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Posts Tagged ‘Zillow Offers’

Zillow Offers As A Proxy For ‘Big Data’ Shows The Lack Of Qualitative Analysis

November 7, 2021 | 8:24 pm |

Yes, big data usually infers ‘quantitative’ analysis, as in “relying on numbers.” The Zestimate legacy of profound inaccuracy finally reached a devastating conclusion with the collapse of Zillow Offers this week and the loss of hundreds of millions in shareholder equity. Zillow never figured out the qualitative part that enables the actual precision in the pricing of a home sale.

There is a lot of talk right now about how other iBuyers are continuing to buy and sell properties so the space is still viable – business as usual. But step back for a moment and think about this:

  • The iBuyer market is currently overcrowded, even with the loss of Zillow Offers.
  • The iBuyer bold-faced name is OpenDoor who was the unicorn of Softbank who famously backed WeWork without any apparent due diligence.
  • The iBuyer segment is characterized by its razor-thin margins and billions of investment required.
  • It was created and run in a rising market, most of it a boom, and was recently turned off during the recent downturn.
  • It is wholly dependent on housing markets with homogenous housing stock and will always need high volume just to survive.

I feel pretty confident there will be further fallout over time, but the iBuyer space will settle into a small segment of the overall transaction universe. It has been wildly overhyped (at real estate brokers and real estate appraiser’s expense) as investors, burdened with high volumes of capital, desperate for upside in housing in this fintech boom.

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This Just In: The ‘A’ in ‘Zillow’ Stands for ‘Accuracy’

November 7, 2021 | 8:21 pm | Explainer |

The news came quickly and brutally (especially if you were a ZG investor):

@mortgage_yack #zillow #PINKHolidayRemix #realestate #utahrealestate ♬ original sound – Jack


I jumped on the bandwagon with this:

And this was a perfect post:

Now let’s digest this in the context of price accuracy:

While Zillow’s CEO Rich Barton essentially said early on that he didn’t want their iBuying efforts (Zillow Offers) to be seen as gaming the Zestimate like that dumb viral Tik Tok video inferred a month ago.

@seangotcher

#housing

♬ San Tropez – Illect Recordings


Yet it would seem unlikely that Zillow Offers used something completely separate and conceptually very different from their ‘Zestimate’ because it would be quite expensive and extremely difficult to keep a radical new valuation concept a complete secret. All we know at this point is whatever valuation methodology they used was a complete fail. And to go a step further their Zestimate valuation methodology has long been a complete failure in the accuracy department. But it hasn’t been a complete failure in the consumer credibility department at all. In fact, it’s been quite successful – after all, Zillow weened control of the U.S. consumer away from the real estate brokerage industry who had enjoyed 100 years of gatekeeper status.

This is why the real estate brokerage industry pays Zillow substantial fees to be featured on a search page in their “Pro” offering, using the source data provided to Zillow by them. Its quite diabolical.

So if we consider the Zestimate to be a proxy for the Zillow Offers valuation tool that failed, it gets worse….

The national median accuracy rate of the Zestimate is 2%.

Because they are using “median” and that term is largely ignored by consumers in the phrase “median accuracy rate” that 2% sounds pretty darn accurate. Yet there is no fine print here. The phrase literally means that 50% of the time the Zestimate is within 2% of actual value and 50% of the time it’s not.

And it gets worse…

The median accuracy rate is only within about 2% if the property being Zestimated is currently listed for sale. But if the property is not currently listed for sale, the median accuracy weakens to 7%.

For the Zestimate to move from 7% to 2%, they are reliant on the broker expertise involved to price the property and get it on the market.

Said another way, in order to get the median accuracy rate from 7% to 2%, they need the brokerage community to price the property to get that touted accuracy rate.

To summarize this point:

The brokerage industry gives all their data to Zillow because Zillow marketed to and won the consumer.

The brokerage industry pays Zillow to market them on the Zillow platform because they gave Zillow all their data.

Zillow became a brokerage firm and therefore a direct competitor to the brokerage industry, something they promised early on would never happen.

Zillow uses the brokerage industry to inaccurately price properties, placing them in an adversarial position with the consumer who wants to sell their home.

Yeah, I get it.

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#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
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