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Comment by ineedasername | Hacker News Reader

Sounds like they got in too close to the peak (not to mention delays & increased costs in refurb) and didn't factor increased carrying costs on the potential that these would sit on the market a bit longer if they wanted to sell at a higher premium.

A hard lesson for them that listing aggregation & analysis of the market is far different than direct investments & flipping. Flippers take a big risk and offset inevitable losses on some homes with the profits on others. And generally if they do well it has a lot to due with deeper knowledge of the subtleties in the local housing market & partnerships with realtors that have customers in the pipeline already. There's a lot more to it than what might appear on the outside to "tech disruptors", or anyone else who thinks it looks easy from the outside.

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They simply overpaid. My neighbor received an offer of $150k over the z-estimate in Tucson. He felt that it would be stupid not to sell and wasn't even thinking about selling before the offer came in, so he sold. He paid a slight premium to buy his new house out in the boonies, but the gain offset the rise in price. They are currently listing his old house at the zestimate... I doubt they find a buyer even at that price unless its someone from out of state that has no clue.

I don't think it takes a rocket scientist to see the hockey stick graph on Zillow's price div to see this isn't a great time buy. It makes me giggle to think about what they were thinking. Some houses have tripled in "value" in a year. It's artificial and it will revert to the mean. Income in this city simply doesn't support the price level we are at for renting or buying. People are moving into apartments or out into the sticks to wait it out.

I think you highlighted an important concept. Rather than overpay, people can look further out from a city center and get cheaper housing. Sure the commute may be longer but there has been a lot of remote working over the last year or so, many companies going fully remote.

Home buyers have many choices and at a certain price, its simply too much and they go elsewhere.

I think zillow is trying to unload their mistake onto some entity they can convince it is still worth it.

>look further out

This is what has driven up housing prices where I live. It's having a ripple effect as those with more flexible WFH schedules decide they can now afford to buy a home outside of the city, and those outside the city realize they can get a significant upgrade in home quality for no extra cost by moving still further away.

As people begin to make choices like this at a systemic level, I really think the WFH genie is well & truly out of the bottle for good: When people can get a significant boost in quality of life & w/l balance with nicer living quarters & more flexible schedule, we simply won't be willing to take a job that doesn't allow for this. Especially once we've made the move away from central business hubs already and would otherwise have to move back.

What would be really nice to see is some of the nearly vacant small rural towns see a resurgence of some kind. Grant programs by the government to spark a movement to these areas would be interesting.

And $150k is how much of the house? Needs some more numbers so we can get an idea of the scale of overpayment.

Because if they're just off a few percent, I don't know why Zillow wouldn't just hold on for a bit.

Carrying costs. Electricity, landscaping, water, sewer, city taxes, etc.

>as of October 27. Out of 224 homes, 208 — or 92.9% — were priced below what Zillow paid.

>36.5% were listed for less than the company first paid for them from the outset.

So these are ZillowBots numbers in Phoenix. They start off with a third going for less than they payed. The rest "hold on for a bit" and slowly the price keeps dropping

Eventually there are so many price drops where 93% of the homes are on the market (so, even now, not even sold) for less than what ZillowBot thought was a good idea

source: https://www.businessinsider.com/zillow-offers-ibuyer-sell-ph...

so 2/3 of these houses go with the "hold on for a bit" strategy then fail

I don't live there, but from the outside it seems like the Phoenix market is on a downwards trend, and they chose horrible timing, or really bad algorithm coding

Maybe on paper it costs 10k to do cosmetic fixes on a house that will now sell for 80k more. But there is no guarantee that workers will be available and interested in doing that small budget work. More importantly to your point the local realtors and other people in the area are likely to pick up any really good deals before Zillow gets to them.

I think there's more going on here than simply RE speculation. Most importantly, Zillow is building capability. Capability to buy & sell quickly through processes, tooling, networking, and brand recognition. There is a long play here. Zillow's goal has always been to fully disrupt the real estate market. Why should this stop with brokerages and agents? Shouldn't investors also be on the list?

> Investors

Sure, medium/large flippers may have investors putting up the money.

And I agree that Zillow is not likely backing out of the game all together. They just had an expensive lesson learning what they don't know about how to go about this. But their current strategy was also only viable during rapid price increases. A completely different one is needed in other market condition.

Making money flipping in a flat market is even harder: It takes more work to find depressed homes at below-market prices. There's no good algorithm that will do that without boots on the ground looking at the property in person, not to mention the surprises you get when you open up the walls or floors to start a refurb. That doesn't mean Zillow can't do it: what I'm saying is that it's very much not in the realm of their core competencies. Building out large scale logistics networks for this IRL is much different than their current line of business. I'm sure they'll try again, but I'm also almost as sure that they'll have a few more significant stumbles along the way.

Since when has SV startup culture relied on the whims of the market to generate their profit? I believe Zillows end game is to become the market. Once the scale is large enough, it's no longer an issue. hey just mistimed it or had some other unforeseen issues in this case.

They hit the wall that most people are hitting. There are just not enough people out there to meet the demand right now for residential construction and remodeling. More people want work done, and fewer people are getting into the industry, so the calendars are booked and costs are going up.

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