Connect with us

Real Estate Corporate

Zillow slapped with lawsuit for copyright infringement

While it’s no secret that Zillow has been under fire lately, does the latest lawsuit spell problems for Z or is it another frivolous suit?

Published

on

In the latest lawsuit against Zillow, Global Equity Management (SA), or GEMSA, has filed suit against the real estate platform for patent/copyright infringement. GEMSA alleges Zillow has linked “directly or indirectly [to] Amazon Web Services (AWS) as illustrated [here]” This type of linking allegedly infringes one or more or the following patents: U.S. Patent No. 6,690,400 (also known as the 400) and/or U.S. Patent No. 7,356,677 (also known as the 677).

What the suit is alleging

Court documents state that Flash Vos, Inc. (FVOS), an early predecessor of GEMSA, was established in 1997 in Houston, Texas to develop platform independent information processing in complex environments with multiple systems and multiple operating environments. FVOS created and produced the first Virtual System OS (VOS) and the first Super Operating Systems (SOS) that were ahead of their current technological times. The SOS developed by FVOS allowed multiple operating environments to coexist on the same platform with their own independent file systems. When FVOS invented Systems Virtualization, they were awarded three separate patents for their technology (US6690400, 7356677, and 6401183).

Why this technology even matters

Let’s stop right here for a moment and talk about what this means. In 1997, when the mainstream Internet was just beginning to take off, FVOS had developed and launched a system which allowed users to use multiple operating environments, share information, and paved the way for the virtualization of computers based on storage. GEMSA continued to support and develop this technology and received additional patents in China for their efforts.

Item 11 in the lawsuit states, “these GEMSa creative achievements [those that they were awarded the aforementioned patents for] not only revolutionized the development of virtualization technology for support of multiple operating systems, but also helped the development of internet advertising and information accessing from multiple data sources;” this sounds a little bit like what Zillow is doing, right?

How the technology is being used

One of the features of GEMSA’s innovations is the method of “accessing additional relevant information from the GUI (Graphical User Interface, sometimes known as icons or labels)” by simply clicking on the information links positioned on the right hand side of the GUI. The lawsuit states the GUI innovations include “menu bars” and “marked links.” And, in accordance with this, GEMSA alleges that Zillow uses a website with GUI for the administration and management of www.zillow.com or one of its websites linked directly or indirectly to one or more claims of infringement against the GEMSA patent. The same is alleged for the second patent as well. Here is one example of FVOS’ original SOS interface:

zillow

From this image, it’s slightly easier to see what’s going on. GEMSA is alleging that Zillow is using their interface, design, and technology to gain profit, without proper authorization. In doing so, they have allegedly violated a patent.

GEMSA is seeking damages from Zillow for the violation, as well as court costs, and an order for Zillow and their employees, agents, and attorneys to cease their infringement.

The bottom line?

It is our assessment that this is yet another frivolous patent lawsuit that reveals the broken nature of the patent system in our nation, even after recent reforms. Zillow isn’t doing anything that thousands (millions? billions?) of other websites are, which is the leading indicator of a patent trolling lawsuit.

#PatentLawsuit

Jennifer Walpole is a Senior Staff Writer at The American Genius and holds a Master's degree in English from the University of Oklahoma. She is a science fiction fanatic and enjoys writing way more than she should. She dreams of being a screenwriter and seeing her work on the big screen in Hollywood one day.

Real Estate Corporate

Zillow nixes iBuying program and cuts 25% of staff, consumers go wild

(REAL ESTATE) After Zillow hit pause on their iBuying program, they’ve now cut it altogether and laid off staff. Can Zillow haters gloat yet? Maybe not…

Published

on

Zillow

Today, Zillow Group announced their plan to shut down the Zillow Offers program (known as their iBuying initiative), also announcing a cut in their workforce of roughly 25%.

With a backlog of over 9,800 homes (several thousand more than they reported just days ago) that need to be sold, and a current 8,200 under contract that they’re still moving forward with purchasing, the company can’t simply cite labor and raw materials challenges.

The rapid escalation of the program in the past quarter is part of the subsequent sunsetting wherein they’ll be eating a $304 million in losses, and another $240-$265 million expected additional losses on pending properties.

They’ve instantly become famous for using their algorithm to wildly overpay on a ton of product, then losing their shirts for it.

Zillow Co-Founder and former CEO said earlier this week that he assumed purchasing would resume in Q1, but fellow Co-Founder and current CEO, Rich Barton stated, “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”

Barton added, “While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers. Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.”

This combination of conditions has plenty of real estate professionals (that have long hated Zillow) gloating on social media.

We recently urged our readers to not get excited about their last announcement that they’d be pausing the iBuying program, and we stand by that today for several reasons:

  1. Fully 25% of their workforce got a pink slip today and that is nothing to celebrate – they’re people whose lives were just upended. But not Rich Barton’s, he’ll be just fine.
  2. This program is one of many for them and these losses don’t matter much in the bigger picture – it was a very small piece of their pie.
  3. Even if Zillow stopped getting every listings feed on the planet and every Realtor stopped giving them their money, they’ve created a scenario where they’ve applied for (and been granted by the federal government) nearly every conceivable generic patent on real estate online. Their evil genius will help leadership to survive any storm, like it or not.

Does the shutdown of this program spell doom for the iBuying model in general? It could be seen that way, or it could be seen that they moved far to quickly, or simply that economic conditions collided to make the perfect storm which wasn’t in their favor.

Either way, from our vantage point, the program has always felt like they were playing with Monopoly money, or like they were enjoying being WSB bros, and it’s now over and a lot of people are out of work today.

What will always remain consistent is real estate practitioners reminding each other that they’re who have fed the beast since day one, like this Realtor:

The only real downside for Zillow is the public relations hit they’re taking with consumers who are going wild about the news:

Stay tuned for what money moves Z makes next. This story isn’t over.

Continue Reading

Real Estate Corporate

The pending demise of iBuying real estate brokerages

The iBuying model is under speculation from regulatory bodies, and how they represent themselves to the public could be their undoing.

Published

on

financial cash flow iBuying

In my view, the iBuying model is fatally flawed and may only provide Consumers enhanced benefits in specific market conditions. Furthermore, there appears to be a “revenue at all costs” model to appease investors, providing the inference that a company is growing at the detriment to net profits as most homes are flipped at a net loss. 

It is my understanding that iBuyers record revenue as the sale price of the home. Recording the sale price of the house has increased iBuyer revenue exponentially, which increased stock values to all-time highs, however now there is an expectation of continuing revenue growth, which may pressure iBuyers to buy less favorable homes to maintain revenue volume.

Zillow’s recent announcement that they are “pausing” iBuying resulted in a significant drop in stock value and analyst downgrades. 

The Fallacy That Combining Brokerage, Mortgage & Escrow Services Enhances Consumer Experiences

My brokerage refers clients to third-party firms we have vetted and have a history of transacting. To gain our trust, third-party companies must exhibit excellent customer service with reasonable rates.

iBuyer agents may provide referrals because they share a cubical with the respective service provider. 

Navigating Down Markets

Sales are simple in an appreciating market, and profitability is enhanced (or losses softened). Conversely, transacting in a flat or price-correcting environment may disproportionally impact iBuyers as they are glorified home flippers who might rely on appreciation.

In a study by Mike DelPrete, arguably the preeminent residential real estate analyst, states, In Q2 2021, home price appreciation accounted for 70 percent of Opendoor’s gross profit margin.”

Federal Investigations Into iBuyer Representations | Per OpenDoor’s SEC Disclosure

“Federal Trade Commission (“FTC”) sent a civil investigative demand (“CID”) to Opendoor seeking documents and information relating primarily to statements in Opendoor’s advertising and website comparing selling homes to Opendoor with selling homes in a traditional manner using an agent and relating to statements that Opendoor’s offers reflect or are based on market prices. Thereafter, Opendoor responded cooperatively to the CID and related follow-up requests from the FTC.” 

“On December 23, 2020, the FTC notified the Company that they intend to recommend that the agency pursue an enforcement action against the Company and certain of its officers if we are unable to reach a negotiated settlement acceptable to all parties. The FTC has indicated that they believe certain of Opendoor’s advertising claims relating to the amount of its offers, the repair costs charged to home sellers, and the amount of net proceeds a seller may receive from selling to Opendoor versus selling in the traditional manner were inaccurate and/or inadequately substantiated.”

When previously visiting Opendoor, in what appears to be a four-point font, OpenDoor discloses the following: 

“* Beginning on September 30, 2020, for new offers, Opendoor’s service charge will be no more than 5%. Service charge is subject to change, and has historically been as high as 14%.”

OfferPad appears to match the 5% cap, so we may witness a “race to zero” in the iBuying market. If a firm has difficulty achieving net profit when fees have “historically been as high as 14%,” profiting with a 5% cap may prove to be impossible. 

Acquiring Via Special Purpose Entities | Reminiscent Of Enron | Complex Financial Reporting The Average Investor May Not Understand

OpenDoor’s SEC 8K States: 

“The Company utilizes inventory financing facilities consisting of asset-backed senior credit facilities and asset-backed mezzanine term debt facilities to provide financing for the Company’s real estate inventory purchases and renovation. The credit facilities are secured by the assets and equity of one or more SPEs. Each SPE is a consolidated subsidiary of Opendoor and a separate legal entity. Neither the assets nor credit of any such SPE are generally available to satisfy the debts and other obligations of any other Opendoor entities, except to the extent other Opendoor entities are also a party to the financing arrangements.

These facilities are non-recourse to Opendoor and, with limited exceptions, non-recourse to other Opendoor subsidiaries. These SPEs are variable interest entities and Opendoor is determined to be the primary beneficiary based on its power to direct the activities that most significantly impact the economic outcomes of the entities through its role in designing the entities and managing the real estate inventory purchased and sold by the entities. The Company has potentially significant variable interest in the entities based upon the equity interest the Company holds in the VIEs.”

Understood?

Even OpenDoor is having difficulty with accounting/reporting as they disclosed the following: 

“We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or fail to maintain an effective system of internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations. We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.”

Generally speaking, it is time for all PropTech firms to reevaluate the accuracy of public representations as FTC complaints are filed and class-action law firms are evaluating claims.

The days of misleading consumers while denigrating Realtors are over. 

Ask Jack Ryan and REX Homes. 

Continue Reading

Real Estate Corporate

Zillow stops their home buying, but you shouldn’t get excited about it

(CORPORATE) Zillow has put the kibosh on their home buying program, and real estate practitioners are buzzing, but no one should get excited…

Published

on

zillow

Zillow has halted purchases of homes for their iBuyer home buying program, and many real estate practitioners are buzzing on social networks to gloat and analysts are saying the company is on the rocks, but that sentiment is missing the forest for the trees.

In Q2 of last year, they only bought 86 homes to flip. Their purchase rates then rose to 808 in Q3, then 1789 in Q4, and 1856 in the first quarter of this year. Fast forward to Q2 of 2021 and they invested in 3805 properties.

That’s one serious surge in inventory they’ve invested in, which means a major upswing in their backlog to get through.

The reason for the purchasing pace change is unclear, but no one is currently immune to the supply chain crisis which is making raw materials expensive or impossible to obtain, while labor shortages in the industry are creating a scenario where hiring to finish this many flips is extremely difficult.

Current market conditions are such that housing starts and permits have slipped a bit as the nation faces the same challenges as Zillow must now endure.

Further, with their average purchase price in the second quarter hitting $322,432, average renovations, holding, and selling costs reaching $26,334, their average return is $19,636. That’s a decent return on a flip, but professional flippers can reap larger returns than $20k – but not at the scale Zillow is accomplishing.

Spencer Rascoff, Zillow co-founder and former CEO told CNBC he suspects buying will resume early next year. That seems like a reasonable supposition.

On the note of what they’re accomplishing, Nevada Realtor, Sean Gotcher, posted a wildly viral video last month on social media about Zillow manipulating the housing market and consumers finally realized the possibilities of what a power like Zillow could accomplish. Whether they do the evil thing or not is yet to be seen.

Real estate practitioners have spent the last 24 hours proclaiming the death of Zillow, which is wildly off. The company simply has a backlog and is struggling with labor and materials like everyone else in America.

And even if their iBuyer program shuts down and they stopped getting every listings feed on the planet, they’ve created a scenario where they’ve basically applied for (and yuck, been granted by the federal government) every conceivable generic patent on real estate online.

Instead of reading a headline and gloating on Facebook, practitioners need to start paying attention to the possibility of Zillow patent trolling the world – the rest is all just chump change. They really are evil geniuses, and they’re definitely going to survive this small iBuyer blip.

Continue Reading
Advertisement

Our Partners

Get The Daily Intel
in your inbox

Subscribe and get news and EXCLUSIVE content to your email inbox!

Still Trending

Get The American Genius
in your inbox

subscribe and get news and exclusive content to your email inbox