iBuying changing the face of real estate, even with Zillow's recent failure

The momentum of the real estate market continues, but now another factor is emerging that may alter the landscape.

“iBuying”, or instant buying, is a relatively new industry in which companies like Zillow and Opendoor allow homeowners to avoid listing by selling directly to them.

Zillow’s online house-flipping unit has turned into an embarrassing flop, forcing the real estate company to flee the business, cut its workforce, and dump thousands of its properties onto the market.

“We just determined that being an iBuyer was too risky, too volatile, and ultimately addressed to few customers,” said Zillow CEO Rich Barton to CNBC.

The company should never have ventured into home flipping, according to Barbara Corcoran, real estate veteran and “Shark Tank” host.

“Barton is a phenomenal businessman. He’s a disruptor, so no one thought he could stumble,” Corcoran told Yahoo Finance Live. “He went into a space that has nothing to do with finding homes for people.”

Zillow believed it had a leg up in the iBuying world with its “Zestimate.” Launched in 2006, the highly touted algorithm had been focused on millions of home valuations across the country before it was eventually used to estimate the possible price of property Zillow bought intended to flip for profit.

“Zestimates are inaccurate because they don’t know our local market,” said Kindi Bliss, a real estate agent in Bloomington-Normal. “Now the public thinks they are accurate, but the realtors know and laugh all the time at Zestimates.”

Without boots on the ground, they are other limitations. As one California-based appraiser told Money.com, “Zillow can’t smell if 20 cats live there.”

The company’s decision to bail will likely not bring down home prices for ordinary homebuyers in Illinois. Zillow was not interested in real estate in the Land of Lincoln, but other companies engaging in iBuying, like RedfinNow, have been present in the state.

Illinois Realtors expects home prices to continue to increase for the rest of the year, including 11.5% in Bloomington-Normal, 9.1% in Rockford, nearly 8% in the Kankakee area, and about 5% in Decatur. The group expects home prices to decrease in the Quad Cities, Peoria and Springfield.

Other iBuying companies, like Opendoor and Offerpad said they are expanding their home-flipping businesses. Though neither company is yet profitable, third-quarter losses weren’t as bad as analysts predicted, according to the Wall Street Journal.