Zillow beat its own doomsday predictions as homebuying bounced back quicker in the second quarter than most people predicted.

The Seattle-based listings giant said revenue grew 28 percent to $768 million, as homebuyers shopped online and the company saw increased sales of Zillow-owned homes. Its iBuying platform Zillow Offers saw an even bigger revenue spike, 82 percent, to $454.3 million.

its earnings report Thursday, Zillow had projected second-quarter revenue between $577 million and $620 million.

“People want a new living space, that’s driving demand everywhere,” the company’s founder and CEO Rich Barton said during its earnings call. The second quarter was “better than we had hoped,” he noted, reflecting an uptick in tech adoption. “The retail to digital [shift] is happening in every category. But it’s really happening in real estate now,” he said. “We’re benefitting from this tidal shift.”

Overall, Zillow’s net loss widened to $84.4 million during the second quarter, compared to $71.9 million a year ago. The losses are tied to its expensive bet on iBuying, which Barton has described as its “moonshot” opportunity.

During the earnings call, Barton said he was optimistic after the housing market rebounded quicker than expected, following an effective shutdown in March and early April. “The changing needs of our homes has served as a catalyst for the pent up inherent demand in peoples’ desire to move,” he said.

That applies to Zillow’s own workforce. Last month, the company said its employees can work from home indefinitely. Zillow currently leases more than 1 million square feet of office space nationwide.

During the quarter, Zillow said visitors to its site and mobile app skyrocketed, hitting 218 million average unique users and exceeding pre-Covid levels. Barton is not among those who believe in a flight to the suburbs. “It’s really popular to tell this de-urbanization story,” he said. “The real story is that shopping is up everywhere, that’s what our data says.”

Amid the pandemic, Zillow suspended home-buying because of uncertainty in the market. It also cut expenses by 25 percent.

As of this week, Zillow’s ibuying program, called Zillow Offers, is active in 24 markets.

During the quarter, the company sold 1,437 homes and purchased 86 through Zillow Offers, ending the quarter with an inventory of 440 homes. But it faces an uphill battle to squeeze profits from each home. In a shareholder letter, Zillow said the average purchase price per home was $284,975 during the quarter, with $15,848 in renovation costs. Its average loss was $6,939 per home, after paying interest expenses.

Even as Zillow slashed its budget this spring, the company amassed a war chest to accelerate when the market bounced back. Its total cash balance at the end of the quarter was a record $3.5 billion, up from $2.6 billion at the end of this year’s first quarter.

How accurate are Zillow estimates?

I’m constantly asked how accurate are Zillow estimates, known as ‘Zestimates’, and I can’t tell you how many times I’ve heard a seller tell me ‘but Zillow says my home is worth more/less.

For some reason, people have come to treat Zestimates as the defacto standard. Maybe it has something to do with our desire for instant gratification. In today’s internet-obsessed society, we want instant answers.

How accurate are they? Not very. They are better used as a starting point for determining value, not the endpoint.

According to Zillow’s own statistics, Boston/Suffolk is one of their more accurate areas and they say their accuracy is 5.3% of the sales price.

So, let’s think about that. For a $400,000 condo, 5% is $20,000, which means their Zestimate could be anywhere from $380,000 to $420,000. If you are the seller of that condo, you would see that as a pretty big price difference.

For Boston, Zillow also says 25.6% of their estimates are off by more than 10%. For that same $400,000 condo, 10% is $40,000. So, 25.6% of their estimates would be under $360,000 or over $440,000.

However, sometimes the Zestimates are right on the money. People see the ones that are very accurate and are impressed – ‘Wow, they really got that one right. This tool is pretty good.’ The inaccurate ones are rationalized away – ‘Well, it’s just an automated tool and some of the data it is using is probably incomplete or wrong’.

It’s fun to check the values on Zillow, but just remember it is just a starting point.

The problem with Zestimates and other AVM’s (Automated Valuation Model) is there are too many qualitative data points to consider that are not part of the model, such as:

  • Hardwood floors throughout.
  • Kitchen remodels you just did.
  • The walls you removed to open up the place up.
  • The energy-efficient appliances you installed.
  • The new windows throughout.

and there are a few data points that are more relevant to condos:

  • The floor level. On the initial sale of a building, the higher the floor, the higher the price. $5,000 – $10,000 per floor is not uncommon.
  • The side of the building you are. In some buildings, one side faces a busy street, and the other side a quiet courtyard.
  • The view. This can be a huge difference-maker. In some buildings, one floor you might be looking into a brick wall of another building and the next higher floor has an incredible view of downtown and the monuments.

Because of these numerous, qualitative data points, an automated value model will always be suspect. They are getting better every day, but I’m not sure they will ever get to the same accuracy that a good real estate agent or appraiser can provide.

If you are thinking of selling and need an accurate value of your condo, contact me at realtyford@yahoo.com.

Contact me to set up an appointment to start your Boston condo-buying process.

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