Industry pundits, real estate professionals and brokerage leaders are piling on Zillow right now for their decision to shutter the Zillow Offers iBuying business. I believe it was the right decision, and a brave one.
I never quite figured out how Zillow or any of its competitors in the home purchase business were going to make anywhere near the returns that their stock prices indicated. There’s just not enough margin in the home buying and flipping business to add up to a strongly profitable business – at least from my point of view.
Those of us in business know how difficult it can be to give up on a business decision, even when it’s clear that it must be done. That’s why, rather than ridicule Zillow for making this decision, I applaud them for the courage it took for them to make this decision in the first place.
After 35 years of consulting residential real estate organizations throughout the United States and Canada, I’ve found that many organizations, including my own, have a hard time pulling the trigger on a tough decision. When do you throw in the towel on bad business decisions? When it comes to decisions concerning wrong hires, technology platforms that didn’t pan out, or new business ventures that didn’t work as advertised, most leaders don’t know when to stop throwing proverbial more money after bad money.
While Zillow made this huge decision to exit the home-buying business, and were punished severely by Wall Street and their owners, it’s my belief that in the years to come, they will continue to innovate in new and different ways causing their business to grow, have higher margins and more predictable business flows than if they had chosen to stay in iBuying, which was difficult – at best. What may have happened had they got caught holding thousands of homes in inventory with the inevitable market downturn arrives?
Having the guts to make a decision at this level in full view of the public had to be difficult for the Zillow executive team. But the fact that they did it should alert everyone that they are willing to change course when the circumstances dictate it. If you look at their results and their balance sheet, you realize that they are every bit the strong competitor they’ve always been.
Zillow’s crime against the Realtor world
On another note, a recent post by an industry commentator questioning, once again, why the National Association of Realtors didn’t protect the industry from Zillow and its kind. They mentioned that letting Zillow into membership with the MLSs and Realtor Association was a crime against the Realtor world. How could someone construe that one of NAR’s mandates was to protect its members from new business models?
I recall the vociferous fight that NAR put up 20 years ago to keep Federal banks out of our industry – and succeeded in doing so. Instead of having commercial banks in our business, we have tens of billions of private equity pouring in to both new, alternative brokerage business models, as well as into traditional firms. Does someone think it is also NAR’s job to keep those billions and new ideas out of our industry?
One can complain, perhaps, that NAR lost when they had to sell Realtor.com to News Corp., but Realtor.com had gotten clobbered by Zillow up to that point. NAR and Realtor.com lost that race — mostly due to restrictions on how Realtor.com could compete with Zillow innovation. If you recall, home valuations and agent rankings delays were just one example. It seems that Realtor.com is more competitive today than it was even if it is a little less ‘Realtor-friendly.’
Trying to protect the industry turned out well from a financial perspective for NAR, but not otherwise. News Corp doesn’t focus on protecting Realtors, it is focused on building value and financial returns.