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Zillow lost money because they weren't willing to lose money

stevenbuccini.com

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Re: Zillow lost money because they weren't willing to lose money

#11

Post by chii »

JKCalhoun wrote: post #9

> At a high level, the story of Zillow Offers is a story of our industry at its best. Not in my book. All I see is the price of real estate being driven up by corporate greed and the individual home-buyer being shut out of the market. Is it wrong of me to hate "flippers" (be they corporate or private)? Pure capitalists will tell me that every property sold went to the highest bidder — in the case of a flipper winning…

flippers make the real estate market more liquid, in the same way high-frequency trading does for stocks.

Flippers take the risk of the market falling while they're flipping - that's the price they pay for their profits.

Re: Zillow lost money because they weren't willing to lose money

#12

Post by quickthrowman »

danielvaughn wrote: post #4

I think the article makes an interesting point about this being the first of many, but I disagree with the initial tone of the article. It seemed to paint Zillow as being afraid of loss. On the contrary, I viewed Zillow as demonstrating good common sense and an ability to make hard decisions. To me it shows that they aren't committing the sunken cost fallacy, and are willing to cut an entire 25% of the company and ta…

I agree, I think they realized it wouldn’t work and made a hard decision to save the company.

Zillow realized the only time their ask was hit is when it was at a premium to the actual market price. If they used competitive offers, they’d never have the winning bid. In a hot market where you’re offering a premium, you’re going to have owners of lower quality properties accepting your offer, while owners of higher quality properties have more offers to select from.

Zillow got left holding a bag of lemons and decided to get out before buying the whole lemon grove.

Re: Zillow lost money because they weren't willing to lose money

#13

Post by mberning »

JKCalhoun wrote: post #9

> At a high level, the story of Zillow Offers is a story of our industry at its best. Not in my book. All I see is the price of real estate being driven up by corporate greed and the individual home-buyer being shut out of the market. Is it wrong of me to hate "flippers" (be they corporate or private)? Pure capitalists will tell me that every property sold went to the highest bidder — in the case of a flipper winning…

People would probably suggest regulation or taxes to “fix” the problem but I think the root of the issue is artificially low interest rates, freewheeling lenders (again), and the fact that there are few other places to deploy your money and get some yield. There is also the tax benefits of owning income properties which should probably be looked at.

Re: Zillow lost money because they weren't willing to lose money

#14

Post by JKCalhoun »

chii wrote: post #11
JKCalhoun wrote: post #9

> At a high level, the story of Zillow Offers is a story of our industry at its best. Not in my book. All I see is the price of real estate being driven up by corporate greed and the individual home-buyer being shut out of the market. Is it wrong of me to hate "flippers" (be they corporate or private)? Pure capitalists will tell me that every property sold went to the highest bidder — in the case of a flipper winning…

flippers make the real estate market more liquid, in the same way high-frequency trading does for stocks. Flippers take the risk of the market falling while they're flipping - that's the price they pay for their profits.

You'll have to educate me then: is more liquid better for the buyers or sellers?

Re: Zillow lost money because they weren't willing to lose money

#15

Post by pontifier »

JKCalhoun wrote: post #9

> At a high level, the story of Zillow Offers is a story of our industry at its best. Not in my book. All I see is the price of real estate being driven up by corporate greed and the individual home-buyer being shut out of the market. Is it wrong of me to hate "flippers" (be they corporate or private)? Pure capitalists will tell me that every property sold went to the highest bidder — in the case of a flipper winning…

The answer is to reduce regulation.

The process of building new structures is filled with so much regulatory friction that it is impossible for the average person to even consider building their own home.

Re: Zillow lost money because they weren't willing to lose money

#16

Post by musingsole »

droopyEyelids wrote: post #8

In the original Foundation books by Asimov, the conceit of "Psychohistory" was similar to the concept of machine learning for pricing: The future can be predicted _if people aren't aware of the prediction to change their behavior in relation to it_ This is similar to 'adverse selection' in real life & in Zillow's model. The article makes a nod to this, but seems to imply that if you train your model on that adverse s…

> It's a continuous game.

This is what most profit seeking strategies can miss. Their designers (consciously or not) can't help but to stop thinking through their plan at the profit step and just assume "rinse and repeat" forever after.

Re: Zillow lost money because they weren't willing to lose money

#17

Post by throwhauser »

JKCalhoun wrote: post #9

> At a high level, the story of Zillow Offers is a story of our industry at its best. Not in my book. All I see is the price of real estate being driven up by corporate greed and the individual home-buyer being shut out of the market. Is it wrong of me to hate "flippers" (be they corporate or private)? Pure capitalists will tell me that every property sold went to the highest bidder — in the case of a flipper winning…

The answer is to build houses and print money to buy them with.

If houses were a (much) smaller bet for the buyer, there would be more flexibility to build houses where demand exists and a faster, lower-drama exit for people who don't like the changing nature of their in-demand neighborhood.

The inertia created when people have their life savings tied up in their house perpetuates the problem of affordability, by making the areas that have the most mismatched supply vs demand the least likely to deal with the problem.

Re: Zillow lost money because they weren't willing to lose money

#18

Post by javert »

JKCalhoun wrote: post #9

> At a high level, the story of Zillow Offers is a story of our industry at its best. Not in my book. All I see is the price of real estate being driven up by corporate greed and the individual home-buyer being shut out of the market. Is it wrong of me to hate "flippers" (be they corporate or private)? Pure capitalists will tell me that every property sold went to the highest bidder — in the case of a flipper winning…

Yes, you are wrong to hate flippers. You are wrong to hate anyone who is working hard to make an honest living. Yes, flipping is hard work.

All successful work probably displaces someone else in some way. If you're good at your job, you're "denying" that job to someone less skilled. If you work in software, you're automating things that would require more labor if done manually. Fortunately, humans can pivot.

Either hate everyone, or hate no-one. You can't just hate flippers.

Re: Zillow lost money because they weren't willing to lose money

#19

Post by human »

mjdesa wrote: post #3
1cvmask wrote: post #2

The essence of the article is that they underestimated how flawed their algorithms are and how hard it is to build a good lasting algorithm in a dynamic world. Many seasoned wall street algorithms have suffered many times over 5 decades, and when they fail we call them black swan events.

That’s not what I read in that article at all. What I read was that their data and methodology was flawed, and they weren’t willing to pay the price to fix it.

Their methodology might have been flawed. The author is speculating.

He uses Zillow to explain how datasets – especially the ones with money tied-in – can’t be trusted blindly. Building a high-quality dataset is an expensive endeavour.

Re: Zillow lost money because they weren't willing to lose money

#20

Post by JanisL »

JKCalhoun wrote: post #10
droopyEyelids wrote: post #8

In the original Foundation books by Asimov, the conceit of "Psychohistory" was similar to the concept of machine learning for pricing: The future can be predicted _if people aren't aware of the prediction to change their behavior in relation to it_ This is similar to 'adverse selection' in real life & in Zillow's model. The article makes a nod to this, but seems to imply that if you train your model on that adverse s…

I'm reminded always of the Hunt brothers that tried (and failed) to corner the silver market in the 70's/80's: https://en.wikipedia.org/wiki/Silver_Thursday

Basically the COMEX changed the rules explicitly to disadvantage the Hunt Brothers. The changes made to margin requirements is what made the difference here. I don't think anyone could claim that the silver market is an entirely free market, I remember last year a press release where the COMEX said they weren't sure how much they actually had in their vaults in eligible and registered, with a plus/minus 50% figure being given on their estimates. I can't think of any other major market where someone would come out and say they didn't know how much inventory they had and that their best estimate could be 50% off. And the participants in the silver market are still rather ridiculous to this day: https://www.reuters.com/business/finance/jpmorgan-pay-60-mln...
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