As the world moves closer and closer to virtual realities and artificial intelligence, no area of our lives will be unchanged. Real estate is and has always been a people-to-people business and based on Zillow’s recent experiment with automating the process, the people are winning.
Zillow created a decade-long successful business when they established an algorithm to put a value on practically any property in the country. Zillow’s Zestimates were so popular it spun off the term “Zillow Surfing” because who doesn’t want to know what their house or their relative’s house or their best friend’s house is worth? Use of their app grew 19% this year alone. With all that experience and success, what could go wrong by going into the house flipping business?
House flipping is nothing new to the real estate business. An investor buys a home, does a quick touch up and puts it back on the market at a tidy little profit. Sounds perfect for a company that already knows the value of everything; therefore, Zillow went into the iBuying business.
Based on their Zestimate, Zillow makes offers to sellers who were looking to make the process faster by eliminating the long inspection, appraisal and closing process. Typically, they were looking for properties that were relatively new, about the same size and affordable, basically homes that they could turn around quickly without doing much work.
Unfortunately for Zillow, they started their iBuying program at just the wrong time. Because of the pandemic, home prices rose sharply and properties that did need renovations sat on the market because of the dearth of contractors. Despite the buying frenzy the country was in, Zillow said it was able to convert only about 10% of serious sellers who asked for a Zillow offer – apparently there was too much competition from non-virtual buyers.
They ended up announcing the shutdown of the iBuying division of their business in early November. It will take them a few more quarters to wrap it up at the expense of several thousand employees. Their flipping program was a big flop. This all goes back to real estate being a people-to-people business, particularly when the product you’re buying and selling is generally the most expensive thing in people’s lives.
So, is there a future for iBuying? Probably; there are still companies out there doing it. My opinion is the machines will never be good enough on their own to compensate for real people. It’s certainly possible that the future lies in a combination of virtual and real people involved. The process still needs a real estate expert to lay eyes on the property and the location looking for unusual and negative aspects that no algorithm can compensate for.
Meanwhile, there are a whole bunch of startups who will purchase a home for a buyer with all cash and wait for their mortgage to be approved for a fee. This, of course, is in response to buyers being locked out of the market by all-cash buyers. The National Association of Realtors reported that homes sold in July received an average of 4.5 offers, with all-cash buyers with no contingencies always rising to the top of the pack. A few of these companies are Flyhomes, Ribbon Homelight Inc. and Orchard.
Selling a home is not like selling shoes online. They’re hard to return if the fit isn’t right and companies who have experience in this area of marketing are finding that out. Replacing the knowledge of a hands-on real estate professional isn’t easy, no matter how good you are at writing algorithms.
