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Lessons from the demise of Zillow’s iBuying business

Posted by Kanika Sinha

December 3, 2021

Online real estate marketplace Zillow recently announced the closure of its iBuying business and that it would lay off about 25% of its staff, or approximately 2,000 employees, as a result of its exit from the home-buying market.

Unfortunately, the news came as no surprise to observers who deemed Zillow’s instant buying model for real estate unsustainable. They say the iBuying program attempted to cut the essential element out of the home buying and selling process: human interaction.

Why did Zillow shutter its home-buying business?



The story began in 2018, when Zillow got into the then-fledgling iBuying business. The iBuying model entails purchasing homes directly from sellers and then reselling them for a profit after doing renovations and other minor repairs. 

With iBuying, an instant all-cash offer is generated for the home based on property data that gets crunched through AI-powered algorithms and machine learning. It allows homeowners to sell their homes without the need for open houses or staging.

Zillow had bet big on this strategy. But the company bungled its iBuyer program by removing estate agents, brokerages and other professionals from the process altogether. Instead of improving the home buying process, Zillow ended up showing how hard it is to use AI to value real estate. 

After tallying about $1 billion in losses in about 3.5 years, Zillow decided to shutter its iBuying program. The move has implications not just for the real estate industry, but for other industries as well.

Business learnings



Zillow’s experience offers insights for businesses seeking to leverage technologies such as AI and automation to stay competitive in an evolving marketplace. In the rush to embrace technology to reduce overhead — for example, by getting rid of physical storefronts and replacing salespeople with AI bots or algorithms — removing the human touch could derail businesses. 

The collapse of Zillow’s iBuying program shows the downside of relying too much on automation and algorithms. Swayed by the potential of big data and AI to simplify expensive, real-world decisions, Zillow’s leaders focused on the market to the exclusion of focusing on clients. 

But the real estate business (and most other businesses) require relationships to run smoothly. Trust among real estate agents, buyers and sellers is essential and can’t be driven only by numbers. Human connection and emotion is what leads buyers into the homes of their dreams and what helps sellers fetch a better price. An algorithm is no substitute for a knowledgeable agent with expertise in the local real estate market.

Indeed, human interaction remains an essential element of conducting most businesses and this cannot be conveyed through a screen, no matter how advanced the technology is. 

Takeaway



At its best, technology is a tool that facilitates consumer transactions while also bringing out the best in people. But it cannot completely own the transaction and cast off any human that is already part of the space, whether it pertains to real estate or any other industry. Short-sighted attempts to replace meaningful in-person interactions, or to completely remove the human element altogether, will likely hurt the consumer and, ultimately, the business.

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