As part of its third quarter earnings report, Zillow Group announced plans to wind down Zillow Offers, the company’s iBuying service in which Zillow acts as the primary purchaser and seller of homes. The closure of the platform is expected to take several quarters and will include a reduction of Zillow’s workforce by approximately 25%.
“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,” Zillow Group co-founder and CEO Rich Barton said in a prepared statement as part of the company’s earnings report. “While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers.”
Zillow began testing its iBuying business in Las Vegas and Orlando in May 2017 before officially launching in April 2018. The program was designed to “give real estate agents the opportunity to acquire new listings by connecting them with motivated sellers who have taken a direct action to sell their home.” For homeowners, the iBuying process allowed them to sell their home for cash, eliminating the bidding, sales, and closing process without the need to worry about repairs before putting their home on the market.
The Zillow Offers segment generated a net loss before taxes of $421 million in the third quarter, contributing to a three-month period where Zillow reported a net income loss of $328 million. Zillow reported $1.17 billion in total quarterly revenue from Zillow Offers compared with $186 million during the COVID-19–impacted third quarter of 2020. The real estate company sold 3,036 homes through the Zillow Offers platform in the third quarter.
“What economists and analysts have learned over the past 20 months is that COVID broke our models,” Zonda chief economist Ali Wolf said. “Housing, in particular, has been on a wild ride. With home prices determined with lot-by-lot granularity and the purchase of a home more emotional than ever given the pandemic, it’s not a big surprise that the models struggled to predict the future accurately.”
The news of the full wind-down of Zillow Offers follows an announcement in mid-October that Zillow would pause all iBuying purchases through the rest of 2021 due to operational capacity restraints.
“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation, and closing spaces,” Zillow COO Jeremy Wacksman said at the time of the initial iBuying pause. “We have not been exempt from these market and capacity issues, and we now have an operational backlog for renovations and closings.”
According to a report from Bloomberg, before Zillow announced plans to shut down Zillow Offers, it was looking to offload approximately 7,000 homes to an unnamed buyer for $2.8 billion. If the real estate company sells the homes to investors, that could exacerbate a lack of supply in the market.
