Home prices increased nearly 15% from April 2020 through the end of the year, and another 18% in 2021. Collectively, home prices appreciated 40% between April 2020 and April 2022. 2021 actually had the highest level of existing home sales since 2006, the height of the previous homebuying boom.

As a result, the number of people working in the real estate industry exploded. For some context, loan processor employment increased 23% from Q3 2020 to Q3 2021 as companies scrambled to meet the growing mortgage demand.

However, 2022 has not been as friendly to the real estate industry. Rapidly rising home prices, coupled with high mortgage interest rates, greatly reduced homebuying and mortgage demand. After a 15-year high for home sales in 2021, existing home sales fell 23.8% from September 2021 to 2022.

Mortgage applications were also way down from a year prior, falling 42% from October 2021 to October 2022 to a 25-year low. During the same period, refinance applications were down a whopping 86%.

“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” Joel Kan, Vice President and Deputy Chief Economist at the Mortgage Bankers Association, said in a statement.

Widespread Industry Layoffs

After a recent jobs boom, the number of loan originators or loan processors has been down 10% since the beginning of 2022. According to reporting from NBC News, there are about 1.6 million realtors, but that number could decline by 25% come 2025 or 2026 due to decreasing homebuying demand.

Many major real estate firms will have reduced their workforce in 2022. In July, RE/MAX announced that 17% of its staff, or 120 employees, would be let go by the end of the year. Wells Fargo began reducing their mortgage staff in April and expects more layoffs shortly as mortgage originations at the firm are down an astonishing 90% from a year prior.

In October, Zillow laid off 300 employees, while Realtor.com laid off an undisclosed number of employees in September. Compass, a large real estate brokerage, also announced that they were going through with a round of layoffs in September.

Layoffs from many prominent real estate brokerages and mortgage firms reflect a tightening housing market with declining demand. Unaffordable home prices, high-interest rates, and low housing inventory will keep homebuying and mortgage demand down. As a result, economists predict home prices will decline substantially in 2023. For example, Moody’s Analytics predicts that home prices will fall 10% next year.

The post Large Real Estate Firms Reduce Workforce as Homebuying Demand Cools appeared first on CitySignal.

Earnings Call Results

At first, the results for Q1 seemed pleasantly surprising. After all, revenue was $4.26 billion, meaning a profit of $16 million – up from $1.22 billion a year ago. Analysts expected earnings of around 24 cents a share with revenue estimated at $3.36 billion. Earnings per share were reported as 49 cents a share, up from 44 cents last year. The IMT segment (internet, media, and technology) reported a 10% increase in revenue of $490 million for Q1. The mortgage segment reported a revenue of $46 million.

The Q1 results overall were terrific, really – except for one huge, glaring problem. The estimated outlook for Q2 – and beyond, is bleak – the numbers the company predicted are far below what analysts and investors hoped. Zillow says it’s stronger than ever, now being able to withstand the uncertainty, volatility and rising-interest-rate environment of today’s market. Investors aren’t so sure Zillow should be this confident, which is reflected in the near-10% loss in stock prices after the earnings call, after the bell on Wall Street Thursday night.

The Rest of the Call

Barton began by segueing into the current state of the market, saying, “I’d like to spend a little time talking about the housing market, given it’s on everyone’s mind.” After some random comments about experts and analysts having variable opinions and predictions, he said, “The common thread across these forecasts is uncertainty, for the [2022] housing market. We continue to see low inventory levels down 23% year-over-year in March. New for-sale listings were less strained in March, up 36% from February levels, but still down 9% year-over-year.” Contradictorily, buyer demand still remains high, according to Barton, a big reason for uncertainty.

After that, the CEO brought up their failed iBuying venture, Zillow Offers. “With the rapid and successful wind-down of the excess inventory, Zillow has become a company with a nimble balance sheet, a large cash position, and a core business that produces strong positive cash flow,” Barton declared. Of the original approximately 20K homes needing to be offloaded, he reported only about 100 remain. He also spoke about how they’d reduced debt in that segment, which will be debt-free by the end of Q2, completing the Offers wind-down. Incidentally, the company is also authorizing an additional $1 billion in share buy-backs, after already buying back $2 billion in shares, for Q1.

Zillow Targets for Q2 and Beyond

Some of the target areas for Q2 the company identified were developing and integrating services for their “super app,” intended for both home buyers and home sellers. The company is devoted to enabling and empowering people with the tools they need to buy or sell a house – from start to finish. Since Zillow has identified ‘touring’ (showing) homes as the key selling point in the average buyer’s engagement with the site, it plans to improve and integrate services from other areas of the business to create the all-in-one “super app” they have in mind. They have set a lofty goal for 2025’s revenue of $5 billion and a 45% EBITDA margin.

Introducing ‘StreetScape’ for New Yorkers and 3-D Home Tours from Zillow

It’s no secret Zillow still wants to maintain its lead position in the real estate market, and why not? After all, they could disrupt the real estate industry, permanently changing the landscape and setting the bar much higher – perhaps by coming up with some new feature no one else has-? This brings us to StreetEasy, owned by Zillow Group Inc., and AR – augmented reality. If there’s one thing that would change the game significantly at this crucial time, it just might be the new feature Barton talked about. Introducing: StreetScape, exclusively for New Yorkers.

Zillow has newly introduced another cool virtual reality feature with their 3-D home tours, for home shoppers who want an experience both immersive and interactive, with a virtual tour that’s extremely lifelike and accurate. With StreetScape, augmented reality allows apartment hunters or home shoppers on the StreetEasy app to easily point their phone’s camera at any building they’re curious about. A floating map will appear, with floating icons you can click on that will give you all the information about any residential building in view, including whether there are any units available within it, plus building amenities and information on available units, virtual tours, and more.

However, Zillow has claimed that they still believe in the real estate agent and their presence in the transaction. But with their “super app” and essentially virtually on-demand apartment tours with StreetScape, it seems they may be shifting to a position that will box out the agent or make them less necessary in a real estate transaction. This comes at a tough time with agent commission structure under scrutiny with the latest NAR lawsuits.

Final Observation

We’ve certainly seen what can happen when real estate disruptors like Zillow become too confident and try to take over an entire market they know nothing about. Rich Barton may just take Zillow to new heights after all, and make the most dramatic comeback we’ve seen in decades.

The post Zillow Earnings Strong, Q2 Predictions Seem Volatile appeared first on CitySignal.

As a real estate agent, you can’t list anywhere other than StreetEasy before listing with them. If you do, you have to list with them within 24 hours, or you “will lose professional access,” which is exactly what happened to Phillip Salem, a Compass agent who had a client that wanted to list privately. Instead of posting on StreetEasy, he put it on his firm’s ‘Coming Soon’ platform. But somehow (perhaps a data-crawling robot?), StreetEasy found out. In retaliation, they suspended him from the platform for two weeks.

This time, real estate agents spoke out against the popular listing platform, and as a result, the company changed its policy to banning listings, instead of agents. 

StreetEasy’s terms on inclusivity is non-negotiable, and agents who violate it, moving forward, will get their listings banned. And although StreetEasy did change their policy to appease their clients – who are the real estate agents – the damage to their reputation may have already been done. Though StreetEasy currently has the dominant position in the local market, it has managed to get the ire up of the agents who use it. They’re not happy with the platform, and they have concerns. Additionally, it’s a commonly held opinion among agents, according to TRD interviews, that StreetEasy is known for trying to squeeze a dollar out of anything.

It’s All About the Money 

“Agents will tell you that they just despise StreetEasy because they feel like they don’t have a choice, and StreetEasy will monetize everything and anything,” said Bess Freedman, CEO of Brown Harris Stevens in a memo back in 2020, and called their “strong-arm tactics reprehensible.” And she wasn’t the only one. Jamie Safier, a top agent with Douglas Ellman, had this to say, “StreetEasy is simply looking for another advertising edge compared to the other search engines where they can capitalize and make more money.” Donna Olshan, President of Olshan Realty, said, “They are seeking to make StreetEasy as powerful as possible.” 

Leave it to Zillow to be preoccupied over maintaining their lead position and making the most money with one of their subsidiaries. (Haven’t we seen this episode before?!) Let’s just hope they don’t lose their heads again. Abject failure wasn’t a good look for them. 

Curbed also sheds even more light on the history of the troubled relationship between StreetEasy and realtors. It really does seem like a repeat of past mistakes for the Zillow-owned company. They started to monetize the site in 2017, after gaining popularity first (of course). They started out charging $3 a day for listings, and today it’s doubled to $6 a day. But here’s where it gets really interesting. 

The company also came out with two controversial services. The first one was called “Premier Agents”, and it allows agents to purchase advertising on other agents’ listings – an irritant, to say the least. Then, they came out with “Agents Spotlight” – a service costing $333 – to block other agents from advertising on your listings. What a joke. 

Whoa, there, StreetEasy – better slow your roll; your true colors are showing. Sounds an awful lot like StreetEasy is in pursuit of Easy Street. But what about other listing sites such as Redfin, RealtyHop and Realtor.com? On the surface, they seem to be every bit as good as StreetEasy and they’re not owned by Zillow. Will they use this moment to dive in and pick up where StreetEasy has failed? Redfin has recently announced they are accepting rentals and RealtyHop has undergone major site design and upgrades. Seems like they may be gearing up for the big fight. StreetEasy might find out the hard way what happens when you don’t make your clients happy.

The post Zillow’s StreetEasy Bans Listings Not Agents appeared first on CitySignal.

The lawsuit recently reported by the Seattle Times is what’s called a stockholder derivative complaint. It is a method that allows a shareholder to sue on behalf of whose company they hold stock in. In this case, the shareholder is Leah Rosenfield. Attorneys alleged Zillow’s board of directors “utterly failed to implement and maintain adequate internal controls and corporate governance practices critical to the Company’s success in pivoting from operating as a pure digital platform to competing in the highly competitive iBuying space.” 

In other words, they could not fix their algorithm for determining home price fluctuations in an accurate manner. But this has become common knowledge, with the company admitting this was the problem in a shareholder earnings call last year when they closed their iBuying startup, Zillow Offers. But since Zillow held such promise for investors, all the way up until they announced the closure, it left investors with a terrible taste in their mouths. The lawsuit asks that any monetary award go back into Zillow, to fix its internal problems. 

And honestly, no one could accurately predict the crazy housing market numbers we’ve seen over the past year in particular. But other, more experienced iBuyers like Opendoor were able to stay afloat quite adeptly, making Zillow’s burn even harder to swallow. However, the company marches on. 

The post Zillow Still Battling Court Cases in iBuying Failure appeared first on CitySignal.

Strong Start for 2022

However, in contrast, the second article read, “Zillow Loses $880 Million in Failed Home-Flipping Business” – yet both pieces reported on the very same earnings call from last week.

How is that possible?

Each author came from a very different perspective, is all. How different of a picture is painted from each point of view!

Even striving for objectivity from a neutral approach, both articles contain factual information. This is, in effect, a perfect illustration of the old adage; “is the cup half full, or half-empty?”

I don’t know about you, but I’ve always been a “half full” kinda gal. Still, bearing all this in mind, yes, Zillow reported a massive loss of $880 mil during last week’s earnings call, relative to their brief segue into the iBuying industry with what was called ‘Zillow Offers.’ But considering what the company has already endured – including intense public scrutiny and complete, utter failure – I’ve decided to cut them some slack for a change. After all, everyone makes mistakes. Besides, the much bigger news is actually how well they’re doing, proving that they do indeed have an incredibly resilient foundation.

Zillow’s Zestimate

Ever since the first article, I can’t help myself with humorous “Zillow Zestimate” puns. In any case, Zillow posted revenue of $3.9 billion for their 4th quarter, up a staggering 392% from last year. Additionally, the number was well above Wall Street’s $3 billion prediction. For the entire year, revenue totaled $6 billion, a 250% increase over last year. Rich Barton, Zillow’s founder and CEO, told shareholders the wind-down of their momentary lapse of reason was progressing more smoothly and quickly than anticipated. However, there are still approximately 8,500 houses on their books, seemingly indicative of a previously understated number.

The CEO went on to throw out a couple of irresistible tidbits to investors, first talking confidently about their “rock-solid financial foundation,” then casually mentioning their “major untapped business potential.” Furthermore, last year, the company zestimated nearly one-quarter of the entire population of serious homebuyers in the United States made contact with Zillow at some point in their search. This was contrasted with just 3% of those interactions resulting in revenue. At the end of the report, investors felt reassurance desperately needed.

The news was received favorably, and coming full circle back to the original headlines of that first article, Zillow’s stock indeed soared – and has kept on soaring. Right after the call, stock prices shot up 19%, to $48.79 a share. As this article is being written, shares have increased to $63.15 and climbing – fast. In light of all these “the-cup-is-half-full” considerations, I may just have to change my Zestimation of Zillow’s future. (You did have fair warning!)

(Featured image courtesy of Zillow)

The post Zillow’s Back in Black appeared first on CitySignal.

Wait, What – ?!?

Billionaire Rich Barton, co-founder and returning CEO, had to admit to his first failure, at least publicly. After their epic announcement and humble letter to shareholders, who incidentally were shocked, Zillow Offers began their wind down process last week. Doing so made headlines with the sale of 2,000 homes across 20 U.S. markets to Pretium Partners. We had heard an estimate of over 7,000 homes Zillow Offers needed to sell post-announcement, but as it turns out the company, a subsidiary of Zillow Group, now reports 9,800 homes in need of new owners and 8,200 homes still in escrow under contract. Now, call me crazy, but I get a total of 18,000 homes. Just one of the “discrepancies” since revealed, but alas – that tidbit is old news.

Who is Pretium Partners?

The next natural question is, who is this Pretium company? The answer to this whole convoluted mess may surprise you. Pretium Partners is a New York based private equity firm founded in 2012, that now advertises managing $30 billion in assets, with a focus in real estate, mortgage finance and debt. In addition, Pretium has previously announced that not only are they the largest private landlord of single-family rental homes in the U.S., and in over 15 markets and 26,000 homes strong, already – news from 2018 – but that they were planning to start purchasing their own (upscale) homes, renovating them and renting them. In the 2018 article, they had already raised over $2 billion in funds to this goal, and had already purchased 5,000 homes. Today, just 3 years later, Pretium purportedly owns 70,000 homes and reports the business has been successful. Private, upscale = high rents.

But the problem is, they aren’t the only ones. With Zillow Offers’ inventory, the failed iBuying venture has inadvertently created a new investment opportunity and resource for the most lucrative of these firms today. Evidenced by the other two companies mentioned as having preliminary discussions with Zillow regarding chunks of their leftovers – American Homes 4 Rent and Invitation Homes, Inc.

The Feds Started It

Believe it or not, back in late 2011, while our country was still suffering the effects of the housing market downturn from 2008 to an all time low in 2012, the Federal Reserve created a plan to “heal” the market, suggesting the big business of purchasing large numbers of single family homes for next to nothing and “financializing” rents, promoted by then-Chairman Ben Bernanke. This, you see, would kill two birds with one stone for the government. The GSEs – i.e. Fannie Mae, Freddie Mac, etc. – the U.S. Treasury, and the Federal Reserve schemed a plan of restructuring for these particular large transactions involving the disposal of hundreds of thousands of bank-owned homes (REO). Again, a suggestion was made by the Federal Reserve – PE firms were the ones in the kind of cash position to help, as well as benefit, from this plan. So the FHVA, incidentally the GSE controller, launched a pilot to develop structured transactions that could be utilized for offloading REO homes in bulk. This private market then followed by developing and standardizing financial tools to allow a more broad investment opportunity for the conversion of foreclosed homes into rentals – and became a prime focus for a fantastic business opportunity. Coincidentally, right when Pretium was founded.

The Final Noteworthy Fact

So the final piece of evidence here is what undoubtedly ties it all together like one giant Hefty garbage bag. Only one burning question remains: who owns Pretium Partners?  

The answer – is none other than Don Mullens, Jr. – yep, that’s right. Not the actor – the real guy. You know, the one they wrote the book and made the movie about – “The Big Short”? If you still don’t know what we’re talking about, look it/him up.

Incidentally, he’s also the same guy who made headlines earlier this year for evicting over 1,300 struggling residents, oddly simultaneous with the eviction moratorium that went into effect the very same month, during the pandemic. (Pretium Partners is the parent company of Front Yard Residential and Progress Residential, currently under investigation for the evictions.) Blatant disregard for the government’s order, oblivious to any sense of right or wrong, it’s almost as if Pretium’s owner is above the law.

Perhaps his role in this scheme is even deeper. Although we may never know for sure, one thing is certain – there will always be those who profit from other people’s pain and suffering. Could Pretium be heading towards a monopoly of the housing market? What could this mean for real estate agents and brokerages like Compass? Or listing sites such as StreetEasy or RealtyHop? Where will they fit into the iBuying ripple effect? But now, the most important question remaining is one we must ask ourselves: are we willing to ignore the facts we do know?

Zillow and iBuying have been in the news a lot recently. Need to catch up on all the juicy details? We’ve got a collection of articles guaranteed to make you the most knowledgeable person on real estate at your next dinner party.

The post Pretium Swoops in to Buy Zillow Offers Nearly 20,000 Homes appeared first on CitySignal.

Last week, we saw Zillow end its short-lived iBuying program called Zillow Offers after their business model’s algorithm failed miserably and shocked the market. Investors were understandably nervous about Opendoor’s third quarter results, hoping this iBuyer didn’t have any similar issues to report.

iBuyers are the latest in technology developed exclusively for the real estate market, and their ultimate success is often determined within the first 5-10 years. Opendoor opened its door back in March 2014, and have been transparent in their vision and business objectives from the start. This dedication and determination of focus is almost certainly why they became a leader while their competition went down hard.

The Results

Opendoor had multiple outstanding results to report, including $2.3 billion in revenue – up 91% over Q2, and selling 5,988 homes, up 72% over Q2. In Q3, Opendoor bought 15,181 homes and delivered $170 million in Contribution Profit, resulting in a Contribution Margin of 7.5%, compared to 10.8% in Q2. $35 million in Adjusted EBITDA (Earnings Before Interest Taxes, Depreciation, and Amortization) in Q3 results in the Adjusted Margin of 1.5%, compared to 2.2% in Q2.

Other highlights include doubling their markets nationwide from 21 to 44 markets, and growing their customer base by an average of 90% per quarter. Additionally, Q4 is expected to have equally impressive results and is reported to be the 20th consecutive month of positive CRM. It all pointed to the inevitable, undeniable victory of Opendoor over Zillow. Thankfully, our new heroes had the professional wherewithal to refrain from doing a victory dance.

The Opendoor Business Model

Opendoor seems to have a good business model and algorithm, indicative of a reliable, solidified team of managing executives and programming wizards. They reestablished their goal and vision during the earnings call, which is to accomplish exactly what Zillow tried to beat them at: having a one-stop home selling and home buying platform, with the ability to enable people to both sell and buy at the same time. Their ultimate goal being a seamless transaction and idyllic experience, putting pressure on other listing site competitors such as Zillow, StreetEasy and RealtyHop.

Their goal is currently becoming available due to the company’s ability to provide financing with Opendoor Home Loans (in-house financing) as well as their acquisition of OS National, a title and escrow company, now enabling them to offer closing services as well. They already have services through their internal platform, Opendoor Scout, for managing inspections, repairs and vendors, and also announced that in Q3 they acquired two more significant additions: Pro.com and Skylight.com, leaders in home renovation technology.

Opendoor already partners with Redfin, another popular real estate platform, and also announced the acquisition of RedDoor.com, a fully digital home financing venture. Last but definitely not least, the company introduced “Opendoor Complete” – the new iBuying/iSelling, all-in-one experience, from start to finish.

The Outlook is Promising

It seems Opendoor has a bright future, thanks to meticulous planning and constant risk-management vigilance. Some of the comments made clearly demonstrate their well-earned confidence. When asked about their model and its predictability for future pricing, the issue Zillow stated as one of their biggest problems, CFO Carrie Wheeler stated, “we are very good at what we do – our ability to forecast is extremely capable.” The iBuyer also states they have a continuous focus on customer satisfaction and overall experience, and hold themselves to an “incredibly high standard”.

Opendoor shared their areas of concentration will be on virtualization and scalability, as well as risk management and quality CRM. Bravo, Opendoor… but don’t get too comfortable. Fair warning – we will be watching your every move!

The post Opendoor Gets High Marks for Q3, Zillow Gets Buried appeared first on CitySignal.

During the earnings call, Zillow co-founder and recently reinstated CEO Rich Barton explained the decision and why the program they started three years ago failed so horribly.

The official announcement was made right away: Zillow Offers, the iBuying program that was predicted to be so successful, has ultimately failed. Zillow has been facing harsh criticism over various issues in the news lately, from accusations of manipulating the housing market to concerns raised when they paused their home buying program in October until the end of 2021. Most recently, we heard about Zillow selling houses at huge losses in Phoenix and Atlanta, but the announcement still surprised the market.

Zillow was founded by two ex-Microsoft executives; Rich Barton and Lloyd Frink. Barton is now being criticized for bringing his sense of tech-entrepreneur invincibility into the real estate sector, a world where it’s often best to play it safe.

What Went Wrong

During the earnings call, Barton and the CFO Allen Parker attempted to emphasize the strength of Zillow’s core business and that it’s not dependent on iBuying to be successful. Zillow Offers, according to Barton, needed too much equity with too little ROI to be worth it for investors. The algorithm Zillow relied heavily on also failed to accurately predict the price trends six months into the future. Here are some factors Barton cited as having a significant impact on the iBuying venture’s ultimate failure:

• Unpredictability of future housing prices and market conditions
• Global pandemic (COVID-19)
• Labor and supply chain problems
• Market freeze
• Supply and demand problems
• Market volatility and outside factors

Of all sellers that received a Zillow offer, only 10% converted. Additionally, Barton highlighted the iBuying venture was not successful due to the tremendous amount of capital needed, on the kind of scale necessary to be worth their effort. He also said he overestimated their ability to scale up, but stated they have “learned from their mistakes” and plan to improve with the new Zillow 2.0. Currently, Zillow owns 7,000 homes, worth a total $2.8 billion, in addition to homes that are still in contract. The company will slowly offload these homes, some to institutional investors, as part of the exit strategy.

What’s Next?

Barton and Parker introduce Zillow 2.0, the newest version of the once-popular real estate listings and home valuation tool website. They plan to go back to focusing on that business model but integrating many more services and experiences for home buyers and home sellers. The pair also plan to feature Showing Time, a virtual house showing technology that was one of the businesses Zillow had acquired strategically over the past few years.

Zillow says it’s committed to improving the accuracy of the “Zestimate”, and will be focusing on other aspects of home buying. They want to be a one-stop house shop, offering exclusive services like buyer financing, loan processing, closing procedures, title and escrow services, etc. Zillow says they are working with many high performance real estate agents, and will continue to do so. Barton and Parker seemed largely unaffected.

A Final Noteworthy Thought

Never under-zestimate the power of two very tech-savvy billionaires to talk their way out of – well, just about anything.

Look, we all know the real estate market fluctuates constantly – it’s the nature of the beast. But the unpredictable anomalies and factors of the housing market allow for a slightly larger margin of error.

Will Zillow competitors like Opendoor, also in the iBuying business, face the same problems? Could Zillow quietly disappear? Their future may be just as unpredictable as the housing market itself.

Read more about Zillow’s fall from greatness on CitySignal

The post Zillow Offers Weak Explanation, Q3 Results Miss Estimates appeared first on CitySignal.

On November 2nd, Zillow announced a major update during their Q3 earnings call about their iBuying business: they will be winding down their Zillow Offers operations which in turns means a reduction of 25% of their workforce, they said in a letter to their shareholders.

Apparently, in their struggle to get to the number one position in the new industry they’d plunged into, Zillow Group made a critical misjudgment. The iBuying, home flipping business that started out in 2006 as a people-friendly, realtor-friendly website with real estate listings from anywhere in the country you were interested in, originally became popular for its novel home valuation tool. With this tool, a person could enter any address in the United States and get a quick estimate – er, “Zestimate” – of its current market value. In addition, you could find out what any house around you recently sold for, and/or what it was currently listed at. 

The website was a wealth of home buying information and data, and Zillow catered to real estate agents as well. They made their money selling ads on the website, mostly to real estate agents. In 2011 they partnered with Yahoo! Real Estate, forming one of the largest real estate advertising network on the web, alongside with CoStar, RDC, and RentHop. Still, Zillow swore they would never pursue a broker’s license, for over a decade, with CEO at the time Spencer Rascoff frequently quoted, saying, “we sell ads, not houses.” 

Questionable Ethics 

Somewhere along the line in their rise to acquire and maintain leadership, Zillow switched courses to become an iBuyer, without offering any explanation for the sudden change in tactics. We know they wanted to compete with biggest rival Opendoor, founded in 2014. Perhaps they discovered that the accessible information they were privy to could be slightly manipulated to lean data in their favor? Lawsuits from multiple sources were filed on various topics, not the least of which was in regards to their trademark valuation tool providing their signature “Zestimates” (estimates of home values), and the inaccuracies accusers say Zillow was well aware of. Questions remain about the ethics of this company, especially one that narrowly escapes a class action lawsuit by former employees that involved numerous allegations from non-payment of wages to failing to provide meal or rest breaks. Another involved an extreme case of sexual harrassment by a former employee in Irvine, CA. and it was said to become another class action as there were several other women who were coming forward. But in 2016 Zillow quietly paid an undisclosed amount to settle out of court on that one. Hmmm, awfully suspicious. More so perhaps when one realizes Zillow Group was founded by ex-Microsoft executive and opportunist, current billionaire Rich Barton and Lloyd Frink, also a former executive at Microsoft and current billionaire. 

Going Down Hard 

In 2018, Zillow introduced Zillow Offers, an iBuying service that pays homeowners in cash outright for their home – for a significant fee, of course. In return, homeowners get a fast, hassle-free experience that’s done in a fraction of the time it takes to close with a traditional sale. Opendoor has been doing that same thing since they started, and both companies are what’s considered “iBuyers”. iBuyers are unique in that they use an algorithm and AI to do their buying online – the latest in home buying technology.

Zillow, seeming to have an irrational and competitive obsession to be the leader, suddenly made changes to its algorithm in order to increase its offers and beat the competition by outbidding them. What they couldn’t predict with any accuracy was the surging – and now waning – housing market. And apparently did not take into consideration the margin for error, in allowing essentially a robot to do their bidding and buying for them.

After all, there’s just too many variables in determining property values. In any case, they’re now dumping houses at up to a 6% loss on average in Phoenix, one of the largest markets for them, as well as others. It appears that Zillow Offers, the home buying venture, is going down hard as after the announcement from Zillow, their stock tanked from $97 a share on the 1st, to closing at $75 on November 2nd and opening at $69 the morning of the 3rd.

But Zillow is much more than that these days, and one would be foolish to count them out altogether, at least not yet. The stocks they recently sold have seemingly recovered, and investors don’t appear to be too worried. Maybe it’s because it’s co-owned by two billionaires that know how to create a profitable company. Or maybe it’s because Zillow actually now owns the following “strategic acquisitions”: 

• Postlets – for rent/for sale venue (2011)
• Diverse Solutions – IDX listing platform for realtors (2011)
• RentJuice – rental relationship management of landlords, managers etc. (2012)
• Buyfolio – web tool for streamlining home buying process (2012) 
• Mortech – mortgage pricing engine (2012)
• Hotpads – real estate listing site with creative mapping technology (2012)
• StreetEasy – (sound familiar?) a real estate platform in NYC with valuable data (no MLS) – (2013)
• Retsly – real estate platform for developers to access real estate (2014)
• Trulia – (Retsly’s direct competitor) – (2014) 
• Dotloop – real estate transaction system (2015) 
• Naked Apartments – another of our own, a rental app exclusive to NYC (2016)
• Mortgage Lenders of America – self-explanatory (2018) 

Final Noteworthy Thought 

Just one last thing. It sounded oddly suspicious that Zillow may be trying to take over the market here in NYC, I know I’m not the only one who noticed that. A word of caution: New Yorkers may be a bit more clever than Zillow’s “Zestimate”, and the company is already dangerously close to a very long fall. Besides, the streets at night in NYC are no place for billionaires.

The post Zillow Winds Down iBuying appeared first on CitySignal.

First, we hear about Zillow selling bonds on Wall Street, making headlines with the resulting high numbers and stock popularity. But less than two months later, we now hear they’re “pausing” their home buying for the rest of the year. So what’s really going on? Is it truly as innocuous as they would like us to believe? They may be experiencing a classic case of “letting their cart get ahead of their horse” – er, house, in this instance. 

Zillow says they just have a backlog to sort through – because the demand for their service was so high, they literally couldn’t keep up. Supposedly, this ‘break’ in buying more houses is just expected to last until the end of 2021, and they hope to be back in 2022. However many skeptics don’t buy it, and for very good reasons. 

Number one, it just coincidentally happens at the same time rates on nearly everything nationwide are increasing, with supply chain issues and inflation predicted to be high for some time. In addition, the housing market in particular seems to be tapering off its unprecedented, crazy trajectory to become a bit more predictable. Demand is levelling off, not increasing – so why the stall? 

Another excellent explanation points to Zillow biting off more than they can chew. In simpler terms, they don’t know what they’re doing and need to regroup. Keep in mind, Zillow started out as a website where you could find real estate listings, and get a free “Zestimate” on your home with their home valuation tool. In fact, in the beginning they practiced a different business model, openly resisting the iBuyer idea and appearing to align themselves with real estate agents as ‘partners’. Their CEO Spencer Rascoff was quoted as saying, “we sell ads, not houses,”.

Trading Ethics for Profits

However, like many other new and fast-growing businesses popular among consumers, they fell prey to a common vulnerability. In order to maintain their “leadership role” (and popular position), it was a case of “go big, or go home”, in order to compete with businesses like OpenDoor and Redfin. Now, as a result, they may very well be in over their head and seem to have gotten ahead of themselves a bit. After all, not only did they launch their “Zillow Offers” program, they also decided to launch their own financing with the purchase of a mortgage company. Seemingly on a roll, their prognosis seemed to be a positive, prosperous one. So what if they sacrificed a little morality in the process? They were back in the competition! In 2020, Zillow stock tripled.

Starting in August, Zillow offered bonds to Wall Street for hundreds of millions of dollars, and seemed to be a hot market for investors. But now less than two months later, Zillow has announced they are ‘pausing’ home purchases for the rest of the year, blaming a backlog and employment shortages for the apparent poor management. Their biggest competitors, OpenDoor and OfferPad, both remain open for house-buying business, and as Zillow stock plunged, theirs rose. After the Zillow announcement, their stock fell as much as 11.4%, dropping a total of 31% for the year. 

The Final Noteworthy Thought

Zillow has hopefully learned from its mistakes, but the damage to their already suffering reputation is palpable, as is their inability to ‘keep up’. After all, OpenDoor bought approximately twice as many houses in the same quarter, and has not had any troubles. Zillow’s original business model seems to at least have been more ethical, and most likely would have kept them as leaders in that subsection of the real estate industry. Instead, they are scrambling to manage their damaged reputation, not to mention their obvious mismanagement. It makes one wonder, perhaps there are consequences for trading values for profits after all.

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