Zillow Offers was an “iBuying” business in which the company used an algorithm to estimate home values, buy houses directly from sellers, and resell them at a profit. The model depended on forecasting home prices accurately enough to price purchases that would later sell for more. In late 2021, that forecasting broke down, and on November 2, 2021, Zillow Group announced it would wind the business down.
In its Q3 2021 earnings release, filed with the SEC, Zillow announced “its plan to wind down Zillow Offers, the company’s iBuying service in which Zillow acts as the primary purchaser and seller of homes.” Co-founder and CEO Rich Barton said, “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.” He added that the service “served only a small portion of our customers.”
The cost was real. The same release stated that the wind-down “is expected to take several quarters and will include a reduction of Zillow’s workforce by approximately 25%.” Barton called the impact on colleagues “the most difficult part of this decision.” Zillow had bought too many homes at prices the model could not justify as the market shifted, and the losses landed on the balance sheet rather than the spreadsheet.
The one-line lesson: an algorithm is only as good as its assumptions about an uncertain future, and betting real capital on a model’s price predictions turns forecasting error directly into financial loss.