The consequences of Zillow Offers’ collapse
Zillow Offers—the iBuying arm of Zillow’s online real estate business—collapsed in early November 2021. There are numerous theories on what the collapse implies about the housing market. But how does it affect real estate agents locally? Let’s look at some of the consequences of the collapse of Zillow Offers and how it could affect you.
The good: It shows boots on the ground matters
One of the biggest reasons for Zillow Offers’ collapse was a flawed algorithm. As James D. Hamilton—Professor of Economics at UC San Diego—noted, “It’s wonderful that services like Zillow can give you a quick ballpark valuation. But a human on the ground knows things that a distant computer does not.”
This shows the importance of an agent who knows the nuances of the neighborhoods they work in. Algorithms may give Sellers (and Buyers) a ballpark estimate of a home’s value based on the home itself. But the algorithms had more trouble accounting for aspects that are important to homeowners.
For example, Brian Anzur—president of the board for the South Metro Denver Realtors Association—said that Zillow Offers’ algorithm could “see beds, baths, square footage, and locations” but that it “really fell short in evaluating other things that are important to purchasers.”
In short, it’s one thing to know about the nuts and bolts of a house. It’s another, equally important matter to understand what makes that house a home.
Or as Johnny Chappell, a REALTOR® in the Raleigh, NC, area said, “We’ve proven to our clients, time and time again, that they actually make more money when they work with a professional that knows the market.”
The bad: Zillow Offers’ collapse could create more inventory bottlenecks
At its core, Zillow Offers was essentially a house-flipping enterprise. They’d scoop up homes, renovate them, and sell them. The problem they had was they were losing money because they paid too much to buy and then tried to sell overpriced homes in many markets.
Though Zillow Offers intends to continue selling the houses they initially bought, those homes may end up in the hands of institutional investors, rather than individual Buyers.
This could create greater challenges for Buyers and their agents. Institutional investors could buy up thousands of homes purchased by Zillow Offers only to choose to rent them out. This could mean even less inventory in an already meager market.
The ugly: Zillow Offers’ collapse shows the difficulty Buyers face
While the collapse of Zillow Offers might seem like a positive for individual Buyers, it also shows the difficulties Buyers face.
Even with cutting-edge algorithms and billions of dollars in assets, Zillow struggled to accurately predict housing prices. Worse, they couldn’t afford to continue buying, despite massive advantages compared to the average American looking to buy a home.
Additionally, many homeowners rely on those very algorithms to determine whether they can afford to buy. In other words, the algorithm’s inability to identify house prices for the sake of reselling at a profit casts doubt on the Zestimate as a reliable ballpark of current home values.
These disadvantages are especially ugly for Buyers. However, it also shows just how much value agents like you can provide, especially when you’re a local expert.
Provide even more value with a Home Warranty Service Agreement
Whether iBuying is a fad or the future, the current market still relies on the expertise of local agents. Local agents can provide insights and empathy that algorithms simply can’t. And as we’ve seen, square footage and number of rooms aren’t the only things that matter.
Buyers want to know they’re making the right decision, now and for the future. In addition to providing your expertise, you should consider enrolling all of your homes with a Home Warranty Service Agreement from 2-10 Home Buyers Warranty (2-10 HBW).
A Home Warranty Service Agreement can help protect your transactions and clients against unexpected, often expensive breakdowns to important home systems and appliances. With affordability a constant concern, your Buyers could benefit from the quality coverage a Home Warranty Service Agreement provides.
2-10 HBW offers comprehensive systems and appliances home warranties to help protect your clients from unexpected repair and replacement costs. Contact us to learn more.