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Does Zillow's collapse signal the end of iBuying or a lesson for others using algorithmic pricing?

Zillow's iBuying flop could give buyers an edge
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Posted at 6:00 PM, Nov 11, 2021
and last updated 2021-11-11 22:05:37-05

DENVER — People in the Denver area working to get into new homes are trying to capitalize on the collapse of Zillow’s iBuying program.

“I find myself in a very precarious place,” said homebuyer Katy Charles. “I bought a house years ago and was hoping I could upgrade the kitchen and other areas.”

Charles is realizing those renovations might cost more than just moving on, so she’s searching for a new place while at the same time realizing prices are sky-high in metro Denver.

“I think price is everything,” Charles said. “I’m happy that Zillow is having to give up the land-grabbing greed that they created for themselves."

The real estate listing company bought thousands of houses nationwide based on an algorithm and then tried to flip them for a profit.

But Zillow forgot the first rule of betting: the house always wins. Its algorithm was wrong and its math was off.

Now, its iBuying division is kaput, workers are being let go and the company is dumping thousands of homes, including at least 114 here in metro Denver.

“About one-third of them went down about $20,000, which is pretty significant,” said Joy Dysart with HomeSmart.

Dysart says what algorithms lack are in-person, first-hand walkthroughs.

“Algorithms cannot tell you the drive-around-the-block curb appeal,” Dysart said. “Or if there’s been 20 cats in the property. Every property has its own identity and I think Zillow is realizing that. You can’t buy based on algorithms.”

But some say despite Zillow’s missteps, this iBuying experience might be here to stay.

“Opendoor just realized their highest revenue ever,” said Chad Nash with Compass Denver.

Nash points out Opendoor and Offerpad could learn from Zillow’s mistakes.

“I think they’re here to stay,” Nash said. “At one point in time, Zillow was climbing the mountain to be king. I think they had a mishap, but people are going to learn from that.”

Nash says that for realtors, it’s all about the experience of seeing homes in-person.

“And I think consumers are saying, ‘Yes, we like you. We trust you, but we still want convenience,'” Nash said. “That’s why iBuying is not going away.”

Nash says the convenience of selling your home without ever having to declutter, stage and show it is way too appealing to some sellers — even if they lose a few thousand bucks by doing so.

“It really comes down to, 'How do we make it better? How do we triangulate those three things together,' which I think Zillow failed to do by not having a consumer-facing experience,” Nash said.

Dysart points out that iBuying doesn’t exactly work to create community.

“It takes them away from buyers who are going to live here,” Dysart said. “Families and those first-time homebuyers.”

Whatever the case, Dysart says those Zillow homes will quickly be absorbed right back into the Denver market, which is still at record highs. She’s telling her buyers to strike while the iron’s hot and take advantage of Zillow’s misfire.

“Buyers are having such a hard time right now, we have to look at everything that comes on the market,” Dysart said.

“I think if you can get a better price for that property, you’re going to go with that price no matter who the seller is,” said Charles.