Only months after announcing plans to dramatically ramp up Zillow Offers, its home-buying iBuyer service, Zillow announced Tuesday that it is effectively killing it, saying it was too difficult to accurately price homes and only served a small percentage of its customer base. The company will cut a quarter of its workforce as a result of the decision.
“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,” Zillow Group CEO Rich Barton said in a release. “The most difficult part of this decision is that it will impact many of our colleagues.”
The company had previously entered into the industry-wide “arms race” to buy homes with full force, enacting a $450 million bond deal that elicited intense investor interest to help finance the growth. iBuyers purchase mid-level homes that are in decent condition, then make a small number of repairs before trying to resell the home.
Zillow claimed that it always hoped to make money through its convenience fee, whichcame out to 5%, rather than on any appreciation accrued between when the company bought and sold the home.
But the company faced a growing amount of criticism and trouble because of its decision to more aggressively enter the home-buying market while still providing estimates of homes on its website. A viral TikTok pushed a conspiracy theory that tech companies hoped to manipulate the housing market, and Zillow struggled to sell off a backlog of homes it purchased, deciding earlier this month that it would no longer purchase homes for the remainder of the year, saying it had surpassed its “operational capacity constraints.”
Now, the company says it will wind down its home-buying program over the next several quarters. The company will also write down $304 million worth of homes it purchased in the third quarter at “higher prices than the company’s current estimates of future selling prices.” It will also write down a quarter of a billion in losses related to homes it expects to purchase in the fourth quarter.
Bloomberg reported Monday that Zillow is pitching 7,000 homes to institutional investors.
“We have been unable to accurately forecast future home prices at different times in both directions by much more than we modeled as possible,” the company said in its shareholder letter. “Because of this price forecasting volatility, we have had to reconsider what the business might look like at a larger size.”
The company maintained that it always offered “a fair market price” and as a result that it would only “become consistently profitable at scale.” Ultimately, the company decided that the amount of money, volatility and risk that would entail wasn’t worth the potential rewards. The company also said only 10 percent of “serious sellers” went with a Zillow offer after requesting one, meaning the company disappointed the other 90 percent.
“[W]e believe there are better, broader, less risky, more brand-aligned ways of enabling all of our customers who want to move,” the company said.