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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

#161

Post by dsizzle »

pge wrote: post #99
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…

Isn't is also true that the original pricing algorithm was built for a very different purpose? It was useful for getting a ball park estimate of value, but it was hardly accurate in the underwriting sense (for the reasons you point out). The hubris of assuming that those prices were so accurate that Zillow was willing to buy at them sight unseen is mind blowing, particularly when one takes into account the adverse se…

Even if their ML model provided excellent predictions, another potential problem they may not have accounted for is adverse selection: the only takers may have been on houses whose bids were too high.

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

#162

Post by jedberg »

Zillow's mistake is that they thought their AI could replace human buyers instead of augment them.

Most AIs today are for augmentation, not replacement. Vehicle autopilots are a perfect example. The ones that are commercially available aren't capable of replacing the human, they just augment the human's abilities.

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

#163

Post by hhmc »

JumpCrisscross wrote: post #124
wpietri wrote: post #116

Earlier quoted context omitted.

Sorry, what's your source for this archetype? I thought maybe the place I worked for was just weird, but I've just looked at a half-dozen sources and as far as I can tell, we were pretty typical.

> what's your source for this archetype? I’d have to dig up the textbook sources, but the key bit is in the definition: market makers quote a two-sided market and make money from the spread [1], i.e. buying at the bid and selling at the offer. If it happens simultaneously, that’s ideal. Every second one is long or short, risk and cost are incurred. Market makers seek to minimise and manage these. In practice, arbitra…

> 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.

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

#165

Post by abernard1 »

rswail wrote: post #78
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.

Because there's a societal need to ensure that the housing stock is safe and effective. We invest (or should) a lot of our taxes into local amenities to ensure that housing is provided the best environment. Transport, schooling, roads, etc. That housing should also be up to a similar standard in terms of its externalities like pollution and energy efficiency etc. We have regulations for air travel, for car emissions…

> Because there's a societal need to ensure that the housing stock is safe and effective.

And this is accomplished via building codes, which are rigorous and applied almost uniformly in the U.S.

> We invest (or should) a lot of our taxes into local amenities to ensure that housing is provided the best environment. Transport, schooling, roads, etc.

And this is the model that has made blue cities unaffordable for the poor. They're not environmentally friendly either, their schools are awful, amenities poor, and transportation lacking. It would be hard to find one single issue where there is even parity of centrally planned quality-of-life concerns in blue cities vs red cities.

The question is not "regulations" persay. There is no magical regulation slider bar that can be adjusted to optimal result. It's what those regulations seek to accomplish. In many U.S. urban metros, those regulations are targeted to what city policy thinks the owners should do with their property, and not what they want to do with it. It's not clear those regulations have had their intended effect.

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

#167

Post by opinion-is-bad »

Blackstone4 wrote: post #25
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…

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

The winners curse also creates the curious corollary that one should probably bid less, the more people are in the auction.

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

#168

Post by andromeda-brain »

wiradikusuma wrote: post #164

Does anyone know where Zillow get its dataset from? I reckon it's essentially sale price? Can a "hobbyist" investor do the same?

There's a lot of information that is only available to MLS members. Zillow used to not have access to this information, but they slowly brokered deals with MLSes around the country to get it.

One example: The MLS in Austin, TX recently banned publicly sharing a home's sold price. https://www.zillow.com/austin-tx-78701/sold/

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

#169

Post by RyanDagg »

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.

This is a critical concept that appears to be poorly understood in at least the web development circles I run in.

It reminds me of one of my favorite Bill Gates quotes:

"The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency."

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

#170

Post by seanmcdirmid »

jason-phillips wrote: post #151
seanmcdirmid wrote: post #138

Earlier quoted context omitted.

How are the schools funded?

Both local property taxes and property taxes from urban areas that are redistributed to rural communities by the state of Texas. San Saba ISD is probably the best funded entity in the whole county. Every student has a laptop and home internet. The graduation rate is 100%. It's a small school; the senior class is only 50 students. They built the new school in the middle of town, thus highlighting its position of impor…

So Texas funds education at the state level via property taxes? That sounds surprisingly progressive of them.

Washington state does something similar, though it’s more of a subsidy. Education is still mainly funded locally, but the state kicks in with its own funding for poorer districts, so Seattle property taxes subsidize schools across the state in Spokane.

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