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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

#21

Post by marcinzm »

quickthrowman wrote: post #12
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 qual…

>If they used competitive offers, they’d never have the winning bid.

Why do you assume that, seems like a cash buyout would be a great deal for many sellers if it was at the appropriate price. Issue is I think that Zillow's information was less granular than what the buyers/sellers had. Let's say Zillow priced two houses near each other at 1million each. However one was close to a busy road so would only sell for $900k while the other could sell for $1.1. Zillow made the right average offer of $1million to both but the buyers/sellers actually had more information. So the 1.1m seller didn't take Zillow's offer while the 900k seller did. Now Zillow was out $100k essentially not counting fees.

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

#23

Post by javert »

JKCalhoun wrote: post #14
chii wrote: post #11

Earlier quoted context omitted.

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?

Both. In an illiquid market, it takes a long time to find buyers or sellers. You are incentivized to overprice (if selling) or underprice (if buying) and wait a long time to see if someone will match you. A liquid housing market means people can buy or sell the house at the "right" price without waiting many months or years.

As a seller, would you rather wait a year to make a bit more money? That wouldn't be good. That would be crappy.

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

#24

Post by encoderer »

quickthrowman wrote: post #12
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 qual…

I’m not saying you’re wrong, but this is an over simplification. Sellers are not guaranteed a “market price” so there is room to trade a small margin for guarantees and hassle free home selling.

The problem seems more that they were not getting “enough” houses doing it this way, especially competing against Opendoor, and so they had to bid higher and on more properties in order to hit “scale”. And that lack of selectivity is what led to the bad basket of houses they now own.

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

#25

Post by Blackstone4 »

quickthrowman wrote: post #12
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 qual…

It is called the winner's curse...at an auction, the highest bidder wins the asset but to do so they pay the highest price so better hope you are right when you win

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

#26

Post by throwhauser »

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 think the tone is appropriate, because the issue is a bit more subtle than that. Zillow was afraid to plan for the large losses necessary to gather the only data that counts, i.e. the data that is the outcome of their own processes.

Planning to lose money takes nerve. Zillow tried to avoid avoid the pain, and ended up abandoning what might be a profitable enterprise (for someone else) in the future.

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

#27

Post by encoderer »

JKCalhoun wrote: post #14
chii wrote: post #11

Earlier quoted context omitted.

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?

Here’s a thought experiment: if I told you the market was going to be less liquid and you may not be able to easily sell the house you’re about to buy, wouldn’t that change your behavior?

I think you’ve bought into the tik tok narrative that somehow it’s zillows fault that houses are expensive.

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

#28

Post by skohan »

> They thought they needed to build a machine learning model when they really needed to build an entirely new organization, one that possessed the technical and cultural mindset necessary to succeed in this space.

I totally agree. It's not impossible to imagine their model working: why couldn't you serve as a market-maker for homes at a large scale, especially with the unique insights Zillow could have based on their datasets.

However I think where the hubris lay is in how they thought they could leapfrog all the way to an automated solution before building a competency as a house-flipping company.

From what I understand, where they failed was partly in building a rich enough model to properly account for the less easily quantifiable elements which ultimately account for a property's value. I.e. the price per square foot might make a property look like a steal, while something like a sewer main nearby, or problematic neighbor could radically change the value proposition to anyone standing at the site. That's a non-trivial problem to solve for even the best ML and it's not clear how you would automate this.

If you ask me, instead of focusing on building an automated price discovery system, they should have started by trying to build a quality home-flipping organization, and figuring out how to super-charge manual work using their datasets. Over time you might find ways to optimize the process and increase the level of automation to scale output relative to head-count.

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

#29

Post by skohan »

pontifier wrote: post #15
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.

Which regulations would you relax? Surely there is some unnecessary red tape, but it's not as if building regulations have been developed for fun, it's largely in response to safety issues and so on.

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

#30

Post by loeg »

JKCalhoun wrote: post #14
chii wrote: post #11

Earlier quoted context omitted.

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?

Liquidity is good for both buyers and sellers.
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