Why Zillow Couldn’t Make Algorithmic House Pricing Work
wired.com
wired.com
One aspect not mentioned in this article is that when you offer an average price for a home, you are only going to get the owners of below-average homes taking you up on the offer, i.e. the Lemons. This is a tricky problem for Zillow to resolve given the mismatch in knowledge between the existing owner and the iBuyer.
https://www.npr.org/2021/11/08/1053689886/ibuyers-zillow-and...
Zillow can have better information on the market value of a house that it has worse access to information about than the owner.
* No general inspector I have gotten was qualified or willing to touch the roof. If I wanted to look at the roof condition, I needed to pay a roofing company separately to come out.
* The electrical inspection consisted of taking the lid off the electric box, and looking for loose wires, and putting a "does this have ground" meter in all of the power outlets. Most of the interesting electrical issues that could exist are burred in walls and not accessible.
* General inspectors are not HVAC techs, and can't really say much about HVAC beyond "The furnace is 14 years old based on the install sticker, and appears to turn on"
* Structural issues were like.. look for visible cracks in foundation, but much is likely behind drywall and unable to be seen. Maybe put a marble on the floor and see if it rolls.
Obviously they can't see hidden problems but the really bad stuff (cracked foundation with seepage issues, water damage, mold, etc) is worth looking into. My inspector pointed out a number of things like old cast iron plumbing, some unidentified venting, electrical that wasn't to code, insufficient ventilation to the attic, etc.
It didn't affect the price but it did give me a good checklist for what to fix in what order.
I’m looking at starting a campaign to force mega rental companies to get home inspections and provide results to tenants.
A large apartment building with a known history is very different then random houses where incompetent people did who knows what to the internals.
Sounds like I may need to push more then a standard home inspection.
Assuming the electrical work was done by electricians and not total amateurs, there should be absolutely no issues inside walls/ceilings, every splice or termination must be ‘accessible’, which means in a junction box that is not buried in a wall. If a box is inside a ceiling or wall, an access panel would make it accessible.
Electrical issues are almost always at the point of termination, unless you have animals chewing on your romex insulation. Bad splices and terminations cause arcs, which cause fires, which is why AFCI breakers are now mandatory for almost (unsure if it’s all or not, I work on the commercial side) every receptacle circuit inside a residence. Aluminum wiring caused fires because aluminum expands and contracts with heat faster than the terminal screws that were used in the wiring devices of the time. Now we have AL-CU devices that eliminate this problem.
You can’t always count of electrical work being done properly though.
It might be a poor checklist, but that's another story. I suspect there are good checklists you can download that you can use yourself and give to an inspector who is well meaning but inexperienced.
No list will fix dishonesty however. They can simply check off boxes.
If you’re slightly decent with houses and construction, you’d see most of the things they see anyway.
Sadly, I’d place home inspections closer to useless to useful for me because I am familiar enough with housing codes to do a visual inspection.
As the sibling post said, most inspectors aren’t using NDT tools to check if there is wood rot behind that fresh coat of paint
Why would someone want to sell a home fast? Generally due to a relocation urgency or financial challenge. If it’s financial, there is a decent likelihood that proper care and maintenance may have been missed and that could lead to a lipstick on a pig kind of situation.
From his notes: “They valued old-school growth hacks from 2007 over taking user-centered, data-informed, research-backed approaches. They spent more time flexing and building decks that drove an internal narrative of Sellers being happy, than actually addressing real and persistent product problems that ultimately led most sellers down a path where they didn't know what to expect, didn't understand the process and were inundated with calls and scheduling.”
https://www.linkedin.com/posts/bardlavens_zillowoffers-zillo...
Many of these leaders, were leaders not on their merit, success or competency, but simply because they stayed at the company long enough that their titles grew as the company did.
Curious how people at FAANG and other midsized to large technology companies feel about this. Can we look at a company like Google and find senior people who rose through the ranks not so much because of talent or intelligence or leadership qualities but rather because they stuck around long enough? Or is this something found mainly in toxic companies like the author described Zillow to be?
First, it is written from a perspective of "I/we know better, they didn't listen to us, they're incompetent", as in here:
> We knew back then how many home sellers felt jilted, offended, etc. by this product.
Then he doesn't clarify anything about why sellers would feel this way, what does "many" mean - is it all? A significant majority? 0.3%? Quantifying this would have brought his point across better.
Then there's an assertion that they "should have taken a nuanced approach engaging with local communities" again without any justification as to why they needed to do it, with a mention to failure in new markets vs. success in markets already served by Opendoor without any context or even reason to be there. What does that even mean?
The descent into the "toxic, abusive, etc.", "meritless leaders" name-calling is poor form and takes away from the best paragraph of this, which is where the author starts hinting at some of the real problems - sellers inundated with calls - he wants to discuss.
Obviously the Zillow leadership screwed up on this, but this rant does little to illuminate why and frankly hits at some political ideology disagreement in addition to bad product design.
It's also amusing that he has this in his LinkedIn bio:
> Previously, he led design for Zillow’s newest venture, Zillow Offers—building the team and product vision of an end-to-end experience for buying, selling, financing and managing a home, all within the Zillow ecosystem.
So he takes credit for leading the design for Zillow Offers and building the team and product vision, but then posts a retrospective criticizing it all and disavowing any responsibility in the product's failure? Strange, but perhaps explains why he's a good fit for Facebook.
I think this is only true to an extent. In my own career, I've worked for and hired people who were honest about their roles, taking a reasonable amount of credit where appropriate while also owning the things that didn't go so well.
In tech, there's really no downside to this because the industry is pretty damn forgiving. Failure is expected, and a lot of super successful people had multiple failures under their belt before they succeeded.
It's really, really cringey to have a LinkedIn bio where you basically position yourself as the owner of a product and then elsewhere make it sound like you not only had nothing to do with said product's failure but in fact knew how to make it successful but couldn't because everyone else was flawed in some way.
In housing, EVERY OWNER BELIEVES THEIR HOME IS WORTH MORE THAN IT IS, and will be offended by a fair offer. Period. The failure of their lead designer to realize this after all these years is just one signal into why Zillow couldn't succeed where Opendoor did.
Because no one ever has a deadline to sell or any of a thousand other reasons one might take a lowball offer?
If I were to steel man his argument, I'd say that maybe the bad user experience meant they had to overpay to get people to actually use the product. But he seems very narrowly focused on "this wasn't a good experience for sellers" when that's at most an indirect factor in the failure.
People who can fetch a premium for their houses probably wouldn't use an automated algorithm, which tends towards the mean?
E.g. a self selection of those who would use this service tends to give Zillow a bunch of houses of lower value than average.
Zillow exiting because they could not make it work should be a massive alarm bell. Not only are they no longer buying new properties, they are liquidating their existing assets. You would not do that if you thought the market would come back to you.
At a bare minimum, that does not show much confidence in the organizational structure they put together, either.
https://www.marketwatch.com/investing/stock/open?mod=over_se...
The huge, v-shaped recovery of the housing market and also stock market and GDP caught a lot of experts and pundits by surprise. The expectation was that, even with stimulus, that things would take years to recover as the US economy clawed its way out from the depths of the pandemic, but then Game Stop stock went up 100x and suddenly a FOMO unlike the likes ever seen took hold. Glad I didn't sell, and also I added to some stock positions in April 2020. Suddenly everything went from extreme over-supply to extreme shortages in a year.
It's a subtle and important point because it means inflation is not transitory. You should buy all and any risk assets to protect against inflation including homes and GME.
In fact I would say it's understated. We lost a half of builders, a third of tradesmen, and saw a massive drop in people training for the trades after 2008.
We only caught up to the peak in new home builds a couple of years ago.
Sure, there was a demand spike, but supply is about a decade behind in a market where it takes a very long time for supply to ramp up.
Is that related, however, to physical good supply chain disruptions in the past 12 months? And if you're referring to labor supply - we are basically at the same or better unemployment rate than we were in 2016... which was already a pretty good time in the economy.
[1] https://fred.stlouisfed.org/series/LEU0254505500A [2] https://fred.stlouisfed.org/series/LNU04032231
We have a shortage of builders and tradesmen to build more.
This problem will take time to resolve.
The fact they used it as a basis for flipping homes makes me literally laugh. They were that delusional about their own shitty tech to just outright burn bails of money
It is not recovery but a price inflation fueled by relentless government printing and injecting money into the system. Since the actual economic activity is still at the standstill (cannot get anythings from cars to Thanksgiving turkey) this new money has low velocity and needs to be parked somewhere. Hence, inflated housing and stock markets. Very sad state of affairs.
That said, I agree that many were surprised by the quick recovery (yay QE?).
“Buy and hold for a few months” would have been a good strategy for most of the pandemic, but Zillow appears to have overpaid substantially to the point where that didn’t work. Their predictions must have been badly off. (Also: this is a great example of the “winner’s curse” in first-price auctions!)
The article quotes a figure of $65,000 “over market price”, but where “market price” comes from for those houses it bought is unclear.
The claim of “market manipulation” by Zillow is ludicrous on its face without substantial evidence, which I’m guessing did not appear in a tiktok video.
If all iBuyers in the Phoenix market _combined_ were buying 5% of homes, that doesn’t suggest to me that Zillow _alone_ would be able to exert any pricing pressure.
I would love to read a more detailed article than this one if any are available.
seems odd to give them any good faith here, given what we have seen with every other xearch platform.
https://www.mikedp.com/articles/2021/10/19/ibuying-is-hard-z...
> As the market cooled between August and September, Opendoor and Offerpad purchased fewer houses, while Zillow purchased more.
> The iBuyers also adjusted to changing market conditions by paying less for houses. The median purchase price in Phoenix peaked in August. Opendoor and Offerpad's median purchase price also peaked in August before tracking the market and declining in September. But Zillow kept paying more and more.
Larger companies probably focus on commercial developments and/or condos.
That’s it. Full stop. Anyone who thinks otherwise will eventually face this same fate.
For instance, from the sub-heading, “But the pandemic messed up its predictions”
should really be this instead, “but their algorithms couldn’t handle a situation they didn’t anticipate”.
As an anecdotal example, my development has 115 homes. In the last 12 months, 3 have changed hands. The first sold at 5% over the Zestimate, the second, 10% over, the third 15% over. How would the Zillow algorithm predict the price of the next sale?
That was the deal?
They thought they'd get a lower price by offering cash and quick closing?
Even in a down market (last time I bought) I offered quick closing and all cash.
Sellers didn't like it. It took around 9 months before I got a call back from one house I wanted saying "Is that offer still good?"
In the meantime they had accepted 3 other/ better offers ...but pending the other buyer selling their house, all of those feel through.
And that was in a down market...
Seems to me like the guys at Zillow never heard of this one.
[0]https://www.tiktok.com/@seangotcher/video/700785597830984832...
The financials from last quarter are probably enough.
Algorithmic pricing works in liquid markets. Housing is not a liquid market.
Markets are not physics - there is no neutral POV.