The demise of Zillow Offers will have an impact on the real estate market. Whether that impact will be positive or negative for you remains to be seen. So think about it, and be prepared. It also should stand as a practical lesson for both real estate people and investors. More about that later.
One very positive impact:
The demise of Zillow Offers proves what you’ve been telling sellers all along…
“Zestimates are not accurate reflections of true market value.” Apparently, the folks at Zillow believed they were, and that’s part of why their ibuyer program failed.
We all know that the only way a zestimate can be accurate is by accident. Computers can do many things, 
but no algorithm can account for all the factors that affect a home’s value. Even the much-touted artificial intelligence would be a fail. After all, computers can’t go inside houses to view the quality of finish materials, condition, etc.
Accurate valuations can only be done by experienced agents and appraisers who compare each home to the most recently sold properties that are similar in size, quality, condition, and location.
This is a talking point you can use with sellers who may want to rely on zestimates when pricing their homes.
The demise of Zillow Offers could affect supply and demand in your community.
Depending upon which article you read, Zillow will be attempting to sell between 7,000 and 8,600 homes now in its inventory. Since they’ve been plagued by supply chain problems and lack of construction workers, some of these houses may be sold as fixers. I haven’t seen official statements one way or the other.
Since they say they expect to sell some of these houses for less than they paid, and since their presence in the market will increase the supply, their sell-off could affect pricing.
That could be good news for your buyers, and not so good for your sellers. It will all depend upon how active they’ve been in your market.
Will other ibuyers fail as well?
While Zillow reported a $381 million loss in the 3rd quarter of this year, other ibuyers say they’re doing well.
If so, they either had more reliable algorithms, relied more heavily on the staff they sent to expect homes prior to purchase, had a more reliable workforce and better access to materials, or paid more deeply discounted prices for the homes they bought.
The business model Zillow was apparently using is based on ever-increasing home prices, and is unsustainable in the long run. While it’s true that homes traditionally appreciate in value by about 5% each year, they cannot continue rising at the 15-25% level that we’ve seen in recent years. When homes become too expensive for people to purchase, prices fall.
This situation is not unlike the events and decisions leading to the subprime mortgage crisis 15 years ago.
Success in house flipping depends on many factors…
One of them might be an accurate crystal ball.
Zillow Offers failed in part because, to quote CEO Rich Barton, “Fundamentally, we have been unable to 
predict future pricing of homes to a level of accuracy that makes this a safe business to be in.”
Can other ibuyers predict more accurately, or will they simply rely on paying more deeply discounted prices for the homes they buy?
The demise of Zillow Offers certainly gives you the opportunity to discuss the subject with homeowners who may be considering selling to an ibuyer. It also gives you a reason to discuss why the automated value they’ll get from ANY website is nothing more than a starting place.
The demise of Zillow Offers contains a lesson for all of us.
While we don’t know how much research or study they did before deciding to flip houses, we can see that it wasn’t enough.
We can assume that they relied on their own faulty estimates of current value and perhaps assumed that prices would continue to skyrocket. But there were probably more factors at play.
Perhaps the people they hired to view homes before the purchase didn’t have the experience and knowledge to predict the extent of renovations – or how to estimate their cost.
It could be that they under-estimated the cost of materials for renovations. Maybe they didn’t put together a dependable crew of construction people who would work at a reasonable pay rate. Perhaps they didn’t hire competent construction crew bosses to keep renovations moving along.
In short, perhaps they didn’t learn everything they needed to know before diving into house flipping.
The lesson for all of us is “Do your homework!”
Before expanding your geographic territory or choosing a new real estate niche, learn what you need to know. If you skip that step, you’re destined to 1) Look foolish, and 2) Fail.
Before you decide to prospect for probate listings, you need to learn the laws surrounding the sale of properties in probate. Before you prospect for Divorce listings, you need to be clear on the role that the courts play in those sales. In both those instances, you also need to know yourself – and whether you’re ready to deal with the emotions your clients are experiencing.
The same is true no matter what niche you want to pursue. First, learn what you need to know, so you can serve your clients well.
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Failed stamp courtesy of Stuart Miles @ freedigitalphotos.net
