The company lost hundreds of millions of dollars flipping houses
Zillow has announced that it’s winding down the Zillows Offers program, a day after reports surfaced that it’s selling over 7,000 of the houses it purchased with the intent of flipping them to would-be home buyers. In a press release announcing its Q3 results, the company says that Zillow Offers only served “a small portion” of its customers. CEO Rich Barton now says that “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.”
With the program shutting down, the company says it’s reducing the estimated value of the houses it’s purchased in Q3 or will purchase in Q4 by more than $500 million. Zillow also says that winding down the business in the coming months will mean having to let go of almost 25 percent of its employees — almost 2,000 workers, according to GeekWire.
In August, Zillow’s Q2 financial documents told a very different story — the company said that Offers was a particularly notable part of its business and that it had even secured a loan for around $450 million to “continue funding [its] Zillow Offers growth.” It also touted its mass acquisition of homes as proof that its “pricing models and automation” for making offers was good for people selling their houses. Vice reported that there was an “arms race” between tech companies to scoop up real estate to sell to home hopefuls.
Despite Zillow’s enthusiasm, what benefited sellers didn’t necessarily help out the company. Bloomberg reports that the company lost over $380 million on its Homes division, which ran Zillow Offers. In its Q3 shareholder letter, the company said that trying to grow Offers at the scale it hoped would be “risky” and said that it’d provided “too little opportunity for return on equity.”
There were signs that the program was in trouble — a report on Monday said that Zillow was looking to offload over 7,000 homes it had bought, not to individual buyers but investors. In October, the company announced that it was going to stop buying houses, citing labor shortages as the reason for its excess inventory.
Zillow says in its press release and shareholders letter that it plans on focusing on its “core business” of providing a place to browse houses for sale and provide pricing estimates. It even goes as far as saying that its Offers program disappointed 90 percent of the people who didn’t end up selling their homes to the company, possibly hurting that core business by turning people who were in the market off from Zillow. The company doesn’t provide details on how it disappointed those potential sellers when it was offering what it calls a “fair market price.”