was supposed to emulate how the human brain works.
According to Zillow’s announcement from June 27, 2019: “The new Zestimate uses neural networks and computer vision to distinguish between high and low-end finishes and to incorporate the value of features like updated bathroom fixtures, fireplaces, and remodeled kitchens.”
And in the words of Stan Humphries, creator of the Zestimate and Zillow’s Chief Analytics Officer: “It's a big leap forward, because it means the Zestimate can now understand not just a home's facts and figures, but its quality and curb appeal.”
iBuying was and is a relatively new concept and the largest iBuyers – RedfinNow, Opendoor, Offerpad, and Zillow Offers, accounted for 1% of all home purchases in the second quarter of 2021, according to Zillow research.
However, algorithm-guided deep-pocket buyers caused concern with many realtors and regular buyers. There were reports that in many instances Zillow paid for houses higher than the asking price and they were buying homes in bulk. Consequently, they were accused of market manipulation.
Social media backlash followed, in part spurred by a popular TikTok video by Nevada-based real estate agent Sean Gotcher. Although Gotcher didn’t name Zillow specifically, he accused a nameless company of harvesting the data of its visitors that come to their website to peruse homes.
This unnamed company would then buy properties in bulk in the most-searched neighborhoods and overpay for some properties to artificially increase the prices. Zillow denied these claims and real-estate experts have stated that they don’t control a large enough portion of the market for this strategy to work.
Ultimately, regardless of whether Zillow attempted to manipulate the market or not, their algorithm-driven flipping strategy did not work. Zillow Offers will no longer be buying houses in 2021. According to Zillow CEO Rich Barton, it was due to “price forecasting volatility”.
But how will this affect regular buyers in the future? Zillow is a big enough company that it can shoulder the losses. It may not be buying houses now or in the near future, but that is no guarantee that with a few upgrades to their algorithm they won’t be entertaining the idea again.
And even if Zillow doesn’t continue with Zillow Offers, other iBuyers will likely be a factor to consider in the real estate market. So, for the short term, buying a home won’t be any more difficult than it already is, but that doesn’t mean regular buyers won’t have to contend with tech-driven corporations in the future.
Can you avoid iBuyers when selling a house? Yes, you can contact a company that is run by regular people that will not try to manipulate the market. SleeveUp Homes will buy your house for cash in the state it’s in.
Selling a house should not be algorithm-driven. It is a deeply individual matter and requires a personal touch. If your request a cash offer from us, we will send someone to take a look at your house and guide you through the selling process.