Why Did Zillow Lose Half A Billion Dollars?
Here is what Zillow’s recent business failure means for you.
Recently, there’s been some pretty big news in the real estate world. If you don’t know what I’m talking about, one of the biggest real estate companies in the world, Zillow, just announced that they will no longer be purchasing homes. Why didn’t this venture work out, and what does it mean for you? Let’s talk about it.
According to Zillow, they ended up losing half a billion dollars from their purchasing of investments. They say this was because they could not accurately predict where the market was heading. In other words, their algorithm would tell them a home was a great investment at a certain price, and they ended up overpaying for a lot of properties.
The truth is, real estate is a local business. No one has a crystal ball, and the farther away you get from a market, the less you know about what’s really going on. For example, my knowledge doesn’t come from an algorithm; I’ve been in the business for 16 years, so I have a pretty good idea of what the El Paso market will do. However, if you asked me to predict what will happen in Phoenix, I wouldn’t know where to start.
Agents know their local areas better than any algorithm can.
So that explains why their model was flawed, but they also decided to jump into the business big time. They anticipated that our crazy rates of appreciation would continue, but as things began to cool ever so slightly, they ended up losing a ton of money. Zillow had to fire a large part of their staff, and while half a billion dollars isn’t back-breaking for such a big company, it does mean they’ll have to play catch up for a while.
Even with these mistakes, things could have worked if agents had been allowed in the process. You see this with other big investment companies, and the results have been much better. The truth is, agents don’t sell houses; we facilitate transactions. We help all parties involved communicate, and we make sure our clients receive the best deal possible.
If you are looking to buy or sell in El Paso, or if you have any questions about real estate, please call or email my team. We are always willing to help.