Real estate company Zillow said on Tuesday it would lay off a quarter of its 6,400 employees as it shutters its home-flip business, a blow to the company as it seeks to expand its role in connecting buyers and sellers of real estate.
In a statement explaining why the company was abruptly discontinuing a side business called Zillow Offers, CEO Rich Barton said, “The uncertainty in home price forecasts has far exceeded our expectations.” As a result, continuing to grow Zillow Offers would “result in over-inflated margins and a destabilizing balance sheet,” he added.
Barton said on Twitter that the decision was “difficult but necessary.”
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Today is a tough day for Zillow. We have made the difficult decision to scale back Zillow Offers operations and lay off 25% of our employees. Learn more about our decision: https://t.co/S454rPcLbZ
— Rich Barton (@Rich_Barton) November 2, 2021
The company said closing on Zillow Offers could take several quarters.
The announcement suggests that Zillow's home-pricing algorithmic approach is struggling to accurately predict property prices at a time when home prices are rising nationwide. Earlier this month, Zillow Offers suspended its home-buying operations, citing difficulties in finding contractors and other businesses to renovate homes and resell them to eager buyers.
As part of its decision to stop buying homes, Zillow was looking to sell 7,000 homes, a move analysts at Bank of American Securities said in a research note was concerning, according to Bloomberg.
“The decision to suddenly sell 7,000 homes could signal one of two things that would make us even more cautious,” the analysts wrote. First, Zillow may be so concerned about the outlook for the housing market that it is “willing to sell large numbers of homes quickly, and possibly at a loss.”
Second, the decision to sell so many homes was “due to undisciplined execution.” [Zillow Group] “We are going to take what we believe to be drastic measures to reduce our owned residential portfolio.”
The decision to exit the business comes just weeks after executives touted that their home-flip service could eventually reach half of all housing stock.
“We believe that over time, this service will be available to the vast majority of the housing inventory, up to 50% or more,” Zillow Chief Operating Officer Jeremy Waxman said during a virtual technology conference on Sept. 13. “We will get there.”
In the end, it fell short of that goal. Zillow announced in its latest quarterly earnings report on Tuesday that it would write down $304 million worth of properties because it purchased homes that are currently worth less than the company's projected selling prices. The company also said it expects to book an additional $240 million to $265 million in losses on homes it plans to close on in the fourth quarter.
Zillow shares fell 11.5% on Tuesday and were down another 6.4% in after-hours trading.
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