Zillow soon paused all of its iBuying acquisitions to try to work through its inventory for renovation and resale. Due to a tweak in its algorithm, the company had gotten aggressive and paid too much for too many homes, leaving it with a deep backlog of homes to flip and forcing it to take losses on many of those properties. Last month, the company confirmed a Bloomberg News report that it was overpaying for homes. That test has failed, at least for Zillow. That’s one of the reasons a market like Phoenix was so attractive to these companies,” says Mark Stapp, a business professor at Arizona State University. “In order to test the R&D side of this you need a lot of transactions. Companies like Zillow were able to tap into that action.

Ever since the 2008 recession left Phoenix scattered with foreclosed housing, a surging population has turned the devastation into one of the country’s hottest seller’s markets.

As iBuying activity has grown over the last three to five years, the housing market in greater Phoenix has proven to be a convenient place to bring algorithm-influenced home flipping to the masses. Done at volume, these low-margin transactions could add up to millions in revenue. Dubbed iBuying, the tech companies use their deep pockets to quickly buy up homes directly from sellers, relying on algorithms to determine offers, and then flipping the acquired homes for a small profit. Zillow and a cohort of other tech companies including Offerpad, Opendoor, and Redfin had used the growing city’s booming housing market as a proving ground for their disruptive new approach to buying and selling houses.

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