On Tuesday, November 2, Zillow announced in its quarterly earnings report that it will be shutting down its home flipping business and terminating the employment of about 25% of its staff. The announcement means Zillow will be recognizing a loss of about $570 million. It cited “the unpredictability in forecasting housing prices” as one of the reasons for shutting down the home flipping and selling division of its business.
Background Of Zilllow’s Home Flipping Business
Zillow entered the “iBuying” business in 2018. It is one of several large companies that utilizes algorithms to identify and purchase properties en masse, and then attempts to “flip” the properties at a profit. Zillow, as a website that allows customers to browse real estate listings, was uniquely situated to track user information and utilize that information in its own home buying/selling business. The company previously predicted it could make up to $20 billion a year off of the business. Consumers and others, on the other hand, often criticize the business as artificially driving up housing prices. Consumers were particularly critical of Zillow for using its own consumers’ data to compete with those consumers and drive prices up.
Zillow’s Decision To Abandon Its “Zillow Offers” Home Flipping Business
Apparently, however, the business was not as sure of a bet as Zillow predicted. In mid-October, Zillow announced it would be halting its home-buying business. Shortly thereafter, it was reported that Zillow had purchased too many properties, was hemorrhaging cash after adjusting its algorithm to more aggressively purchase properties, and as a result was being forced to sell properties at a loss.
The decision to abandon the business came with the release of third quarter financials, which showed the company lost more than $380 million on the “Zillow Offers” venture. CEO Rich Barton cited “unpredictability in forecasting housing prices” and “too much earnings and balance-sheet volatility” as reasons for shutting down the home-buying and selling business. On the earnings call, Barton stated “fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in.” In short, Zillow’s aggressive home-buying, coupled with a slight cooling of the overall real estate market, has resulted in worse-than-expected performance of the business. The announcement saw Zillow’s stock drop as much as 11% in late trading.
Zillow will continue to focus on its “core business” of providing a digital platform to allow users to browse listings and selling advertising space to real estate professionals.
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