Zillow Announces Suspending Home Buying Program 1:13
(CNN) -
Zillow is exiting the iBuying business and will be closing its Zillow bidding division, resulting in a 25% reduction in staff.
In its quarterly earnings report Tuesday, the company said it will see a total write-off of more than $ 540 million as a result of its exit from the business, which buys houses and resells them.
As a result of the closure of Zillow Offer, the company said it will cut about 2,000 jobs.
Last month, the empress said it was halting new home purchases because supply chain disruptions and labor shortages were causing it to get stuck in the homes it was renovating and preparing for sale.
However, the company said Tuesday that its third-quarter inventory downgrade of $ 304 million in its housing segment, which includes deals from Zillow, was due to it buying homes in the last quarter at higher prices. than you think you can sell them.
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"We have determined that the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow's offerings would lead to too much profit and balance sheet volatility," said Rich Barton, co-founder and CEO of Zillow.
Zillow slows down home buying as it struggles to manage its accumulated inventory
Zillow Offers' business in the housing market
Since Zillow Offers was launched in 2018, real estate markets have experienced major turmoil, including a pandemic, a temporary freeze in the housing market, followed by an imbalance of supply and demand that led to an unprecedented rise in housing prices. the House.
While the big price hikes were welcome, the drops would expose Zillow to too much risk, wrote Barton and Allen Parker, the latter of the company's chief financial officer, in the letter to the company's shareholders.
"Our goal was to become a market maker, not a market risk taker."
Zillow Offers offered homeowners a fair market cash offer on their home.
The idea was to grow that service and offer it to a wider audience.
But due to the volatility of the price forecast, the company had to rethink what the business would look like when it got bigger, a size it had to become to be consistently profitable, Barton and Parker wrote.
(Credit: Spencer Platt / Getty Images)
"We have determined that this large scale would require too much equity capital, create too much volatility in our earnings and balance sheet, and ultimately result in a much lower return on equity than we envision," they wrote.
Competition in the marketplace among other iBuyers meant that most of the proposals that Zillow Offer made to homeowners were not accepted.
Only 10% of the offers made were accepted.
Also, services were available in only a handful of cities.
"While we built and learned a lot from the Zillow Offer operations, it only served a small portion of our customers," Barton said.
"Our core business and brand are strong, and we remain committed to creating an integrated, digital real estate transaction that addresses pain points for buyers and sellers while serving a broader audience."
Zillow ended the quarter with 9,790 homes in inventory and 8,172 homes under contract that it will still buy, which it will sell over the next six months or so.
During that time, staff reductions will occur.
"The most difficult part of this decision is that it will affect a lot of our colleagues," Barton said.
Low number of homes put up for sale due to coronavirus, according to Zillow data
Zillow Offers bought thousands of homes
Zillow isn't the largest iBuyer in the country, but it's a distant second after Opendoor.
Zillow's offerings launched in 2018 in Phoenix and Las Vegas and most recently operated in 25 cities across the country.
The company had been buying compulsively.
Zillow bought 3,805 homes in the second quarter and sold 2,086.
This last quarter, Zillow Offer bought 9,680 homes.
However, that brought the business of closing houses and preparing them for sale to a breaking point.
As a result, Zillow only sold 3,032 homes in the third quarter, which was below expectations and the average gross profit per home sold was a loss of $ 80,771.
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