Zillow is a real estate website that everyone in the country has likely heard of. Zillow leaders decided to branch out a few years ago, giving more than just home estimates and an inside look at the housing market and actually partaking in real estate opportunities. Unfortunately due to a variety of issues, the venture into house flipping and sales failed.
Real estate investors can learn a lot from Zillow’s attempt to enter this market. Three of the most applicable lessons are discussed below.
#1: Algorithms are not fool proof.
Part of Zillow’s failure was its reliance on algorithms. Although the company has a pretty set system to estimate a home’s value, known as a “Zestimate,” these algorithms should not be the only thing you use to determine a home’s worth.
Take a step back from the algorithm and look at other factors. This could include trends within the neighborhood and overall market. The initial estimate is just that, a starting point. Do not be afraid to push back if other factors indicate this estimate may be inaccurate. This is just one step in the due diligence process before finalizing a real estate deal.
#2: The housing market fluctuates for lots of reasons.
Zillow’s step back from this branch of operations will likely impact the housing market — at least in areas where it had a strong presence. Common factors are just part of the equation. It is important to talk to local professionals to see how the market in a specific area is doing, not just national trends.
#3: Don’t forget funding.
Another reason for Zillow’s failure in this venture: a drop in stock prices. This triggered concerns about funding, a concern most real estate investors can relate to.
