Zillow (Z -1.10%) (ZG -1.10%) wants to buy your house, and for a half-million homes in 20 different markets, it is offering to pay cash for whatever price its algorithm says your house is worth.
Although the Zestimate, as it's called, has been criticized for artificially inflating a home's value (and for underestimating it as well), Zillow says it's willing to put its money where its algorithm is and buy the home at that price.
Image source: Getty Images.
Making the market
Zillow Offers was introduced in 2018 and accelerated the home-selling process. It allowed homeowners to request that Zillow make an instant cash offer on their property, and through use of real estate professionals, appraisers, and its own insights into the real estate market, the information technology specialist would come up with an offer price.
The Zestimate, though more controversial, has been an empowering enhancement for buyers and sellers as it provides a base for discussion about price. Yet it's been criticized for not taking into account the nuances of a property, both good and bad, though Zillow contends its algorithm has gotten much better.
Where the Zestimate used to be off as much as 14% in years past (former CEO Spencer Rascoff sold his own home for 40% below what the Zestimate said it was worth), there is reportedly just a 2% differential today.
What the new Zestimate cash offer does is help hold up real estate values because it sets a floor for other offers a homeowner receives.
The Zillow Offers program hasn't been a profitable program for the real estate company, however, generating losses of about $72,000 per home sold, but Zillow says that will change as the program grows. Providing a cash offer based on the Zestimate should help.
