Hey, everyone. Following Mark Zuckerberg’s lead, I’ve been trying to think of a catchy way to refer to you Plaintext readers. Somehow, I’m not thrilled with Plain-mates.
The Plain View
Zillow gave up. For years, the online real estate company—best known for helping prospective buyers estimate the price of properties—had been buying homes from customers who wanted a quick, seamless sale, a practice known as iBuying. Zillow Offers, as it was known, involved making a firm, reasonable offer on a home, holding on to it briefly while making necessary repairs, and then selling it, presumably for a profit. But all too often Zillow found itself with homes worth less than it paid for them. Last November, faced with a loss of hundreds of millions of dollars, it ended the program, laying off a fourth of its workforce.
At the time, my colleague Chris Stokel-Walker outlined some of the reasons why Zillow failed. The key was an inability to predict what prices would be like a few months after it made offers, based on the famous “Zestimate” of a home’s worth. (Anyone who obsessively checks out the Zestimate of their current living quarters knows that while it provides a useful ballpark of a house’s worth, sometimes the estimate is kind of in the bleachers.) Another complication: After Covid hit, the real estate market first stalled and then went hot. As a chastened CEO Rich Barton admitted to CNBC, “we’ve been unable to accurately forecast future home prices.”
It seemed like a bad moment for iBuying, which is currently a tiny slice of the overall market but has ambitions to overthrow the way people sell houses. By giving sellers a speedy offer (and taking a fee of around 5 percent, about what a broker charges), this approach spares homeowners the stress of staging a sale and going through the high-pressure dramatics of a traditional closing, where at the last moment the prospective buyer might decide to make costly repair requests, or demand to keep the chandeliers you’d already found a place for in your next pad.
But can an iBuyer avoid Zillow’s fate?
That’s what I asked Ian Wong, CTO and cofounder of Opendoor, one of the leaders in iBuying. (Its main competitor is Offerpad, and Redfin also makes cash offers to sellers.) Opendoor, which went public via SPAC last year, reports rising revenues and a gross profit, though it still loses a bundle after costs are accounted for. Basically, I wanted to know why Opendoor feels it can succeed when Zillow fell flat on its face.
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Wong was up for it, though he wasn’t divulging trade secrets. He told me that Opendoor’s confidence comes from its focus on data from the start. Wong was working at Square doing risk analysis when he was introduced to cofounder and CEO Eric Wu, who was at a real estate tech company. both saw Opendoor as “an amazing opportunity to bring in the data science mindset to this antiquated transaction, which is the single most important one in most people’s lives.” They founded the company in 2014. Buying is only the starting point on Opendoor’s road map—the company sees itself as handling every aspect of the real estate process, where those who accept its sales offers will use its services, like title search and mortgage offerings, to find and buy their next home. It even started a program that fronts buyers the money so they can make all-cash offers for new homes.
OK, but how does Opendoor avoid losing money on homes? After the Zillow debacle, people noted that those most likely to take the typically conservative cash offer from an iBuyer are often those with the crappiest houses—ones less likely to impress buyers, and thus the ones that Zillow or Opendoor would have trouble getting rid of.
Opendoor, Wong told me, isn’t overly reliant on what are known as Automated Valuation Models, like Zillow’s Zestimate, Redfin’s Estimate, or a local government's official assessment. Instead, it views pricing as a holistic process that blends hundreds of data points about the marketplace, the region, the trends, and the house itself, anchored by a virtual tour that, among other things, notes what repairs might be necessary. Ultimately, he says, this results in an offer that minimizes risk for Opendoor yet is high enough to have a good chance of closing the deal. “We’ve spent eight years agonizing over every single component,” he says.
Even the pandemic—which Barton cited as a big factor in Zillow’s failure—didn’t slow down Opendoor. Wong says the company originally worried because it could no longer send human beings to a house for on-the-ground reports on the property’s assets and flaws. But it turned out that a live virtual tour was just as useful and could be done in a fraction of the time.
There’s one controversial aspect of the business model that Wong didn’t bring up. It appears that when companies like Zillow and Opendoor can’t easily sell a home, the fallback is what’s called an “institutional sale.” All iBuyers sell a small but not insignificant percentage to institutional investors with aspirations of being “mega-landlords.” While the marketing materials of the iBuyers emphasize clean sunny rooms and frictionless transactions, that segment of the market involves hedge funds like KKR and Blackstone snapping up properties for rental, limiting the inventory available for families seeking homes. Even the Biden administration has weighed in on the evils of this trend: “Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home,” said a recent White House dispatch.
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Opendoor’s Wong acknowledges that a minority of the homes it buys are flipped to institutional firms, but won’t put a figure on how many. A Bloomberg study found that 20 percent of homes bought by iBuyers go to those companies—and twice as many in some markets.
In Opendoor’s most recent reported earnings last November, it said it sold 15,181 homes, which doesn’t sound like much, but it did bring in $2.3 billion in revenue. Wall Street is skeptical: A year after its public offering, the stock, after a temporary jump, is basically back at its offering price. Wong thinks that it’s just the beginning. Eventually, he believes, almost all home sales will be made online. “We’ve gotten so used to tapping on our phones to order groceries, hail a ride, or even buy a car, sell a car,” he says. “I don't think there's any fundamental difference when it comes to real estate.”
If that happens, it might save people a lot of time, and eliminate a lot of stress. On the other hand, anyone who has undergone a lengthy home search knows that, as excruciating as the process can be, you exit the ordeal knowing not only the market but your own priorities. Finding the place where you will eat, sleep, raise your family, and probably even work is a test of not just the spreadsheet and the bank account, but the heart. The data may not show it, but a house is not a home.
Time Travel
This week Meta did a lot of rebranding. But the most significant change was in the name of the News Feed, the company’s current flagship product, which is used by almost 3 billion people every day. It is now simply called Feed. Facebook’s senior VP and CTO-in-waiting, Andrew “Boz” Bosworth, who was a member of the team that created the product, tweeted that he argued at the time that the one-word title should be used at launch. Fifteen years later, he claims vindication. But as I found out while researching Facebook: The Inside Story, “Feed” was also the product name Mark Zuckerberg originally envisioned for it. In a notebook from the company’s early days, he laid out what Feed would be and how it would work. Despite this, and Boz’s preference, the product came to be called News Feed. And I found out the probable reason why.
The Feed was the personalized newspaper Zuckerberg had brought up in his summer of 2005 to-do list. He really didn’t get into it until late in the year, brainstorming it with Adam D’Angelo, who was around for his Caltech winter break.
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The team called the product Feed, in keeping with describing its products generically (Photos, Groups, etc.). But the social-networking trademark for that word had just been secured—by Viacom, the owner of MTV, which at the time was trying to buy Facebook. So it became the News Feed instead.
I reached out to Meta this week and asked if the company had purchased Viacom’s trademark, and they didn’t get back to me. Weirdly, ViacomCBS changed its name this week, to Paramount. Must be something in the water.
Ask Me One Thing
Arlene asks, “There are two different ways to synthesize reality in the human brain. One utilizes our senses as input. The other is direct neural synthesis. Any thoughts on how these two disparate approaches will turn out?”
Thanks for the question, Arlene. The advantage of Approach One is that you can remove the headset, take out the earbuds, and pull the smellovision out of your nose. Also, sensory overlay is closer to actual implementation, though it would be nice if legs were included. I’m not sure we will ever experience a fully blown artificial reality via direct neural synthesis—brain science isn’t anywhere near that advanced—but if we do, my guess is that that approach might not turn out well.
You can submit questions to mail@wired.com. Write ASK LEVY in the subject line.
End Times Chronicle
You’d have to go back 1,200 years to match the current drought in the Southwest.
Last but Not Least
The science of how to tell when people are too stoned to drive. Um, maybe when they’re listening to Phish?
Peloton introduces video games. Tragic that Mr. Big never lived to see them.
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How “dark stores” for grocery delivery made Amsterdammers miserable.
Nothing like curling up in a comfy chair and reading a good … network?
And now, mates, a programming note. For technical reasons insufficiently explained to me, we can’t send out Plaintext for our usual Friday delivery next week. Look for it in your inbox a day early, on Thursday. From there, you may start your weekend.
Updated 2/18/2022 10:00 am ET: This story has been updated to correctly reflect that only Ian Wong, not Eric Wu, worked at Square.
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