Zillow and Other


Steven Eisman is the investor who made billions by shorting mortgage-backed securities prior to the 2008 meltdown. He was also made famous in the movie “The Big Short.”

Mr. Eisman is now shorting Zillow, claiming it is one of “the most flawed business models he has ever seen.” You can watch his August CNBC interview here.

Mr. Eisman points out how Zillow’s lead-gen business is no longer growing, and how its venture into iBuying or home-flipping is far more risky than most investors realize.

Zillow’s CEO claims that Zillow’s opportunity lies in the enormous size of the overall housing market, but, according to Eisman, Zillow does not understand how the significant nuances among all the micro-markets put Zillow at tremendous risk when even a slight downturn hits.

Eisman uses Dallas as an example b/c there are so many cracked foundation issues that Zillow’s iBuying algorithms cannot properly account for. Eisman says Zillow will crash sometime in the next five years.

Given that visits to Zillow.com are down 21% since May alone, that crash may come sooner rather than later. (Thanks to Leonard Steinberg’s Compass Blog for this data.)


What is particularly interesting to me though is not just Zillow’s precariousness, but the huge number of real estate and mortgage companies with similarly “flawed business models.”

After the 2008 meltdown, thousands of mortgage companies went out of business.

It was not, however, just b/c of the recession and weaker demand; it was b/c their business models depended 100% on a permanent state of increasing property values and decreasing rates.

All of those companies depended entirely on refinances to survive, which seemed crazy to me b/c no company can count on permanently increasing values and decreasing rates.

What is even crazier to me is that there are thousands of mortgage companies that are again repeating this same mistake – depending entirely on refi’s to survive.

Again – as soon as values correct or rates go up, those companies will dry up like a raisin in the sun.


I worked with an agent for years who did tremendous volume while maintaining an ultra-low-overhead business and lifestyle. During boom times he made millions, and during slow times… he went skiing, hunting and wakeboarding with his kids.

He actually did well in all markets but he never had to worry about slow markets b/c his overhead was low and his savings were high. This of course is a great model but it makes it very hard to grow.

This model is easier for Realtors than for lenders b/c Realtors do not need nearly as much operational support. As an aside, the agent I worked with had a large brokerage at one time but he shifted to the low-overhead, small team model and never looked back.


One of the things that amazed me the most about the 2008 meltdown was seeing the huge number of mortgage companies that simply walked away from their obligations.

I saw one large company renege on all of its many lease obligations b/c no principals signed “full-recourse.” I saw other owners run off with loan officer commissions, employee salaries and even 401k funds.

And I also saw numerous companies just walk away from warehouse line obligations when they could not sell the loans they funded with those lines.

The “no integrity” model works too, but only once 😊 (as many of those operators are long gone and never to be seen again).


This is the only viable alternative to the “Low Overhead Model,” and it is the most difficult model to build.

The primary requirement is to remember to run scared and full speed during the good times solely to prepare for the bad.

This of course requires embracing new technology, diversifying into different markets, spotting new niches, constantly creating more efficiencies, continually offering more to clients, and ensuring that overhead is variable enough (e.g. profit sharing) to survive downturns.

Doing all of this is extremely difficult particularly when we are all so busy taking advantage of the current boom. But, anybody not doing all this now will probably not be around to enjoy the next boom.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167

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