Zillow’s Algorithm-Fueled Buying Spree Doomed Its Home-Flipping Experiment
How the real estate company’s innovation became a $569 million cautionary tale.
Photo illustration by 731; Photo: Alamy
In the beginning there were Zestimates, Zillow Group Inc.’s best guess at what the house next door was worth. Then there were Zprices, as company insiders nicknamed its attempt to use home valuation software to get into the home-flipping game. Finally there was the gasoline that Zillow poured on as it burned cash paying too much for houses, leading to a $569 million dumpster fire. On Nov. 2 the online property giant shuttered its technology-powered home-flipping business, Zillow Offers; said it was firing 2,000 workers; and began grappling with the damage it had done to one of the most valuable brands in real estate.
The episode is a cautionary tale for what happens when an overconfident company uses algorithms to supersize an old-fashioned business. But although it’s easy to assume Zillow’s number-crunching software misjudged the housing market, it wasn’t bad data or faulty code that did the venture in, according to the company’s current and former employees, competitors, and counterparties. As in so many misadventures in modern technology, Zillow’s downfall wasn’t caused by the tools so much as how it used them.