Zillow, a tech company with a 15-year history of acting as a middleman between agents and buyers, was in the business of publishing listings and estimating home prices online. While successful, in 2018, it was decided that the startup would pivot into the home-flipping niche to increase profits. However, there were many factors that the company did not take into account, and this new division spelled disaster for Zillow as a whole.
So, how did this idea drag down a once-successful company? Let’s take a closer look:
It Relied on Predictions by Algorithm
Zillow and other “iBuyer” firms purchased multiple properties across the country using a computer-generated formula to predict which homes would sell at a substantial profit after an upgrade. The business banked on this concept and went all in.
The Idea was Lacking in Popularity
Zillow figured that it would gain a significant portfolio of properties since it would take all the hassle out of home-selling that many sellers dread. However, less than 10% of those that received an offer from Zillow actually accepted it. Many preferred to deal with traditional buyers from whom higher offers were more likely.
Not Enough Work was Put into Properties
The homes that Zillow did successfully buy were in disrepair or in need of a face-lift. It knew this going in and intended to make light repairs and upgrades and sell the properties at a profit. Unfortunately, the work that was done was minimal. Sometimes it was no more than a coat of paint or replacing a floor.
Then, the home would be evaluated by the system as being up to double what the company had paid for it. Of course, many homes did not sell or were sold at a loss since the system severely misjudged the market.
The Company Put All its Eggs in the Wrong Basket
Home-flipping was planned to become a crucial part of Zillow’s business moving forward, and the fact that it didn’t work out means that the company is left without a proverbial “Plan B.”
In conclusion, Zillow depended on a switch in its business strategy, proving to be a catastrophic error in judgment. Because of this, it has laid-off a quarter of its staff, and its stock prices have plummeted. Hopefully, the company will be able to recover from this misstep.