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

#201

Post by rossdavidh » Sat, Nov 27, 2021, 6:52 PM UTC

axg11 wrote: post #139

rossdavidh wrote: post #131

While no doubt Zillow made many of these mistakes, I think the reality is more sobering that the author of the article realizes. The more grim possibility, is that Zillow got out of the house buying business, not because they weren't good enough at it, but because they _were_ good enough at it to realize that it was at the top. If buyers want more now for their house, than it can be sold for in a few months time (whi…

While this sounds plausible, I think there are a couple of factors that work against this theory: 1) Why layoff your data science division if they are predicting with accuracy? 2a) If you have enough conviction to call the top of the market, why sell off so much housing at a huge loss? Zillow are the only participant in the residential real estate market losing money right now. 2b) If you see signals of a forthcoming…

It may have been poorly run, and nonetheless correct that:

- they could not buy houses without overpaying (relative to what they could sell them for a few months down the line)

- the housing market would not recover for several years (so no need to keep that extra 25% of your labor force, especially if you anticipate a decline in revenue from real estate agents coming soon)

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

#202

Post by rossdavidh » Sat, Nov 27, 2021, 6:55 PM UTC

dsizzle wrote: post #135

rossdavidh wrote: post #131

While no doubt Zillow made many of these mistakes, I think the reality is more sobering that the author of the article realizes. The more grim possibility, is that Zillow got out of the house buying business, not because they weren't good enough at it, but because they _were_ good enough at it to realize that it was at the top. If buyers want more now for their house, than it can be sold for in a few months time (whi…

But they lost money last quarter while the market was still rising. Seems there was some problem with their prediction process.

Rumor is that they had to put their thumb on the scales (i.e. tweak the model) to get enough sellers to sell to them. In other words, if paying what their model actually thought was the right price, not many people sold to them. Instead of saying "our division's whole business model won't work, you should fire us", they tried to cut the margin too close, resulting in losses which got the CEO's attention to the problem.

This kind of thing is difficult to confirm from the outside, of course. But that they adjusted the model to pay more towards the end is pretty widely known.

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

#203

Post by gcanyon » Sat, Nov 27, 2021, 6:59 PM UTC

If the assumption is that you're going to lose half your money up front, then my plan would be to make sure "my money" is as little as possible: learn based on smaller bets. It sounds like Zillow built the Sea Dragon first, when they should have started with the Redstone and moved toward the Saturn V.

If Zillow thought they had all the data they needed, there would have been little harm starting with $100 million in properties -- if the loss there ended up being $5 million, they would have known immediately something was up and that they had work to do.

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

#204

Post by hhmc » Sat, Nov 27, 2021, 6:59 PM UTC

JumpCrisscross wrote: post #173

hhmc wrote: post #163

Earlier quoted context omitted.

> i.e. buying at the bid and selling at the offer. Really they _quote_ simultaneously the bid and offer (although there will be times when they do only one or neither). Saying they simultaneously buy/sell is wrong/confusing.

> Saying they simultaneously buy/sell is wrong/confusing That wasn’t claimed. What was said is the archetype is simultaneity. That is 100% accurate for how the term “market maker” has been used, globally, since at least 1999. (Pre-GLB/LTCM and post-ECN, the term was used more broadly.) Drift from simultaneity incurs cost and risk. Those costs and risks must be managed. If you aren’t thinking in those terms, you aren’…

You can't garauntee your (bid/ask) resting orders are executed against in the same epsilonic time window, nor would you want to. No market making practioners would think in these terms.

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

#205

Post by javert » Sat, Nov 27, 2021, 7:00 PM UTC

Peanuts99 wrote: post #55

javert wrote: post #18

Earlier quoted context omitted.

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.

Ethics is what we decide it is. How about not condemning practically everybody as some kind of sinner, the way you are? That's a counterproductive view that reeks of Christianity.

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

#206

Post by toast0 » Sat, Nov 27, 2021, 7:03 PM UTC

h2odragon wrote: post #198

toast0 wrote: post #188

Earlier quoted context omitted.

> The county isn't auctioning off because of tax default anymore, no one was buying these places at $100. What's the issue with out of state companies owning rural properties nobody wants? If the market is heating up, maybe it's time to run tax auctions again. In WA state, if there's no bidders, the county retains the land and will auction it again when someone expresses interest (or it some cases, can sell it to a n…

They'll eventually be reclaimed and re-titled one way or another I'm sure. I'm concerned with the larger implications, if my supposition is correct that they are being accounted more valuable than they actually are. These are the leftovers of Countrywide mortgage bonds and such I think.

Makes sense now, thanks!

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

#207

Post by desmosxxx » Sat, Nov 27, 2021, 7:05 PM UTC

lisper wrote: post #186

ricardobayes wrote: post #149

Earlier quoted context omitted.

anectodal evidence, but yes, an apartment I lived in was 30k cheaper than everything in the house, and the estimate. So I was really happy to have caught a bargain. Then after moving in it turned out the neighbors were unbearable. The father had developed a DIY habit during covid and he would regularly put together furniture at 11PM. Then they had two monsters for kids. Would literally jump around uncontrollably for…

You could sue your seller for failure to disclose.

"i never really noticed"

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

#208

Post by GCA10 » Sat, Nov 27, 2021, 7:05 PM UTC

EMM_386 wrote: post #128

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…

> 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 This is the real problem. Even if they have the historical data for that exact house/unit, it won't help them in cases such as: * That nice view of the woods out the window is now blocked by a massive radio antenna that was just built there * The river running through the back ya…

This is the key insight. Systems like Zillow's model a dozen or so big factors that are easy to collect (square footage, exact location, nearby comps, sales history, etc.) -- and then treat the rest as minor random noise.

Minor? Usually.

Random? Not at all. A minor annoyance like a cracked driveway ($1,500 to fix) is also likely to be associated with older kitchen appliances, faulty water pressure, deteriorating deck; poorly seated windows, etc. And then, buying that house for what the algo tells you -- or even algo minus 3% -- isn't likely to be a happy choice. Its fair market price may be algo minus 10% or worse.

Also worth bearing in mind, the Realtor community is not going to make life easy for Zillow. Once it's known that Zillow is loading up on clunkers, buyers' agents are likely to tell their customers: There's a Zillow house on the market, too. It's probably got problems. I'd demand a full inspection and some indemnities if I were you.

Common flaw of market disruptors. They assume that the existing players will remain neutral and indifferent to their arrival. The real world tends to be much tougher.

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

#209

Post by javert » Sat, Nov 27, 2021, 7:06 PM UTC

loeg wrote: post #36

javert wrote: post #18

Earlier quoted context omitted.

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…

I think there are ways to make money that are socially negative value -- e.g., theft is a pretty obvious one, or bitcoin mining. House flipping isn't a social negative. They're doing a productive activity and producing value. They aren't long-term speculators removing housing stock from the market. It's essentially home renovation, done by a 3rd party owner.

Bitcoin people believe it is a moral good (myself included), and have extremely strong arguments in favor of that view, which are rooted in morality and economics. Thus, when you make a snide anti-bitcoin remark without actual content, you come across as trying to invalidate bitcoin through mere peer pressure, which we all know is juvenile.

It's like Trump voters who criticize "libtards." We all know it's not a valid way to discuss something.

In fact, the expansion of the fiat money supply enriches the wealthy through the Cantillon effect. Then, because the value of money is going down, they pile into assets like housing. For instance, the US is becoming a nation of renters due to this effect. The stock market is similarly distorted. We need bitcoin because we need an objective form of money. That would allow stocks and houses to stop being stores of wealth and reflect their true economic value, which would be a huge boon to everybody.

I'm guessing the energy thing is what you think your anti-bitcoin argument would be. Bitcoin mining is also such an efficient market that in the long run, only the most efficient forms of energy--such as nuclear and geothermal--will be viable for it. Bitcoin is already helping to advance "green" energy. This is abundantly clear to people involved in the mining industry.

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

#210

Post by andi999 » Sat, Nov 27, 2021, 7:06 PM UTC

lisper wrote: post #186

ricardobayes wrote: post #149

Earlier quoted context omitted.

anectodal evidence, but yes, an apartment I lived in was 30k cheaper than everything in the house, and the estimate. So I was really happy to have caught a bargain. Then after moving in it turned out the neighbors were unbearable. The father had developed a DIY habit during covid and he would regularly put together furniture at 11PM. Then they had two monsters for kids. Would literally jump around uncontrollably for…

You could sue your seller for failure to disclose.

Apart from that of course you can sue anybody for anything (with more or less success); why would that be the case here? I mean isnt if neighbours are annoying a subjective thing? Do you know of any court ruling which implies one has to disclose the state of the neighbours?