Zillow will implode - eventually

By
Real Estate Broker/Owner with Best Practices Realty

Never in the history of the real estate industry did an ancillary business with an annual revenue in excess of a billion dollars still find a way to lose money. 

That is not until Zillow came along. In 2017 they convinced 150,000 Realtors to part with an average of almost $7K of their hard-earned dollars to receive mostly fake leads, which were generated from MLS data that Zillow obtained from Realtors for free!

Now if you're thinking that the obvious solution for Zillow would have been to lower their overhead in order to turn a profit from that billion dollars of revenue, you don't understa
nd the arrogance and sheer stupidy of Zillow management! After all self proclaimed genius CEO Spencer Rascoff sold his house for 40% less than his Zestimate!

Zillow decided that the best solution to their dilemma was to get into the house flipping business to provide additional revenue. They figured that if they gave it a new name (iBuyer) they could claim that they've invented something new, and it wouldn't have the low-end stigma that surrounds the We Buy Ugly Houses concept of house flipping. They're wrong! You can put lipstick on a pig, but it's still a pig! 

The We Buy Ugly Houses people, however, are smart enough to know that they can't flip at a reasonable profit if they pay commissions on their purchase. Conversely, Zillow says it plans on paying buy side commissions to a lucky few of their 150,000 'Premier' agents. They announced that they plan on buying between 300 and 1,000 homes by the end of 2018, so let's do some simple math. At the high end of their stated range, that's one deal for every 150 of their agents. So, if you're one of the lucky ones that gets thrown one deal, will that substantially change your life, and perhaps more importantly, how will the other 149 'Premier' agents feel? Cheated, I venture to say.

As a consequence, I predict that Zillow will lose at least 25% of its agent revenue over the next year, which will add $250,000,000.00 to its already mounting losses. Wall Street will then realize that Zillow is no more than an illusion of smoke and mirrors, and the precipitous fall in the value of the stock over the last month will pale into insignificance. 

Zillow says they're going to borrow the money to buy and flip homes, so when Morgan Stanley downgraded their stock last week, their cost of borrowing went up substantially. In short, their creditworthiness took a big hit.

Zillow will learn some simple truths about house flipping the hard way. Successful flippers have comprehensive local knowledge in the market - Zillow has none. As previously stated, successful flippers pay no commission on the way in, and often on the sale of the home, thanks to Zillow's stupid policy of allowing FSBOs to list on their website for free. 
Local flippers often do much of any required rehab themselves, or they know reasonably priced local tradespeople. Zillow can't do that. 
Zillow’s moronic decision to get into house flipping proves the point that just because you can do something, it’s not necessarily a good idea.

The so called 'brains trust' at Zillow should all read Gary Keller's book 'The One Thing'. In it Keller explains how he never achieved any of his main goals until he hired a consultant who convinced him to focus solely on the one thing that was most important to him. That one thing for Keller was building a new take on real estate franchising. The rest is history. 
Zillow’s venture into house flipping is a pathetic and desperate attempt to patch their leaking ship. They can rearrange the deck chairs on their version of the Titanic, but it still will end the same way.

Zillow will ultimately implode, not only because its business model to date is unsustainable, but because it will get its butt kicked in the house flipping business. 

The exact timing of Zillow’s collapse is in the hands of 150,000 Realtors.

Comments (3)

William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

And when it does we will see many an agent fall by the wayside because they do not know how to market

Apr 24, 2018 08:08 AM
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I think you are wrong.  I think there will always be a new agent to replace anyone who drops out and I know agents who are getting a great return on that $7,000. marketing investment.  

 

Apr 24, 2018 08:56 AM
Leah McNamara ABR BPOR CIPS CNE CRS e-PRO GREEN GRI MRP
Best Practices Realty - San Antonio, TX
raising the bar in real estate services

Actually Tammy, Zillow has acknowledged that they expect their agent count to drop, which is one the main reasons they are getting into house flipping.

Apr 24, 2018 11:45 AM