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‘Don't Buy Zillow Homes’: A Tale of

Failure, Mistrust and Hot Housing
Markets
Claire Ballentine, Charlie Wells

6-7 minutes

Property posts on the internet usually focus more on picket fences

than picket signs. But this week, Zillow Group Inc. is getting raked
by thousands of angry digital protesters, some even wielding
placards with a simple message: “Don’t Buy Zillow Homes!”

It has been a tumultuous few days for the real estate company. On
Tuesday, the firm announced it would shut down its much-vaunted
house-flipping arm and cut its workforce by 25%. Zillow is also
seeking to sell some 7,000 homes to institutional investors for $2.8
billion. And it plans to take writedowns of more than $500 million
on the failed venture that relied heavily on its pricing algorithms.

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How a company best known for publishing real estate listings

online and calculating estimated home values — “Zestimates”—
 could end up the antagonistic giant in a social-media-fueled David
and Goliath yarn is complex. It weaves together a booming
housing market, a looming mistrust of technology companies and
a new American pastime.

Voyeuristic Zillow usage surged during the pandemic. So-called

Zillow Surfing became such a trend that Saturday Night Live
mocked Americans’ obsession with looking at other people’s
properties in a February skit simply called “Zillow.”

But such surfers may have started to perceive a dark side beneath
the slick app, as many fans of digital platforms ranging from
Facebook to TikTok also have of late. Home prices in the U.S.
have been surging, fueling unease about the role large companies
— particularly those like Zillow with access to reams of browsing
data — might have on the housing market.

That unease explains, at least in part, the popularity of a video

posted in September by Sean Gotcher, a real estate agent in Las
Vegas. It’s now attracted more than half a million likes and in it,
Gotcher claims that an unnamed company was pulling off a
convoluted scheme to manipulate housing prices in his home
market.

Read More:

• Zillow Shuts Home-Flipping Business After Racking Up Losses

• Zillow’s Drop Brings Market Value Loss to $30 Billion From Peak

• Zillow Selling 7,000 Homes After Halt in Flipping Operation

The reality was simpler: Zillow had gotten into the home-flipping
business. The company doesn’t like to be called a home flipper,
but it has spent the past three years building out an operation that
aimed to simplify the buying process and, eventually, make money.
The hope was the company could leverage its high-tech pricing
algorithms to dominate the space.

That didn’t work. On Wednesday, Zillow shares plunged as much

as 19.7% to $68.65 following its announcement about its plans to
end the home-flipping business. It’s dropped almost a third this
week alone.

This delighted some corners of social media, with many

commentators seeming to draw the conclusion that Gotcher’s
video from September had been the nail in the coffin on Zillow’s
home-flipping aspirations.

A single TikTok generated so much exposure that it forced Zillow

to shut down their entire house-flipping scheme and their stock
value to plummet. I’m here for the revolution. https://t.co
/i2qu0VinS0

— D (@TheDangoPilot) November 2, 2021

“After so many of y’all watched that video and it went viral, Zillow a
couple weeks later said ‘Wait, wait, wait, wait, we’re not going to
sell any more houses, we’re not going to buy any more houses,
we’re just going to sell.’” That’s Gotcher’s take in his latest TikTok
on the matter.

The story lends itself to social-media virality. A lone agent takes on

a huge, tech-enabled operator at a time when everyday buyers are
struggling to afford homes and institutional investors are dipping
into the real estate sector.

But market realities are more to blame than viral videos.

“Fundamentally, we have been unable to predict future pricing of
homes to a level of accuracy that makes this a safe business to be
in,” Zillow Chief Executive Officer Rich Barton said on an earnings
call.

Zillow’s decision to abandon home flipping comes as the

company’s third-quarter results showed it lost more than $380
million in the operation, called Zillow Offers. The business hit a
major snag in recent months as Zillow tweaked its algorithms to
make more aggressive offers, causing it to overpay for houses just
as the heated U.S. market began to cool slightly.

That wasn’t lost on some posters, who sought to counter the

narrative that a TikTok video brought down Zillow’s flipping arm.

No, a Tiktok did not kill Zillow’s home flipping operation. A steady
and heavy decline in stock price along with some poor algorithmic
decisions did that. Zillow is halting the practice because it is a
cash bonfire. https://t.co/4o542gFoUD

— Extremily Gorcenski (@EmilyGorcenski) November 2, 2021

As it attempts to recover from its fumble, the company is planning

to sell thousands of homes. But those aren’t being targeted to
struggling home seekers. Instead, Zillow has been pitching them to
institutional investors.

This concerns Patricia Sevier, a 68-year-old retired legal

compliance officer in Jacksonville, Florida. She worries that Zillow
will “flood the market with all these crummy homes.”

One person who is not concerned: Vaunted fund manager Cathie

Wood. Her ARK Innovation ETF bought 288,813 shares of the
property firm on Tuesday worth around $25 million, according to
a daily trading update from Wood’s Ark Investment Management.

— With assistance by Patrick Clark, and Craig Giammona