I knew that consolidation would come to the world of iBuyers soon, but I never imagined Zillow would be the first to drop out. I’m rarely caught off guard because real estate is my job, hobby, and entertainment – whatever you call someone who is beyond obsessed with a topic… that’s me. I’ve let things settle in my head a bit before writing this, but it still may feel more like a brain dump and a bit less coherent than my normal writing style. Having 3 article deadlines this week already and then this bomb dropping means there must be compromises somewhere.
I think
the most important place to start is that iBuying itself isn’t in any immediate
danger. Pouring through the data available from the three largest public companies
in the space makes it pretty apparent that Zillow’s issues with profitability,
process, and restraint were unique to Zillow. They were attempting to scale incredibly fast and steal market share from competitors by being aggressive on pricing due to faith in their data and algorithms. Consumers like having the option –
even if the majority don’t accept the offer an iBuyer makes, and home builders
have formed great partnerships with these organizations to help their customers
with homes to sell have a level of certainty not previously possible. Any certainty
we can add to our customer’s experiences – especially today – is pretty magical.
Opendoor
is clearly in the driver’s seat (they have been since the beginning) – and now 2022
will be an even big year for them. They’ve already announced major deals with
both Realtor.com and NewHomeSource.com – with rumblings of even more exciting
things to come. This isn’t a commercial for them, but if you haven’t yet made
contact with anyone on the Opendoor
team I would make a quick call or email today.
On the
branding angle – I think admitting that “disappointing” most people who asked
Zillow to make an offer (according to Rich – only around 10% accepted offers)
could have been a negative hit to their brand perception is really insightful.
As much as you may enjoy “Zillowing” – if they offered you an offer below what
you expected… will you hold a grudge?
It seems
that the largest error by the Zillow Offers team was a belief that historical
data could accurately predict a 33+ trillion-dollar real estate market three to
six months in the future. Investors were willing to take the ride on this bet,
but I’m not sure they ever fully believed it would happen. If they did – the stock
price of Zillow should have rivaled that of Tesla or Apple. Zestimates are
still incredibly accurate – all things considered – when it comes to a
property's current value, but the Zestimate doesn’t have a time-traveling
DeLorean.
Here’s what Rich Barton – the current CEO – said when
earnings were released this week. “When we decided to take a big swing on
Zillow Offers three and a half years ago, our aim was to become a market maker,
not a market risk-taker, and this was underpinned by the need to forecast the
price of homes accurately, 3 to 6 months into the future. We used historical data and countless
simulations to test this belief.”
If anyone was able to predict correctly and routinely six
months into the future about anything – we would need to introduce a space /
time continuum police force to keep the world from falling apart. A.I. is
still mostly a future promise – not a current reality.
Having the largest and “best” set
of data alone won’t save you from making big mistakes. Zillow is a technology
company – one of the best. The Zillow Offers saga showcases the difference between
a great tech company getting deeper into real estate vs a real estate company
getting deeper into technology. Right now I would rather bet on someone like Lenx than a pure technology company
to disrupt new construction. Also – why aren’t more of the big players doing
something like Lennar is? If they’re thinking about it, please tell them to
call me.
Big
data is still important, but when the stakes are high algorithms still are
losing to humans. They aren’t as smart as many think (or would like you to think) they
are. It won’t stay that way forever – but there’s no reason to bet the farm
that it’ll happen this year or next year. Keep collecting the right data, keep
empowering your teams to use it, and keep testing. Don’t engage autopilot.
Those
are the words Rich used when he took back the reigns of Zillow. Specifically,
he was referencing Opendoor. If that threat remains, how will they pivot and
keep fighting against it? Likely they will triple down on the idea of being the
best marketplace and service provider possible to their core constituents instead
of a fully vertically integrated real estate company.
Their
acquisition of ShowingTime – a service
that is the real estate industry's leading showing management and market stats
technology provider, serving more than 950000 agents – is a great example. They’ll
help smooth out any process they can as a technology company – still with the
hope that they can add on ancillary services like mortgages.
Here’s
more from Rich during the latest earnings release on the idea. “Instead of a
sole focus on solving the seller’s pain point by purchasing from her ourselves
as the primary through Zillow Offers, we will expand our view and explore a
marketplace of selling solutions that give her certainty and convenience, all
while addressing the broader opportunity.
In solving for her move, however, we plan to focus on solutions that are
asset- and capital-light for Zillow. We
can still offer choice, simplicity, speed, and convenience. We will be open-minded about our exploration
into providing these “sell” solutions ourselves and/or through partners. Both are interesting. And rather than having to buy her home to
help her sell, we are now simply going to help her sell."
Will it
be enough to take care of the threats to their brand dominance? Only time will
tell, but they are at least playing to their inherent strengths now. They can
still cause quite a ruckus (in a good way for the consumer) – stay tuned.
Some
articles and comments floating around are saying that perhaps Rich and his team
were caught trying to manipulate the market by a viral TikTok post earlier this
year and that’s why Zillow Offers was shut down so suddenly. This doesn’t pass
the test of sanity to me. Why would Rich and the entire board cover for a lower-level
employee if they tried to manipulate the market – and if Rich and the board did
know about it then firing 2,000 employees is not a good way to keep them from talking.
It isn’t worth talking about this at any greater length.
Also –
I really admire Rich. He didn’t ignore the opportunity iBuying represented and
wanted to take a swing at it. He’s taken many big swings before and been able
to come out ahead… he’s someone you generally want to bet on winning. I admire
him even more though for failing fast and not betting the health of the entire
company on Zillow Offers.
However,
his pivot on how bullish he was on Zillow Offers from Q2 earnings to Q3 earnings
is alarming. The voice at the top pivoting that dramatically either means he
was ignorant to what was happening below him, or that the team below him was
filtering the truth too much and Rich couldn’t sniff it out. Investors are rightly
disappointed by the striking reversal– and some are actively calling for Rich
to leave. As someone who has essentially a .866 batting average at the plate
though – I think he deserves quite a few more pitches.