Zillow Said What?!

At a recent engagement party, I saw an 'almost client' who gave me an update on his life and home buying endeavors. Needless to say, he was still at the same point as where he was last time we spoke almost one year ago – without a house. He expressed how frustrating it has been to "still" be looking for a home for this long. He faced many of the same challenges as setbacks that most buyers are experiencing. Last summer, he found "the one." He told me that he regrets letting it "get away" and even told me I can quote him on that.

This house checked many of the boxes they needed, but he was concerned that he was overpaying and worried about a real estate bubble. What exasperated the matter was that he saw online that the "Zestimate" (Zillow's Estimated of?Home Value) was about 8% less than what he would have to pay to get the home. As much as I tried to convince him that these Zestimates are inaccurate, the damage was done, and it soured their interest in the house.

Ironically, not too long after our discussions, Zillow announced that they expected to lose $400-500 million on its "iBuying" business. The business model was simple: use their home price algorithm to buy homes at wholesale prices or at a discount if needing repairs and resell them for a profit based on their zestimated projections. In the final three months of 2021, they sold almost 9,000 of these homes and took an average loss of $27,000 per home. They have since closed down their $1 billion iBuying division.

This week Zillow came out with different news. While they weren't necessarily the cause of the problem, they certainly were a contributing factor. In a recent survey, Zillow reported that 75% of the people who bought a home in the past two years say they have at least one regret with their home purchase.

A vast majority of successful buyers (81%) said they had to make at least one compromise to afford their home. Almost 40% of the current owners wished they had spent more time searching for a home or weighing their options better. Nearly 2 in 5 say they ended up in a location that increased their commute time. About one-third of new buyers regret buying a home that needed more work or maintenance than expected, while the same percentage admitted that they purchased a smaller house than they initially planned to buy. About one-quarter would have shopped for and purchased a home in a different area in hindsight.

Today's buyers face similar challenges but in a more volatile financial market. Interest rates have spiked significantly since the beginning of the new year, equating to $250-300 more per month in a mortgage payment. Yet, despite what would typically push home prices down, that will not happen in this market. For example, Zillow economists predict values will rise 16.4% in 2022, which is on the higher side of other forecasts.

The bottom line is that sophisticated algorithms, artificial intelligence, automated valuations, and online offers are great resources but can be very far from reality. One thing is for sure, in an unpredictable market such as the one we are in (and have been in for the past 24 months), the proper guidance from an expert professional is now more valuable than ever.??