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Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

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Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#91

Post by wpietri »

muttantt wrote: post #11

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a…

I don't know how many people remember the Lean Startup movement and Steve Blank's book "Four Steps to the Epiphany" which is about how to take one's product hypotheses and rigorously validate them before scaling up. But somewhere there's a side note that basically said, "If we end up in another bubble, ignore all of this, because in a bubble being careful and capital-efficient isn't a great strategy."

I think about that a lot these days given the absolute oceans of capital sloshing around. I'm glad you got a piece of it! But this is a really weird way to redistribute excess wealth.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#92

Post by derefr »

qqqwerty wrote: post #72
muttantt wrote: post #11

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a…

This is an interesting lesson in algo trading run wild. Roughly, house prices have a fundamental ceiling, and it is determined by the size of the monthly payment that banks will allow the typical homebuyer to assume when approving a loan. If Zillow was the only iBuyer in a particular market, then that ceiling would likely have held, as all other non-zillow sales would still be operating under the loan approval constr…

> house prices have a fundamental ceiling, and it is determined by the size of the monthly payment that banks will allow the typical homebuyer to assume when approving a loan.

In the more irrationally-hot markets, why assume that housing is even being purchased on a mortgage by your average home-buyer, rather than being purchased cash-in-hand by a private or corporate investor looking to park wealth they've already generated? (Even if that isn't the majority of houses in those markets, the sales like that that do happen would still have an impact on property values in the affected neighbourhoods.)

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#93

Post by Eiriksmal »

matmatmatmat wrote: post #81
pezzana wrote: post #34

> ‘We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,’ CEO tells investors. That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where yo…

It's unclear to me how much visibility Zillow really had, since, AFAIK, they don't have access to MLSs in the areas where they buy and sell.

I don't know the exact percentage of properties not in Zillow but in the MLS, but it is a very small amount. Zillow changed the game when it came to us non-Realtors(R) having access to housing price data. So much so, that some housing economist types have noted what appear to be permanent changes in months of active inventory (eg https://www.piggington.com, who analyzes San Diego's market)

I don't think it's hyperbole to say Zillow has more data on residential real estate than any other company in the US.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#94

Post by RayVR »

rafale wrote: post #39
edrxty wrote: post #21

Earlier quoted context omitted.

Yes, yes they did. The vertical part of the hockey stick is EVERYWHERE. Homework: go on zillow and find the most depressing row house in urban Detroit/Cleveland/wherever with enough pricing history to have a graph. You will see that exact same line shape. Literally everything has doubled since around 2014. Completely bombed out crackhouses were a 300-500% ROI in that period. You couldn't lose money even if you set th…

I wonder if Black Rock will fare better than Zillow. My understanding is that they are not planning to sell/flip, rather rent then and hold on them forever.

BlackRock entered the market as a landlord all the way back in 2011. They are fine. Not only that, they have real investment knowledge. Zillow and OpenDoor are a bunch of amateurs that thought they could turn "data scientists" into quant traders.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#95

Post by streetcat1 »

AareyBaba wrote: post #16
muttantt wrote: post #11

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a…

I suspect the 'AI software' running these companies is using linear regression to predict housing prices and one of the inputs is the price of similar houses nearby.

should move to xgboost.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#96

Post by [deleted] »

djanogo wrote: post #85

Sold my house at the peek few months back to Zillow, they then sold it about 8% loss last month. The $/sqft price Zillow paid us is THE highest for our city EVER under Didn't make any sense to us at the time on why Zillow (and also Opendoor) was making such a high offer, the process was very smooth AND fast. Too bad they won't be around.

[deleted]

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#97

Post by wpietri »

andromeda-brain wrote: post #64
pezzana wrote: post #34

> ‘We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,’ CEO tells investors. That's quite a statement. The head of a company with a privileged view of the US residential real estate sector says that the market is "unpredictable." Not the good kind of unpredictable where yo…

I’d be more inclined to believe this if it wasn’t painfully obvious how much Z was overpaying for homes in the last half year, especially when all the other iBuyers saw the market slow down and reduced their offers accordingly. Seems much more likely that we can take them at face value and Zillow’s forecasts were just bad. Zillow hasn’t ever bought and sold homes (until now). That’s not their business.

Like 25 years ago I was writing software for financial traders back when trading was mostly done in open-outcry pits. What we had was very skilled human experts, so our systems were all basically supportive. Some larger rival, famous for their technology, thought they could do better by giving traders Newton-esque handheld computers that would receive new information via infrared networking. Then you didn't need smart traders, just monkeys who would do what the computer told them. Everybody was very impressed with all this high-tech gadgetry.

But one day we hit a period with high volatility, lots of price crashing and spiking. The handheld systems and the servers that drove them were too laggy to keep up, so the monkeys would get taken advantage of both on the way up and on the way down. It was a very expensive lesson for the execs who put too much reliance on the tech and not enough on the expert humans.

It seems so wild to me that not only are people making the same mistake, but at a much, much larger scale. Half a billion dollars lost. So far!

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#98

Post by RayVR »

samfisher83 wrote: post #79

You had bunch a smart ass physics phds pricing sub prime mortgages as aaa debt. It's just history repeating itself.

Except this time it's a bunch of "data scientists" that went through bootcamps or one year masters programs and have zero understanding of the market or trading.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#99

Post by gravypod »

datavirtue wrote: post #66
darthvoldemort wrote: post #43

Earlier quoted context omitted.

It's a huge pivot to go from flipping houses to becoming a landlord. It would essentially be a disaster for them. That's a high-touch business and probably the costs associated with it, and the legalities around it are too complex. That's basically turning into an Avalon or something. The interesting question is around their bonds. They were basically convertible bonds which likely triggered, but now they have to pay…

Flipping is extremely high touch.

If you're already in the market of buying/selling homes and you find a good contractor for your area (if you plan on making any changes) then it can be low touch.

Zillow, in many cases, just bought and instantly relisted the property on their own site.

Re: Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff

#100

Post by rflrob »

muttantt wrote: post #11

Crazy. I recently sold a condo to Opendoor for significantly more than I would have even thought to list it for. When I negotiated with Opendoor after their initial offer, I pointed out a recently sold condo (days before, in similar condition, layout and finishes) in the same complex that sold for much higher than Opendoor offered. Within hours Opendoor came back matching that same selling price. The kicker? It was a…

My favorite story of algorithmic pricing gone mad was discovered by a postdoc in my grad school lab, leading to an out of print book being listed on Amazon for over $23 million: https://www.michaeleisen.org/blog/?p=358
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