I've received dozens of emails from RARE Tips subscribers asking my opinion about last week's announcement from Zillow when they terminated their "Zillow Offers" iBuyer program and laid off 25% of their employees.
When I first heard the news, I had no intention to write about it in RARE Tips.
But after some further thought, I believe there are several lessons R.A.R.E. Agents can learn from it.
So today I will share my opinion.
Brace yourself.
First of all, I don't want to bash Zillow. I think Zillow is an excellent real estate marketing company that employs some extraordinarily smart and talented people.
But I think their CEO, Richard Barton, should be fired.
He made too many poor decisions that veered the company away from its core competency causing financially painful consequences to its employees and investors.
Over the last week, Zillow has lost almost 40% of its value. That's roughly $29 Billion in market cap...gone in an instant. It's going to take a long time for that bite to stop stinging.
More importantly, Zillow terminated over 2,000 employees in the Zillow Offers division. Call me a softie, but that's a horrible thing for any company to do entering the holiday season. Another poor decision by the CEO.
Building any kind of business today is hard. But building a real estate business where the revenue is dependent on successfully flipping homes is incredibly difficult and requires laser-sharp real estate expertise.
The kind of expertise R.A.R.E Agents possess.
But Zillow (or Richard Barton) had a better idea. Or, so they thought. In my opinion, there are 3 reasons Zillow Offers failed:
1) They relied too much on their flawed Zestimate algorithm. Everyone has heard of the Zestimate. It's the computerized algorithm created by Zillow engineers that takes a few pieces of data (like a home's age, square footage, single or two-level, pool or no pool, market direction, etc.) and then, using Zillow's proprietary algorithm, magically turns that gold plated data-mine into a valuation that you should feel so comfortable with that you would gladly pay that price for the home. Never mind actually stepping inside the home to examine its condition, view recent upgrades (or lack of upgrades), analyze property inspection reports, understand maintenance concerns, etc. They could have (and should have) relied on the local knowledge of Real Estate professionals who live and work in the area to provide qualified opinions of a property's value and marketability. Those are things that Real Estate Agents do every single day, but apparently, Zillow felt they were an unnecessary part of the process and a waste of time and money. Let me put it this way...making decisions to invest hundreds of thousands of dollars into unfamiliar real estate markets using data from a flawed algorithm is the equivalent of buying a home with a blindfold on. Yet another poor decision by the CEO.
2) They thought the real estate business was all about numbers when it has always been about trust and relationships. In the second quarter of 2021, Zillow purchased over 3,800 homes nationwide using the Zestimate algorithm as the foundation for price predictions and dug a hole that was way too deep for Zillow to escape. Yesterday I read that Zillow lost over $26,000 on every home they sold. That's not a strategy you make up on volume. Real estate transactions are time-consuming, complicated, and often full of friction and drama. R.A.R.E. Agents are level-headed, deep-thinking businesspeople who passionately guide their clients with the fiduciary responsibility of an ever-present and essential advisor. R.A.R.E Agents develop strong relationships with their clients that are built on a foundation of transparency and trust, not smoke and mirrors.
3) They thought they could replace the job of a real estate agent with computer software. Here is a direct quote from Zillow CEO Richard Barton after the announcement: "We’ve decided the unpredictability in forecasting home prices far exceeds what we anticipated.” Some reassuring words from the CEO of a company that hangs its hat on the ability to predict real estate valuations. I suppose Zestimates are really nothing more than Guesstimates.
As a R.A.R.E. Agent, you are expected to have a fundamental knowledge of home valuations. That knowledge will come from the experience gained while reviewing like-kind comparable sales, in-person property visits, neighborhood walkarounds and studies, regional economic growth, active market competition, and that all-important "gut feeling" about the desirability of a home when it is listed on the open market.
You should never guess.
Computers, spreadsheets, and software algorithms will never replace a R.A.R.E. Agent's expertise, experience, and local area knowledge.
Reach out to your sphere of influence and assure them that you are a real estate market expert and their best resource for all things real estate.
In conclusion, I believe Zillow Offers was all about making a quick buck off other people, and being a R.A.R.E. Agent is all about building lifetime wealth by providing a trusted and valued service to consumers.
You will never replace a R.A.R.E. Agent with a robot.
One last thing...Did you know that Zillow has a page on their website where they disclose to the public how incorrect their Zestimates actually are in major cities all across the United States? Check it out:https∶//www.zillow.com/z/zestimate/
There you have it...accuracy was never the point, and marketing is everything.
