Zillow is exiting the home-flip business and laying off most of its employees after admitting that it overestimated its ability to handle “home price unpredictability.”
In a dismal quarterly earnings report released Tuesday, the company said it was shutting down Zillow Offers, a division focused on flipping and buying homes. The company, which operates primarily as a digital real estate listing service, also said it was laying off a quarter of its workforce, or about 2,000 people. Company executives said the dissolution of Offers will cost Zillow about $540 million in losses.
Zillow is one of several companies hoping to cash in on a trend known as “iBuying,” in which banks, real estate firms and other companies buy up homes in bulk to profit from America's red-hot housing market. The trend, in which companies use algorithms and other high-tech tools to bid competitively on properties people don't want, has fueled inflated home prices and often made it very difficult for ordinary people to buy a home. Often, the companies source the homes and then either resell them to homebuyers at higher prices or try to convert the homes into rental properties.
Zillow launched “iBuying” in 2018 and Zillow Offers in December 2019. The company previously projected it could make as much as $20 billion a year from the business, and has been actively purchasing homes over the past year or so to reach that goal.
But the company's gamble not only didn't pay off, it ended up costing it dearly: Vice News recently reported that the company prioritized growth over actual profits, resulting in Offers actually losing money rather than making a profit.
The first real sign of trouble for the division came about two weeks ago, when Zillow announced it was halting its home-buying surge due to supply chain and labor shortage issues. Then a week later, reports emerged that the company was losing a lot of money because it had bought so many homes that it was being forced to sell them at a discount instead of the expected increase. Now, things seem to have completely gone haywire, and not surprisingly, mass layoffs have begun.
“The unpredictability of home pricing has far exceeded our expectations, and we determined that continuing to scale Zillow Offers would create too much volatility in our revenue and balance sheet,” said Rich Barton, co-founder and CEO of Zillow Group. “Through operating Zillow Offers, we've built and learned a tremendous amount, but it only served a small fraction of our customers. Our core business and brand are strong, and we remain committed to building an integrated digital real estate transaction that solves pain points for buyers and sellers while serving a broader customer base.”
Additionally, Zillow claims it will refocus on its “core business” – providing a digital space for consumers to browse homes, rather than selling them directly.