Zillow announced on Tuesday that it is cutting off a quarter of its 6,400 employees as it closes down its home-flipping jobs business, a bitter defeat for a company that had hoped to grow its role as a middleman between buyers and sellers.
In a statement explaining the abrupt move to pull the plug on the side business, called Zillow Offers, CEO Rich Barton said, “the unpredictability in forecasting home prices far exceeds what we anticipated.” As a result, continuing to grow Zillow Offers “would result in too many earnings and balance-sheet volatility,” he added.
In a tweet, Barton also said the decision was “difficult, but necessary. “The announcement suggests that Zillow’s algorithmic approach to pricing homes has struggled to accurately predict real estate prices at a time when housing values are rising across much of the nation. Earlier this month, Zillow Offers had halted its home-buying operations, citing difficulty in finding contractors and others renovate the homes and flip them to eager buyers”.
According to Bloomberg, Zillow was attempting to sell 7,000 houses as part of its plan to suspend property purchases, which was a troubling move, according to Bank of American Securities analysts in a research note.
“The decision to abruptly sell 7,000 homes could point to one of two things that make us even more cautious,” the analysts noted. First, Zillow could be concerned enough about the housing market outlook “that it is willing to sell a huge amount of homes quickly and likely at a loss.”
Second, the decision to sell so many homes could signal “undisciplined execution has led [Zillow Group] to take what we see as a drastic step of reducing its owned home portfolio.” The decision to exit the business comes only weeks after executives touted the home-flipping offering as one that could eventually reach half of all housing stock.
“We, over time, believe this can be a service that is offered to the majority, to over 50% of the housing stock,” Zillow Chief Operating Officer Jeremy Wacksman said in a September 13 virtual technology conference. “We will get there.”
It was never delivered. In its most recent quarterly earnings report, Zillow stated it will write down $304 million in real estate after purchasing homes that are now worth less than the company’s current estimations of their potential sales values. In addition, the business expects to lose an additional $240 million to $265 million on homes it plans to complete in the fourth quarter. Zillow shares fell 11.5% on Tuesday and slipped another 6.4% in after-market trading.
Source: CBS News