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

#51

Post by skohan » Sat, Nov 27, 2021, 2:45 PM UTC

loeg wrote: post #41

skohan wrote: post #29

Earlier quoted context omitted.

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.

Well as someone who lives in a fairly regulated housing market (Berlin) I'm happy about all the regulations you've mentioned as they prevent negative externalities which would benefit real-estate developers at the cost of everyone else. Imo targeting a specific population density is within the mandate of local government, as too-high density causes all sorts of issues from traffic to health and everything in between. If you want to unchain developers on density, I invite you to take a 10km drive in Delhi or Bangkok and tell me if the cost generated on a daily basis in terms of time and stress is worth it.

I am in favor of finding ways to encourage more housing, but what you're calling for is essentially to invite favela housing in the developed world.

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

#52

Post by [deleted] » Sat, Nov 27, 2021, 2:47 PM UTC

johnebgd wrote: post #32

skohan wrote: post #28

> 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…

People forget that tech is able to automate workflows. You don’t often yield success when you attempt to automate and invent the workflows in parallel.

[deleted]

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

#53

Post by seoaeu » Sat, Nov 27, 2021, 2:52 PM UTC

throwhauser wrote: post #26

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.

Zillow is passing on an infinite number of potentially profitable enterprises. The reason they attempted this one is because they thought they already had good enough models to avoid taking large losses. If you read their statements, it is clear the reason Zillow is abandoning the this effort is because of inaccuracies in their models not just because they were spooked by losing money. They were also spooked last quarter by making too much money!

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

#54

Post by _xnmw » Sat, Nov 27, 2021, 2:56 PM UTC

Good riddance. If large-scale house flipping took off, we might actually end up in a scenario where housing was treated as a speculative asset, with empty houses getting flipped between investors looking to make a quick buck, further lowering the supply of actual places to live (because housing units remain empty while being flipped), driving up the cost for families who just want a place to live. Oh wait...

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

#55

Post by Peanuts99 » Sat, Nov 27, 2021, 2:57 PM UTC

javert wrote: post #18

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…

That's a pretty binary take on an activity that exists on a ethical gradient.

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

#56

Post by ridaj » Sat, Nov 27, 2021, 3:01 PM UTC

This is a good take, but

> A machine learning organization thinks of risk entirely differently than an automated risk underwriting organization.

It's possible and maybe even advisable to use machine learning in the automated risk underwriting business, but it is a different setup / set of objectives.

As the author notes, IMO the adversarial and antifraud aspect of risk underwriting turns it less into a straight-up estimation problem and much more into a game theory type of problem. ML models can assist in evaluating risk, but you do indeed have to be preocuppied by your risk as a party to the transaction in the first place, and not just trying to predict prices as a third party observer (which by itself is pretty riskless).

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

#57

Post by _xnmw » Sat, Nov 27, 2021, 3:03 PM UTC

loeg wrote: post #39

perpetualpatzer wrote: post #34

Earlier quoted context omitted.

Arguably, it's good for both. Buyers have more quality inventory to choose from and can purchase a home with lower risk of getting trapped in it permanently. Sellers get faster sales with a higher floor on prices.

What's even arguable about it? Liquidity is good for market participants, period.

Liquidity is NOT good in a dire-necessity supply-constrained market like housing, because it invites capital which could've been spent elsewhere to lock up unnecessary housing units (houses are empty while being flipped), further constraining supply of a critical resource.

Imagine if drinking water was treated as a speculative asset, with large percentages of a countries water supply being stored in tanks and sold back-and-forth on paper between capital-rich investors instead of actually being pumped to where it was needed through pipes.

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

#58

Post by rpvnwnkl » Sat, Nov 27, 2021, 3:04 PM UTC

marcinzm wrote: post #21

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…

>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 $90…

They are out 200k. They bought for 100 too much and will have to sell for a 100 less than planned.

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

#59

Post by lotsofpulp » Sat, Nov 27, 2021, 3:05 PM UTC

ctvo wrote: post #50

lotsofpulp wrote: post #42

Earlier quoted context omitted.

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.

I somehow missed they had bought Trulia way back when.

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

#60

Post by spywaregorilla » Sat, Nov 27, 2021, 3:05 PM UTC

johnebgd wrote: post #32

skohan wrote: post #28

> 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…

People forget that tech is able to automate workflows. You don’t often yield success when you attempt to automate and invent the workflows in parallel.

I would say the opposite is true. Dying companies are stuck in their own routines because they're trying to automate their poorly designed processes that require humans at multiple steps. Smart companies are designing newer, better processes that are enabled by tech.

Starting from scratch can be a huge advantage.