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4 Things We Learned From Zillow’s iBuying Pullout

by | Nov 24, 2021 | Lead Conversion, Real Estate, Technology | 0 comments

REN AI

Written by Erin E.

November 24, 2021

In early 2021, Zillow pushed ahead with their iBuying plans. The major corporation had become a residential brokerage (after years of denying such a move) and hoped to corner the industry by offering instant cash offers to sellers; the goal was to then flip the homes and sell at a profit. 

While they started off this year with considerable success, Zillow ran into a huge problem: a perfect storm of labor market restrictions, supply chain interruptions, and an overall market cooldown sent their costs skyrocketing. They were in possession of millions of dollars worth of homes and properties and were unable to make their money back, let alone make a profit. 

The company ended up cutting the cord in early November with a loss of more than $328 million. If you’re an agent, this means four very important things. Let’s take a closer look.

Listing and Selling are Nuanced Skills — and Not as Easy as They Look

It’s unsurprising to learn that Zillow’s CEO Rich Barton is the founder of Expedia, the platform that all but destroyed the travel agent industry. The company saw a similar opening in the real estate industry: that they could do the same job faster and cheaper than traditional brokerages. 

Zillow thought they could predict the market by utilizing artificial intelligence, but failed to recognize that real estate agents and professionals provide real-world value through experience: their knowledge, service, and resources are all committed to the client’s goals and best interests in a way that AI can never be.

Pulling Out Was the Right Move For Zillow

Inman reported that Zillow generated $1.7 billion in revenue during the third quarter of 2021, but lost more than $328 million — nearly all of which was due to iBuying. While they represented an agent lead source, they abandoned their own model to get into the buying and selling business. 

It was smart for them to cut this part of their business, and definitely a good thing for agents everywhere, but it’s vital that we keep our eye on the horizon: the more Zillow recovers and becomes more profitable, the more they’ll be able to invest in other programs that can potentially hurt agents.

Zillow Forgot Their Roots

Did you know that Zillow’s main source of revenue was derived from Premier Agent, a platform that allows agents to pay Zillow for leads and advertising? That’s right; more than 80% of Zillow’s bottom line and 100% of its consistent profits came from the very agents that they decided to actively compete with.

If the majority of agents stopped paying for Premier Agent, Zillow would go bankrupt. Clearly, the corporation forgot what built its foundation and now they’re paying the price.

We Shouldn’t Lower Our Guards

This is a blow to Zillow for sure, but it’s still a massive company with very deep pockets. In fact, it’s already preparing to pivot with products like Premier Agent Flex which asks agents to pay a referral fee for leads they receive. 

They’re still competing with agents and pacing themselves to get more involved in this industry. Zillow will always be looking for ways to become the faster and cheaper options that hurts both agents and consumers. 

Inman believes that this should be a rallying cry for real estate agents everywhere: instead of paying their competitor for services, agents should invest in the listing, sales, and negotiation skills necessary to protect their clients while also ensuring their needs are met. No amount of artificial intelligence and technology will be able to replace that kind of invaluable experience.

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