Once the news broke, the Real Estate industry began to speculate why Zillow Offers was exiting the Real Estate Investment market as an iBuyer (instant Buyer).  What’s puzzling is at the same time, the housing market has shown consistent growth.  Many concluded that Zillow’s impersonal approach to purchasing properties was far ahead of its time and that it took a hands-on approach to negotiate the value of a property.  While others talked of too much reliance on high-tech algorithms that may have been faulty from the start.  Despite the reason for their demise, what Real Estate Investors really want to know is, how does it affect my investment strategy.

Before we can determine the effect, it will help to better understand Zillow’s strategy and how appropriate or inappropriate it may have been for the market they chose to enter.  After learning more about Zillow’s core business model, there decision to quickly become a leader in the iBuying market and learned of their use of algorithms to determine property value, it was clear to me why they failed. 

Evaluating these three facets of Zillow’s business model will show how they failed them, in their attempt to become a leading Real Estate Investor:

Core Business

When you consider Zillow’s core business model, it all boils down to the data.  They were able to successfully create a marketplace where it became common for buyers and sellers of property to frequently visit.  Zillow was able to turn a profit, while creating a must have resource for Real Estate Brokers, charging them for access to this data.  Because of the enormous amount of data and search information they were able to accumulate, it gave them confidence to believe they could predict pricing and buying habits in the housing market.  This led to their interest in iBuying and efforts as a Real Estate Investor. 

Another attraction was the development of Zestimate, their property value estimation tool.  Many property owners would come to rely on Zestimate as the initial estimation of their properties value.  What makes Zestimate relevant to Zillow’s failure as a Real Estate Investor is the algorithm used in the valuation of properties.  One was based on the other.  This leads to question the validity of one, if the other is faulty (this will be discussed in more detail later in this article).   

Ambitious Effort to Become an iBuyer