Zillow lost money because they weren't willing to lose money • Hacker News Board

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

#41

Post by loeg » Sat, Nov 27, 2021, 2:36 PM UTC

skohan wrote: post #29

pontifier wrote: post #15

Earlier quoted context omitted.

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.

Quite a lot of regulations have nothing to do with safety. Minimum set-backs, minimum parking requirements, maximum building heights, etc. All of these add cost and reduce density.

Single-family zoning is another local government policy that is absolutely intended to constrain development, not improve safety.

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

#42

Post by lotsofpulp » Sat, Nov 27, 2021, 2:37 PM UTC

ctvo wrote: post #37

lotsofpulp wrote: post #31

Earlier quoted context omitted.

> 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. Why would Zillow have unique insights? With the exception of Texas, I thought real estate sales information is public information in the US.

Can you not imagine how useful it is to know user data e.g. what neighborhoods receive the most clicks, what type of homes generate the most favorites, how long people view one listing vs. another, … that is unrelated to public MLS data?

Maybe, but I was under the impression that Redfin/Trulia/Realtor.com would have the same information.

Also, unless Zillow started imposing confidentiality agreements on their bids, then competing buyers would just have to bid $1 more without their dataset, right?

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

#43

Post by mgraczyk » Sat, Nov 27, 2021, 2:39 PM UTC

I really liked this quote, which is also true of machine learning organizations at large tech companies:

    The most valuable data is not social data, ... but your own data because every dataset that you’re looking at internally describes your own process, including your bugs, ... building models from your own data is the only way to build a really successful system.

This is one thing that a lot of outsiders do not understand. Facebook/Google's data is basically worthless to anybody but Facebook/Google. The data has value because it is derived from their own processes, which in this case are the requests and context of each product surface.

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

#44

Post by throwawayboise » Sat, Nov 27, 2021, 2:39 PM UTC

skohan wrote: post #29

pontifier wrote: post #15

Earlier quoted context omitted.

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.

Cosmetic stuff, square footage requirements, height requirements, parking requirements. Basic structural engineering, fire safety, etc. requirements of course would stay but if local code is more stringent than national you might take a look at it (e.g. things like a local code requiring copper pipes when PVC is acceptable and much cheaper).

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

#45

Post by phire » Sat, Nov 27, 2021, 2:39 PM UTC

encoderer wrote: post #24

quickthrowman wrote: post #12

Earlier quoted context omitted.

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 select…

No, that's not the issue.

The issue is that their machine learning model can't possibly be 100% accurate, there will be some amount of error that is shaped in a normal curve.

If their model overestimates the market value, they end up massively overshooting their goal price of "slightly less than market value", the seller accepts and they lose money. If their model underestimates the market value, they will offer way too little and the seller will go elsewhere.

Even if they get their estimates right 99% of the time, the 1% of cases where they get it wrong will slowly drain money out of the scheme.

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

#46

Post by JackFr » Sat, Nov 27, 2021, 2:41 PM UTC

While the point the article makes is true — it costs money to acquire the real world data, the comparison to credit underwriting is misguided. Underwriting credit is fundamentally different than predicting house prices.

In particular when you’re auto-underwriting credit it’s not typically an origination-for-sale model. So the value of the loan is the present value of the future payments, less the future value of defaults, less the cost of acquiring the customer.

Historically those things can be modeled pretty accurately and the aspects that can’t be modeled accurately can often be hedged or eliminated by the law of large numbers. The innovation of the new ML underwriting with respect to accuracy is at the margins. The real disruption is the speed and cost. (Disclosure: I worked at a SMB fin tech and we reran multiple credit models for a million customers and past customers every night.)

If Zillow were getting into the rental business, in some ways it might have been easier for them. But they needed to model where they could sell an illiquid asset which is a much harder and much less well understood problem. And yes with enough capital to plow through and the appropriate risk attitude they could likely have gotten the handle on what their pipeline was really going to look like. But it’s hardly the same problem as credit underwriting.

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

#47

Post by seoaeu » Sat, Nov 27, 2021, 2:41 PM UTC

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.

Zillow thought they already had enough data and accurate enough models to buy and sell houses profitably. The last two quarters proved they didn’t. In the first quarter they were puzzled by making too much money and in the second they lost a whole bunch

The author is arguing that they should have pivoted from “we already have models” to “we’re intentionally gambling hundreds of millions of dollars so we can build good models over the next few years”. That might be a good strategy for a startup with loads of VC money and no other products, but it makes less sense for a more established company to risk going under on that bet

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

#48

Post by _xnmw » Sat, Nov 27, 2021, 2:42 PM UTC

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.

Flippers also reduce the supply of housing units for the time they are unoccupied, which could be months or years, especially when sold to other flippers. More liquidity is not necessarily a good thing for the housing market, as it tends to increase the number of speculators on the market, contributing to a vicious cycle where more homes are being flipped between speculators than actually occupied by people who need them.

It pains me to watch people apply simplistic theoretical laws of supply and demand to something as complicated as housing. The map is not the territory. There are massive costs to increasing supply, as well as psychological/community costs to moving homes, which are not cleanly captured in any Economics 101 textbook.

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

#49

Post by throwawayboise » Sat, Nov 27, 2021, 2:43 PM UTC

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.

And wall street algorithms should be easier because securities are fungible. One share of AAPL is the same as another. Houses are not like that. Real estate is local, local, local. Every house has a hundred unique attributes that each potential buyer will value differently.

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

#50

Post by ctvo » Sat, Nov 27, 2021, 2:44 PM UTC

lotsofpulp wrote: post #42

ctvo wrote: post #37

Earlier quoted context omitted.

Can you not imagine how useful it is to know user data e.g. what neighborhoods receive the most clicks, what type of homes generate the most favorites, how long people view one listing vs. another, … that is unrelated to public MLS data?

Maybe, but I was under the impression that Redfin/Trulia/Realtor.com would have the same information. Also, unless Zillow started imposing confidentiality agreements on their bids, then competing buyers would just have to bid $1 more without their dataset, right?

Zillow is the largest aggregator. They own Trulia. I can squint and see the thought process here by Zillow, though execution, as evident, did not go as planned.