Zillow, the online real estate marketplace company, has announced plans to sunset their “Zillow Offers” iBuying business. The move is expected to last over the next several quarters, and will, unfortunately, result in the loss of approximately 1,605 jobs, or 25% of their workforce.
A lot like CarMax or Carvana, Zillow Offers functioned in a similar way, but for real estate. Zillow was purchasing homes, preparing them for sale, and listing them to assist sellers selling and buying simultaneously. Marketed as a way to reduce stress and complexities, Zillow Offers gave home sellers the opportunity to request a free, no-obligation cash offer from the company within two business days.
But according to CEO Rich Barton, the company was faced with a massive net income loss of $328 million in the third quarter, due largely in part to a $421 million net loss before taxes on Zillow Offers. During the third quarter, they sold 3,036 homes through Zillow Offers while acquiring 9,680 homes for cash during the same period.
On October 17, Zillow announced they would hit the pause button on iBuying purchases for the balance of 2021. Although they cited operational capacity restraints, it was later discovered that they had purchased homes for well above market value, causing them to relist the homes for less than what they were purchased for.
Barton blamed some of the issues on the company’s inability to forecast home prices accurately. He went on to say that, “Because of this price forecasting volatility, we have had to reconsider what the business might look like at a larger size.”
Many were caught off-guard by the news after Zillow’s previous earnings call where Zillow Offers was mentioned exclusively in positive terms. Despite plans to accelerate its expansion, the iBuying business, in plain terms, became too risky.
The company has yet to address its plans for selling off the homes they have already acquired or agreed to purchase from homeowners. Currently, there are approximately 8,200 homes under contract, and according to Bloomberg, Zillow anticipates losing between 5-7% on these homes.
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