The online real estate marketplace company Zillow has made a major announcement that will bring big changes to the company as they make the decision to close the homebuying business. The company announced it will be shutting down its homebuying unit and anticipates laying off 25% of employees.
Zillow Offers (the company’s iBuying division) experienced turbulence last several weeks that ultimately led to a pause in operations in October 2021. CEO Rich Barton expressed in the company’s third-quarter earnings release indicating the homebuying unit will shut down resulting in laying off nearly one-quarter of its workforce.
Barton explained the big choice in a release stating, “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too many earnings and balance-sheet volatility. 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.”
The withdraw of the business will take “several quarters” to complete as Barton maintains the most difficult part of this decision will impact many Zillow employees that aren’t being taken lightly. Barton discloses that he is grateful for the efforts of the employees and the company is committed to facilitating a smooth transition.
An analysis revealed there are problems with Zillow’s iBuying strategy as Zillow has recently listed for sale on its five biggest markets with 64% that was being marketed for less than the company originally paid for them. Another concerning figure is that 93% of Zillow-owned listings in Phoenix were priced below what the company paid, and Zillow was listing two-thirds of homes in the Minneapolis-St. Paul metro area for less than what Zillow paid.
The iBuying strategy (also known as instant buying) is a process in which deep-pocketed, tech-enabled companies buy up a series of homes that they complete light renovations and sell at an increased value. Zillow and other similar competing companies rely on algorithms to value homes before purchase as Zillow bet big on this strategy launching the Zillow Offers feature in 2018.
Zillow is also experiencing issues with a majority of their properties listed in Dallas and Houston that appear to be taking a massive loss. The third-quarter earnings release also indicated Zillow will write down roughly $304 million within its Homes segment (including Zillow Offers)resulting of buying homes in the third quarter at higher prices with prospects that they will be able to sell them in the future.
Zillow is projected to accumulate losses between $240 million and $265 million in the fourth quarter from the homes the company expects to purchase that quarter. This is a far fall from the success through home-flipping on Zillow Offers to rake in $1.47 billion in revenue during the first and second fiscal quarter of 2021. The research for this article was sourced from MSN.
