In a shocking turn of events, former real estate empire, Zillow, has announced that it will terminate its house flipping business after a failure to accurately predict housing prices, leading to more than $550 million in losses on homes purchased in the second half of this year, and a quarter of their staff being laid off. 

Poor Business Model

The company entered the business in 2019, hoping to leverage its popular online marketplace and massive data sets to profit from buying and selling homes in high volume. What they called their “iBuying Unit,” allowed for homeowners to sell their properties for cash to Zillow, rather than having to go through a Brokerage, where Zillow would then invest in repairs and upgrades to sell for a profit. This tech-powered house flipper makes money on transaction fees and home-price appreciation, and trusts in their pricing model algorithm called “Zestimate,” to predict how much they could net 6 months in the future. They quickly learned that even with the latest tech, the unpredictability in forecasting home prices far exceeds what they anticipated. 

Ultra-low mortgage rates and a need for more space to work from home have driven robust home-buying demand in the past year and a half. Prices have climbed in almost every corner of the country! It almost seems impossible to lose money buying and selling houses at this time, but this gradual tapering in price growth flummoxed Zillow’s algorithm, leading the company to finally pull the plug. 

Manipulating the Market

It’s hard not to mention the damage flipping corporations cause to our communities and the real estate market as a whole. Zillow currently holds thousands of homes, which could otherwise be in the hands of families, like yours. Home appreciation has historically been how Americans achieve financial prosperity, and with fewer homes owned by Americans and more owned by corporations, middle-class families are losing the opportunity to build their own wealth. In addition, purchasing properties at this volume and selling them at high prices sharply increase the cost of living in many communities, unnaturally skewing the market in their favor.

What Now?

Zillow plans to sell 7,000 properties for a total of $2.8 billion, meaning there is a possibility that tons of inventory will be hitting the market in the months to come, and the influx will be felt well into next year. If you’ve been thinking about selling, NOW IS THE TIME when prices are skyrocketing, demand for homes is high, mortgage rates are historically low, and before excess inventory tanks all of these “perfect storm” factors. Sellers—you are sitting on a gold mine that won’t last forever! As Zillow recently learned, you can’t predict the future, and you can’t expect that things will remain in your favor. As a real estate company that has been through the worst housing market crash in history, we are well prepared and knowledgeable to help our clients through unpredictable changes in the market. Small businesses like The Reynolds Team Network stand united as corporations like Zillow crumble under their own weight.

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