You would be forgiven for not knowing that Zillow was even in the business of buying houses. For most of its 15-year history the Seattle-based company focused on publishing online real estate listings. Then, in 2018, its CEO, Richard Barton, started to aggressively move the company into a business known as iBuying. The idea is that algorithms would identify attractive homes to flip; Zillow would buy the home directly from the seller; minor renovations would be made; Zillow would quickly flip the house and pocket a profit. At one point Barton aimed to buy 5,000 homes a month by 2024.
Zillow may not have been manipulating the market, but it was certainly trying to use technology to outsmart it. In the end, however, the market won.
Zillow’s flipping flop should serve as a reassuring reminder that not everything can be automated. There are various reasons why Zillow got burned, including a labor shortage making it difficult to renovate homes. But the biggest issue is that its algorithm simply wasn’t up to snuff. It couldn’t deal with the complexities of pricing in a volatile market and resulted in Zillow overpaying for a lot of property.