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

Originally the estimate on Zillow said my house was 20% over the value I actually sold my house for just last month. I listed with a traditional realtor for a 5% commission, because when I looked up the service and other fees for Zillow sales, I found they included around 20% of cost for buying homes and closing within generally 10 days.

As I listed my house, and as I reduced price on it for it to gain attention, I noticed the zillow estimate also went down to always stay below my listed price. I believe the estimate that both Zillow and Redfin display prominently were purely based on what my list price was changed to last, not on any meaningful algorithm, which can be very harmful to sellers and buyers, because it makes the process a bit deceptive by nature. Luckily Zillow also displays the price history on homes, which apparently cannot be "gamed" as much as the "zestimate" can be. Another thing I noticed was that the view stats on my listing that zillow regularly provided changed, even after days passed, that was very concerning because stats of that kind aren't supposed to change... They indicate real interest in a property, that guide decisions for sellers to reduce price, and they also indicate what is truly a "hot home".

No matter what, there is always the "human factor" that can corrupt or even destroy any company, where realtors can game the process to maximize their own sales profit or positions, or where appraisers can inflate an estimate as a favor for a personal friend, even despite laws against doing so. In a bad economy, the lengths people will go to to suit their advantage are wild. This type of issue can never be properly addressed by any algorithm, and that's why trusting technology too much can so easily lead to failure in any setting.

Ultimately I am glad I did not sell to Zillow, because of all of the potential for hidden costs and because they manipulate the process even when you don't use their service, but I am not feeling sorry for them as a company... I felt the impact of their presence in the market whether I involved them or not, and that's a big problem when it comes to preserving the value of traditional investment and stable investment in a house that should be properly addressed by regulation.

If you pledge to purchase at the Zestimate then people who reasonably think they can get more than the Zestimate on the open market don’t have an incentive to sell their house to Zillow (besides convenience). But people who think the Zestimate is an over estimate will of course sell to Zillow. So instead of a normal distribution of actual value:estimated value you end up with a skew towards the end where the estimate is over the actual value.

Trading housing is very different from normal market making because houses are not fungible commodities like most securities are. For most entities trading securities at low frequency it does not really matter whether a market maker skims off a few pennies on their trade; it’s worth it for the liquidity. Houses are less liquid (because they are non fungible) so the liquidity is more valuable, but the price improvement routing around a MM can also be many percentage points of a trade because there are not only so many factors affecting their valuation, but also just chance and random noise (bidding war, a particular buyer falling in love with the property, not-price-conscious buyers).