Zillow offers San Diego made news around the country after the company announced the termination of its ibuyer program. After suspending it iBuyer program, Zillow had lost over $420M or $80,000 per house. The Seattle-based tech company also laid of almost 25% of its active staff. So, what does Zillow’s collapse mean for the housing market?
What is Zillow Offers San Diego? Zillow Offers takes the real estate wholesaling model to the next level with technology. Zillow’s platform makes it easier and faster to get an aggressive and fast cash offers to homeowners.
Zillow purchased 9,680 homes for cash in Q3 of 2021. The company announced Oct. 17 that it was pausing iBuyer purchases for the rest of 2021, citing operational constraints. What was originally portrayed as a minor speed bump turned out to be much more. Zillow offers in San Diego, along with the rest of the nationwide iBuyer programs will cease indefinitely.
With the collapse of an entity as high profile as Zillow Offers, many are wondering if this is a sign of trouble for the housing market. With that said, most real estate experts do not see Zillow’s withdrawal as a sign of a real estate crash. Instead, it was the result of various factors that can mostly be chalked up to over-speculation and poor management.
Why Did Zillow Offers Collapse?
Zillow offers attempted to corner the Real Estate wholesaling market by leveraging AI to scale at an unprecedented rate. Their attempts to essentially hack real estate investing, however, proved much more complicated than anticipated.
Zillow Offers was designed to make it easier for homeowners to sell their house. With a few clicks, Zillow Offers in San Diego provided homeowners an all-cash offer for their house. Because of Zillow’s immense venture capital funding, they were able and willing to make these offers faster and over market value.
Zillow figured that a simple combination of zip code and square footage were enough to harness good ROI when operating at their immense scale. This proved theory completely inaccurate. As per Zillow CEO, Rich Barton, “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated”.
Zillow also over-estimated the rate of growth in the housing market. While housing continues to stay hot, there are signs that it is cooling. Despite these signs, Zillow assumed the unprecedented growth of 2020 and 2021 would continue.
What We Learned from Zillow Offers
Zillow Offers taught us that responsible cash buying requires deep knowledge of the local market. San Diego is an especially unique city in this regard. There are many areas where a few blocks can make hundreds of thousands price differences. Things like typography and floor plans can vary heavily between houses on the same street and can also heavily impact home values.
This is before diving into the physical condition of the house, which can often make or break a deal. Lastly, real estate experts are great at understanding changes in buyer preferences and how those changes factor into larger real estate trends.
All of this knowledge is very difficult to capture in one computer algorithm and it exposed Zillow’s attempt to scale as quickly as they did. By not factoring in all these details, Zillow Offers lost $80,000 per house in 2021.
Why This Matters to Homeowners
As a homeowner if you receive a cash offer for your house that seems too good to be true, it probably is. Many companies (especially ones that are not local to your area) send out over aggressive offers to hook homeowners into escrow. Unfortunately, this is often performed as a bait and switch which results in unexpected demands and price reductions after the homeowner is heavily invested in the home sale process.
Its important to partner with a local investor you trust. Local investors have a local reputation to protect and they also are better equipped to give you an accurate offer. This process ultimately saves homeowners time, stress, and money when they finally sell their house.