Zillow Zestimate Home Value

Zillow Exits From Home Flipping - After Losing $304 Million

Zillow had announced it would use its "Zestimate" to create a cash offer to buy selected homes. A company executive called it "an exciting advancement", that enables homeowners to sell their home to Zillow (rather than hiring a real estate agent to market their home). Now in November 2021, Zillow has closed the door on that business, Zillow Offers.

Although home prices have been rising, Zillow took a $304 million inventory write-down in the third quarter, explaining it purchased homes for prices higher than it now believes it can sell them for. In its quarterly earnings report the company said it will see a total write-down of more than $540 million as a result of Zillow Offers. Zillow had aimed for a much larger Zillow Offers program, predicting that the large size would make the business consistently profitable. "Our aim was to become a market maker, not a market risk taker." Zillow CEO and cofounder Rich Barton said that "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."

After performing the Zestimate, Zillow would have an in-person evaluation of the property. An estimate for the cost of any necessary repairs would then be taken into account before making a final purchase offer. From April 2018 through September 2021, Zillow Offers purchased 27,000 homes but has only sold about 17,000.

In 2019 Zillow awarded a $1 million prize to a three-person team who were selected as the winner of a multi-year data science competition. In spite of its highly touted "Zestimate", Zillow kept purchasing homes at higher prices in September 2021. Both Opendoor's and Offerpad's median purchase price peaked in August and declined in September. Zillow kept paying more, purchasing homes at a price $65k higher than the market median in September.

Competition in the market with other iBuyers helped lead to only 10% of the proposals Zillow Offers made being accepted.

With respect to the future: "Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience."

Doesn't “market maker” bring up comparisons to the Hunt brothers effort in 1979 to become a market maker for silver which drove up the price of silver from $6 per ounce in early 1979 to $50 per ounce in January 1980? ... Buy low, sell high.

Feb 10, 2022 Update from the Wall Street Journal

"Zillow Group said on Thursday that it lost $881 million on its algorithmic-driven home-flipping business last year in its first earnings report since the real-estate company shut down that operation in the fall". Zillow, as a whole company, posted a consolidated net loss of $528 million in 2021 mostly because of Zillow Offers. Zillow offers had been responsible for the majority of Zillow's revenue in recent years but none of its profits.

 

---

Zillow CEO Spencer Rascoff Doesn't Believe the Zestimate!

Reported on inman.com: on Feb 29, 2016 Zillow CEO Spencer Rascoff sold his home in Seattle for $1.05M. When viewed on Zillow the next day the Zestimate gave it a value of$1.75M. As of today, May 26, 2016 the Zestimate has dropped to $1,568,109.

In 5 minutes you can do a better estimate than given by the Zestimate for the home of Zillow CEO Rascoff. Visit my home values page https://julianalee.com/real-estate-statistics.htm and follow the links to your city, neighborhood, or zip code and use the price per sq.ft. to estimate your home’s value.

Why Is The Zestimate So Inaccurate?

Most third party websites which provide home values use the county assessor's reported ownership transfer data. Many of the homes in the transfer data have not been publicly listed for sale. The property has been transferred to a limited liability corporation (LLC), has been transferred to a relative, or a similar "sale" which is not an open market sale. Additionally the third party websites assume that homes nearby are very similar. In Silicon Valley there are very few new single family home tract developments. Most of the tract homes are 40+ years old and each house has had numerous changes made to it.

How Accurate Is The Zestimate?

Zillow publishes data on how accurate their Zestimate is. A link to this data is https://www.zillow.com/howto/DataCoverageZestimateAccuracyCA.htm

In September of 2016 the reported accuracy for San Mateo and Santa Clara counties is:

Zillow Zestimate Accuracy

County	within 5%	within 10%	within 20%	Median Error
San Mateo	37.2%	63.6%	88.1%	7.1%
Santa Clara	48.5%	75.4%	92.3%	5.2%
San Francisco	28.8%	54.7%	80.5%	8.9%

If you were to pay 5% more than you had to, you would be extremely upset with your real estate agent. If you offer 5% too low, you may not even get a chance to make a second offer. Do not use Zillow's Zestimate as the exact amount to offer, if you are buying, nor the value to expect, if you are selling. Use the advice of an experienced real estate agent who is talking with buyers, sellers, and other real estate agents every day. Zillow is only accurate enough somewhere between 1/4 and 1/2 of the time. (In rural areas it is worse.)

Zillow can give you an easy way to compare city or neighborhood home values but an even better way is to visit my Silicon Valley home values web page and find the sales price per square foot for the neighborhood you are interested in. The values are based on open market home sales. Also, pay attention to the size and age of the homes to judge if it is a typical home for that neighborhood. The information you need can be reached from my Silicon Valley home values web page.