Editor’s note: The following is an Opinion Editorial submitted by Kellen Dorsch, a Real Estate Developer based out of Pittsburgh, Pennsylvania. The views expressed are his alone.

Artificial intelligence (AI) has slowly gone mainstream over the past decade. Whether it’s the movie recommending algorithm on your Netflix account, or the stunningly agile dancing robots at MIT, AI advancements hardly seem newsworthy anymore.

Zillow is one of the latest companies to hop aboard the AI train. And unfortunately for the real estate juggernaught, the train quickly went off the rails.

Pandemic Highlights Critical Flaw in Zillow’s Zestimate Cash Offer Program

As home prices soared during the pandemic, Zillow announced a new plan to purchase homes based on the company’s proprietary, AI-generated price estimates. As reported by CNN:

“Zillow appeared so confident in its ability to use artificial intelligence to estimate the value of homes that it announced a new option: For certain homes, its so-called ‘Zestimate’ would also represent an initial cash offer from the company to purchase the property.”

This Zestimate was driven by an AI algorithm and was intended to help streamline the process for individuals looking to quickly sell their homes—especially to Buyers interested in fix and flip projects.

From Zillow’s perspective, the Zestimate Cash Offer program simply provided a valuable service to both Buyers and Sellers, all while building out their real estate holdings (newly purchased homes were held until Buyers could be found). Seemed like a simple win-win.

However, it’s 2021. The world is finally beginning to turn on Facebook, and Big Tech is experiencing what can only be called an epic fall from grace (see: countless controversies over politics, polarization, religion, and more).

So we can understand why many Buyers saw Zillow’s new program as an overstep—just another example of Big Tech looking to “move fast and break stuff” at the expense of someone else.

And yet, no matter what your feeling or opinion on the program, most of us can agree: This is where things got interesting.

Technology suffers from the classic garbage in, garbage out problem. If inputs are skewed, you can be certain the resulting outputs will be skewed as well (and often by an exponential factor).

If you’ve ever pressed the wrong numbers on a calculator, you understand this problem. The calculator doesn’t know you’re trying to calculate your sales bonus, so it doesn’t know you meant to multiply by 0.01 instead of 0.1.

(And, for that matter, it doesn’t rest a hand on your shoulder and console you when you realize you actually earned an extra $1,000 this year, and not $10,000).

Zestimates Gone Wrong

Zillow’s Zestimate Cash Offer program was a disaster. By November, the company announced they would be shutting it down. The reason? Zillow’s AI algorithm lead the company to make thousands of cash offers on homes at inflated prices.

Amazingly, it does not appear that any human intervention caught this buying spree.

As a result of the Zestimates-gone-wrong, Zillow racked up losses of over $300 million. To make up for the losses, the company also announced plans to lay off over 2,000 people.

But the bleeding did not stop there.

Zillow’s stock price tanked when the news hit Wall Street, passing further losses down to owners and shareholders. Worst of all, Zillow now has a PR problem on their hands: Can Buyers and Sellers actually rely on the algorithmically-derived Zestimates the company provides?

It’s hard to overstate the importance of that last point. Since its launch in 2006, Zillow has been hailed as the technology that would make process of selling and buying homes easier and more streamlined than ever before.

In addition to home listings, a big part of that dream was to demystify pricing. Before this Zestimate Cash Offer calamity, many consumers looked at Zillow’s estimates like price tags on consumer goods. A credentialed and accurate number that conveys actual value, thanks to an all-powerful (and proprietary) algorithm.

Now, however, consumers are left wondering if the estimates provided by Zillow can be reliable at all.

Originally published by Welcome Home SRQ. Views and opinions expressed herein are those of the guest author and no one else.