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

#231

Post by Lhiw » Sat, Nov 27, 2021, 7:48 PM UTC

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…

> and it's not clear how you would automate this.

The amount of things you encounter in the real world is ultimately limited.

Any half decent valuer will already have a literal book on these types of things predefined.

Automating it isnt really the problem, properly surveying the grounds and the area are.

I'd also posit going this way is the wrong approach, they should be using metrics like time on site and ratio of views online vs views on site.

These things work as proxies and are enough to apply as a modifier to more usual pricing models.

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

#232

Post by robocat » Sat, Nov 27, 2021, 7:48 PM UTC

jdross wrote: post #172

leot wrote: post #146

Real estate is one of the few markets where non-experts can make money, where it’s not a hyper-liquid winner-take-all game. Coupled with this is the fact that housing is a necessity and owning a home leads people to invest in their communities more than if they were renting, I think it’s a good thing if Zillow (and OpenDoor, etc.) fail at pushing everyday people out of the business of real estate investing. Here’s ho…

Opendoor doesn't compete with real estate investors, they compete with realtors and mortgage brokers. Opendoor's primary benefit is to enable people to move when they otherwise could not easily do so, creating more liquidity and matching supply and demand (often number of bedrooms in house to number of bedrooms now needed). The challenge with moving is that most people need to sell their current house before they can…

Does Opendoor avoid some of the standard x% realtor fees on either or both of the transactions? Reduced fees could easily make a huge difference to expected profitability.

In contrast, “Zillow Seeks to Sell 7,000 Homes for $2.8 Billion” so Zillow lost more than a few percentage points.

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

#233

Post by seanmcdirmid » Sat, Nov 27, 2021, 7:51 PM UTC

goldenkey wrote: post #185

seanmcdirmid wrote: post #170

Earlier quoted context omitted.

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.

You'd be surprised at how progressive southern states are. The Texas state motto is literally "Friendship." Now, I don't know much about Texas but I did live in Arizona for a few years. It surprised me more than a bit, as someone who grew up in New York. Arizona legalized medical marijuana quite early, followed by recreational marijuana. Their medicaid program AHCCCS [1] is extremely comprehensive and even pays for U…

> Cactuses are protected from destruction by law, and must be transplanted when doing clearing for construction. You may find the idea of being able to own a firearm without a license to be unpalatable but the state largely remains very safe crime-wise (perhaps due to that?)

My mom lived in Tucson and decided on a visit that I might want to go shooting with her and her boyfriend at the time. Suffice it to say, it didn't go well. BTW, Arizona does very poorly in crime rate (10th highest for violent crime, 3rd highest for property crime), especially Phoenix and Tucson (but is very urban, so there is that also). I'm not sure why you consider it safe crime wise when the numbers say otherwise. They also do very poorly in education (rank 48th). I was really surprised they could beat New Mexico and Louisiana (https://www.wmicentral.com/news/latest_news/arizona-ranks-48...).

It is beautiful. I would love to live in Tucson someday, but with the bad schools, it would have to be after my kid was done with school and I retired.

> I miss living in Arizona. It's a beautiful state with very caring folk. I saw almost no homeless folks in Phoenix. Folks there seem to really care about their fellow citizens. Southern hospitality is for sure a thing, take it from a daft boy from Brooklyn!

When I was a kid, I took a greyhound bus from Vicksburg MS to Seattle WA via the southwest approach (I later did the northwest route, which wasn't as interesting). People would get on the bus from various prisons in Texas (the bus stopped a lot at prisons), New Mexico and Arizona...and were all going to LA. Why bother being homeless in Phoenix (when summers can kill) if LA isn't that far away? Heck, that applies to Texas as well, not just Arizona.

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

#234

Post by spoonjim » Sat, Nov 27, 2021, 7:53 PM UTC

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…

When we were looking for a house we rejected many because of the “wrong sort” of neighbor, ascertained entirely (and possibly erroneously) without meeting them. I doubt Zillow can model that with public data.

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

#235

Post by bee_rider » Sat, Nov 27, 2021, 7:54 PM UTC

perl4ever wrote: post #223

opportune wrote: post #158

Earlier quoted context omitted.

I don’t think it’s just that they had a poor model, but the combination of that and adverse selection. 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…

>adverse selection According to Matt Levine's recent column, while you might think that, it wasn't what sunk them in practice. Bidding low in fact worked; it just was inherently limited in scale, which is why they switched to bidding higher. Unfortunately, being wrong in the other direction is very bad. "I know, I know, the traders are saying: “No, this is stupid, your algorithms will not be 100% precise, some of you…

I wonder -- does it really matter if the previous homeowner is more informed than Zillow? For things like "annoying neighbor" or other hard to quantify/quickly detect annoyances, the buyer doesn't know about those things either, so I guess the information asymmetry is almost 100% in Zillow's favor, right?

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

#236

Post by elliekelly » Sat, Nov 27, 2021, 7:55 PM UTC

andi999 wrote: post #210

lisper wrote: post #186

Earlier quoted context omitted.

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?

There is a famous (among first year law students) case[1] that seems relevant given the nature of the issue is one a buyer would not reasonably be able to ascertain on their own. One possible point of differentiation: ghosts are a permanent defect on the value of the property while loud children living next door would probably only torment the homeowner for a decade or so at most.

The opinion is famous not just for its unusual fact pattern but also because the Judge clearly had quite a lot of fun working in other-worldly puns and references while writing it.

[1]https://en.m.wikipedia.org/wiki/Stambovsky_v._Ackley

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

#237

Post by it_does_follow » Sat, Nov 27, 2021, 7:56 PM UTC

JoeyBananas wrote: post #159

it_does_follow wrote: post #148

Earlier quoted context omitted.

> a machine learning model Not to mention that generally ML models are not useful for assessing risk . ML nearly always focuses almost exclusively on some point estimate rather than a distribution of what you believe about a value. The former case is all about expectation and the latter about variance . Correctly modeling variance is far more essential to risk modeling than expectation alone. I recall talking to a st…

> Not to mention that generally ML models are not useful for assessing risk. ML nearly always focuses almost exclusively on some point estimate rather than a distribution of what you believe about a value. It is actually quite a common practice to design neural networks that output probability distributions.

That distribution is still a point estimate for a multinomial, not truly the distribution of your certainty in that estimate itself. This is essentially a generalization of logistic regression, which will of course give the probability of a binary outcome, but in order to understand the variance of your prediction itself you need to take into account the uncertainty around your parameters themselves.

This can be done for neural networks, through either bootsrap resampling of the training data or more formal bayesian neural networks, both of these are fairly computationally intensive and not typically done in practice.

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

#238

Post by spoonjim » Sat, Nov 27, 2021, 8:00 PM UTC

lordnacho wrote: post #122

pge wrote: post #99

Earlier quoted context omitted.

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…

Yes, you might discover that your average price is accurate, which is just fine for a reporting site. But beneath that there could be some structure, for instance there might be blobs of houses that your model makes too cheap vs reality, and blobs that are too expensive. If those are identifiable, eg via some sort of local knowledge, you might find that people will sell you houses that you've marked too high, but you…

Totally. There’s a surly creep who lives on our street and the houses next to his are worth less because of that. But Zillow would never know that.

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

#239

Post by [deleted] » Sat, Nov 27, 2021, 8:00 PM UTC

opportune wrote: post #158

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 don’t think it’s just that they had a poor model, but the combination of that and adverse selection. 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…

[deleted]

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

#240

Post by pueblito » Sat, Nov 27, 2021, 8:02 PM UTC

goldenkey wrote: post #185

seanmcdirmid wrote: post #170

Earlier quoted context omitted.

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.

You'd be surprised at how progressive southern states are. The Texas state motto is literally "Friendship." Now, I don't know much about Texas but I did live in Arizona for a few years. It surprised me more than a bit, as someone who grew up in New York. Arizona legalized medical marijuana quite early, followed by recreational marijuana. Their medicaid program AHCCCS [1] is extremely comprehensive and even pays for U…

Arizona isn’t in the South