Zillow recently announced its exit from the iBuying market, deciding to shut down its Zillow Offers division. This move includes a significant layoff of about 25% of its workforce and a financial setback of $540 million. Rich Barton, Zillow’s CEO, explained the decision was due to the unpredictability of forecasting home prices, which introduced too much volatility in earnings and balance sheet.
This shift underscores a long-held skepticism I’ve had about Zillow’s reliability, especially after noticing wild fluctuations in the estimated values of my own properties over the years. For example, the Zestimate for my former primary residence once jumped by 35% in just one year, resulting in the denial of my appeal for a lower property tax assessment.
Despite the potential of technology to reduce transaction costs across various industries, Zillow has done little to decrease the costs associated with real estate transactions. Real estate commissions remain high, typically around 5%-6%, which seems disproportionate given today’s digital brokerage environment where such fees have been significantly compressed.
Zillow’s revenue model, heavily reliant on fees paid by real estate agents for leads, likely prevents it from disrupting commission structures, as doing so would alienate its main source of business income from the National Association of Realtors.
However, the persistence of high commission rates has encouraged homeowners to hold onto their properties longer, thus increasing average homeownership tenure and allowing equity to build through rising home values. Had the cost to sell been lower, I might have sold my property back in 2012, despite eventually benefitting from not doing so due to the ensuing real estate bull market.
Zillow’s missteps with its iBuying strategy also provide a cautionary tale against selling to iBuyers. These firms typically offer to buy homes at below-market rates for the convenience of a quick, all-cash transaction, charging service fees as high as 7.5%. With Zillow now exiting the market, potential sellers should consider traditional selling methods or waiting out market fluctuations, as Zillow’s error has shown they sometimes purchase at above-market prices only to sell later at a loss.
For those interested in capitalizing on Zillow’s retreat, it’s worth checking out the properties Zillow is looking to offload at potentially reduced prices. Zillow owns properties across various metro areas in states like Arizona, California, and Texas, among others. Particularly, cities like Miami, Orlando, and parts of California present opportunities for finding real estate bargains due to Zillow’s need to liquidate assets.
Investing in real estate remains a viable path to financial freedom despite these corporate missteps. Real estate provides a tangible asset that is generally less volatile than stocks, offers practical utility, and can deliver a steady income stream, especially through avenues like real estate crowdfunding platforms which allow for diversified investments across various property types and locations.
Ultimately, Zillow’s recent challenges highlight the complexities of the real estate market and the importance of strategic investment decisions, whether in buying property directly or choosing the right platforms and markets for investment.
