After preparing to go on a massive home-buying spree, Zillow abruptly reversed course and announced on Monday that it will not sign any new contracts for additional homes for the remainder of the year. The company, a growing presence among the high-tech house-flippers known as iBuyers, said it had surpassed its “operational capacity constraints” and was grappling with a backlog of homes it still needs to renovate.
Jeremy Wacksman, Zillow’s chief operating officer, cited the broader “labor- and supply-constrained economy” and “competitive real estate market” as reasons for the issues. “We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings,” he said. According to Bloomberg, an employee in Zillow’s home-purchasing division cited “unexpected high demand” as another reason for the pause in an email to a “business partner.
The company said it will honor all “already-signed contracts,” but will otherwise shift to renovating and selling the homes it has already purchased, according to the release. Zillow did not respond to a request for comment.
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Prior to the announcement, the company had been engaged in an industry-wide “free-for-all, acquire at any cost” arms race to buy homes, according to an August analysis published by Mike DelPrete, a scholar-in-residence at the University of Colorado Boulder who studies the iBuyer market. Zillow purchased roughly 3,800 homes during the second quarter and expected to double the revenue brought in from its iBuyer division in the next period. To buy more homes, Zillow borrowed $450 million through a unique August bond deal, then offered a similar $700 million bond deal in the next month.
But the company, which is predominantly an online marketplace for real estate listings, appears to be struggling to adapt to life in the on-the-ground real estate world. A Zillow spokesperson told Motherboard previously that since it doesn’t make an “eye-popping” amount on each individual home, the company needs to scale massively to “generate the revenue and profit that we want.” But real estate is a people business. The company estimates that it does about $10,000 of repairs on the typical home, and it needs people to do that work and inspect the home before it decides to purchase it.
Not everyone in the iBuyer space is dealing with the same level of operational issues. One of Zillow’s primary rivals, Opendoor, said as much in a statement.
"We know how important certainty and convenience are to homeowners seeking to move and we’ve worked hard over the past seven years to ensure we can continue to deliver our experience at scale,” an Opendoor spokesperson said. “Opendoor is open for business and continues to scale and grow."
Zillow first launched its home-buying and -selling platform, Zillow Offers, in 2018, in hopes of gaining a foothold in the small but burgeoning iBuyer space. Through Zillow Offers, the company makes all-cash offers on mid-level homes in decent condition. If the owner accepts, Zillow allows owners to pick (and change) their move-out date, avoid showing their home, and use the cash to go start looking for their next home.
For this convenience, Zillow charges a fee that often comes out around 5 percent nationally.
As a result of its foray into home purchasing, Zillow has recently faced something relatively new for the company: controversy. A viral TikTok pushed a conspiracy theory that Zillow hopes to manipulate national housing prices to its benefits, which Zillow described as “misinformation.” New York City real estate agents, meanwhile, are starting their own Zillow competitor.
Other real estate rivals have described iBuyers as “tech-distorting” and unnecessarily costly. One real-estate startup even recently accused Zillow and the National Association of Realtors of operating an anti-competitive “cartel” in a lawsuit.
With hundreds of millions or dollars at its disposal, though, it seems reasonably likely that Zillow will be back in the battle for American homes soon.