zillow flop

Zillow’s home-flipping flop

Zillow’s stock is down 75% from it’s all-time high back in February of this year…

The company announced last week that it’s pulling the plug on its tech-powered flipping operation after they realized the algorithm had massively overpriced price of the homes.

Now they have reached an agreement to sell about 2,000 properties to Pretium Patners LLC with plans to unload another 18,000 home in coming months, sky rocketing losses to near $569 million.

Zillow plans to cut staff by 25%.

Zillow Offers turns into a bust

It took several years for the company to realize it’s endeavor “Zillow Offers,” launched in 2018, which made all-cash deals for houses and then fixed them up to sell, wasn’t working…

Its fellow competitors in the “iBuying” business — including Opendoor, Offerpad and Redfin — brought speed and efficiency to a slow and capricious housing market and now that market is now one competitor down. Compared to Opendoor, Zillow overvalued it’s purchase without doing much enough diligence.

Housing is a highly idiosyncratic market. In a relatively new development, there can still be a lot of variation. An algorithm can’t tell you which houses have ugly views or noisy neighbors. The seller, however, will know.

This led to Zillow’s margin target landing at about 2–5% compared to Opendoor’s 10% on each deal and when the actual value of these houses didn’t quite match its “Zestimate, ” the company had no choice but to shut down Zillow Offers and take a loss.

Zillow stock crash

Zillow sent its algorithm to take on the housing market. The housing market won.

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