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Zillow puts an end to home-flipping business. Why iBuying proves inefficient vs. working with agent

Zillow has officially announced that it will be shutting down its Zillow's Offers division, making their experiment in home-flipping much more short-lived than initially anticipated.

The shut down will result in a reduction of some 2,000 jobs (about 25% of their current workforce) within the company as well as amounting a total loss of more than $540 million. The Zillow Offer's divisions that focuses primarily on buying homes, refurbishing them and then selling them was expected to yield high profits early this year. However the company's quarterly earnings report on Tuesday showed that they had purchased homes for prices significantly higher than they were able to resell them.

Zillow's co-founder and CEO, Rich Barton, said Tuesday, "We've determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility".

The failure within Zillow's Offer Division, which launched only nine months ago, lies in its blind faith that its Zestimates feature provides accurate property values. Upon its launch in February, Zillow announced that it would treat a Zestimate as an initial cash offer for eligible homes nationwide, which provided a point of skepticism and frustration for agents.

“Presenting the Zestimate as a cash offer to qualifying homes up front will save time, reduce friction and provide greater transparency — getting us closer to our vision of helping customers transact with the click of a button,” Zillow chief operating officer Jeremy Wacksman said in an announcement earlier this year.

For Sale by Zillow vs For Sale by Agent

The concept of iBuying has since catalyzed more uncertainty and belief that it is far less reliable and accurate than initially predicted by Zillow. Complaints against the Zestimates tool show concern that the company may have been misleading home buyers by "publishing figures that were below what sellers were seeking for their homes."

While Zillow, itself, has recognized the need the improve their valuation model, it calls into question how an automated system can take into account all the factors needed to accurately valuate and sell a property. Today's market across the board has proven to be more volatile than previous years, highly influenced by a pandemic that has deeply effected the supply & demand chain.

With that many structural changes to the market, it leads experts to believe that real estate agents are more privy to those evolving bits of information on a day-to-day basis, in comparison to their computer-automated counterparts. Zillow's recent troubles directly reflect how iBuying has proven to be a difficult business model, so we await to see what's next in their attempts to expand their buy/sell niche.

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