Zillow, which acquired more than 3,800 homes in the second quarter, will halt new purchases for the remainder of the year as it works through a backlog of properties already in the pipeline. (Photo: Cindy Yamanaka, Orange County Register/SCNG)
Patrick Clarke | Bloomberg
Online real estate giant Zillow Group is pausing its U.S. home buying efforts as its shift to tech-enabled home flipping has stalled.
Zillow, which acquired more than 3,800 homes in the second quarter, will halt new buying for the remainder of the year as it works through a backlog of listings already in the pipeline.
“We operate in a labor- and supply-constrained economy in a competitive real estate market, particularly in the areas of construction, renovations and closings,” Zillow Chief Operating Officer Jeremy Waxman said in a statement. “We are not immune to these market and capacity challenges and are currently experiencing operational delays in renovations and closings.”
Zillow shares fell as much as 11.4% to $83.54 in New York, their biggest intraday drop in more than seven months. The company's shares had fallen 31% this year through Friday's close after nearly tripling in 2020.
Shares of Zillow competitor Opendoor rose 7.9% to $25.27 after the company announced it was “reopening.”
Zillow is best known for publishing real estate listings online and for providing “Zestimates,” home value estimates that help users understand how much their homes are worth. The popularity of its apps and website helps support Zillow's profitable online marketing business.
But these days, the company has bought and sold thousands of homes in the U.S. In 2018, the company launched Zillow Offers, joining a small group of tech-enabled home flippers known as iBuyers. With this new business, Zillow invites homeowners to make offers on their homes, using an algorithm to generate a price. If the owner accepts, Zillow purchases the property, makes some minor repairs, and puts it back on the market.
As the pandemic spurred a housing boom marked by cash bids and quick closings, Zillow's pitch of speed and convenience is beginning to resonate with consumers looking to sell their home quickly while looking to buy a new property.
Zillow said it will continue to advertise and sell homes during the pause in new acquisitions and will complete transactions on homes that are already under contract.
“Pausing new contracts allows us to focus on sellers who are already under contract and our current home inventory,” Waxman said.
The iBuying process is run by algorithms and large pools of capital, but it also relies on humans: Before you sign a contract to buy a home, Zillow will send out inspectors to make sure the property doesn't need expensive repairs, and after the home is purchased, contractors will replace the carpeting and repaint the interior.
Finding workers for those jobs has been tough as the pandemic has created an industry-wide labor shortage, exacerbated by Zillow having customers set closing dates months in the future, meaning the company might agree to buy a home in August and start renovating in November.
“Due to unexpectedly high demand, Zillow Offers has reached its homebuying capacity for the remainder of the year,” an employee at the company's homebuying operations in two states wrote in an email to a business partner seen by Bloomberg.
This isn't the first time the company has halted homebuying: Zillow halted homebuying early in the pandemic, as did its main competitor, Opendoor Technologies Inc. Both companies ultimately benefited from the housing boom that began as early economic shutdowns were lifted, but it took Zillow months to resume homebuying at its pre-pandemic pace.
Zillow has spent the past few months fending off online controversy and laying the groundwork for accelerated buying: It borrowed $450 million in August in its first-of-its-kind debt offering and set terms for a second $700 million bond offering in September.
For now, the company plans to refer potential customers to traditional real estate agents. The pause will allow Zillow to work through its backlog, but it could also lose customers to competitors, including its main rival.
“Opendoor remains open for business and continues to provide our customers with simple, reliable, fast and trustworthy moving services,” a company spokesperson said in an email.