Mega real estate company Zillow announced it’s giving up and throwing in the towel on its homebuying program of buying, renovating and reselling houses itself.
Zillows iBuying, or instant buying, service named Zillow Offers had most recently been bogged down by a substantial backlog of renovations and sakes said to be caused by the labor and supply shortages seen in the U.S. housing market.
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They disclosed Tuesday that it lost close to $304 million in the third quarter from its iBuying program. After purchasing houses at higher prices than it now expects to sell them at. They bought 9,680 houses in the third quarter but sold only 3,032, the company told its investors.
“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,” Rich Barton, Zillow Group’s co-founder and CEO, said in a statement.
Closing this arm of their business means that Zillow will cut 25% of its workforce of more than 6,400 employees. The program is expected to wind down over several quarters.
Home prices across the nation have skyrocketed during the Covid 19 pandemic which created lucrative opportunities for sellers as well as a competitive process for buyers who are vying for a small, pricey group of available homes for sale.
Zillow announced in late October that it was hitting the pause button on buying any more homes through its iBuying program until the end of the year. They cited the unpredictability of the housing market. They also noted that they would continue to sell houses it had already bought and has in inventory.
Here’s why Zillow won’t be buying any more houses to renovate and resell this year. Zillow and other IBuying companies that have similar business models try to buy houses for a bit less than a seller may otherwise get, but they save you the hassle of showing your home to dozens of people at all hours of the day. Many economists say the companies pricing algorithms work better in places with tons of similar cookie-cutter homes. But in places that have a lot more variation, it’s much more challenging to figure out the actual value at the right sales price.
And there’s another huge problem for these iBuying companies. A lot of the time, many big companies have more information than everyday people when it comes to buying and selling stuff. But when it comes to real estate, that information asymmetry is reversed. In other easier to understand words, the homeowners know a lot more about the house, the product, than the iBuyers do about problems that make their homes tough to sell.
Homeowners know what skeletons are in the house and what the local community and market is like. The people coming in from Zillow and other iBuying company don’t know squat about the house and community. And that presents a major challenge for Zillow or any other iBuyer company.
It’s the same thing, he says, with homeowners who decide to sell to an iBuyer. “The ones who self-select are people who have houses that are difficult to sell.” If you have house or any type of DFW real estate that difficult to sell we have selling options for you – Progressive Real Estate Solutions.