General
November 3, 2021
5 minutes read

Zillow Quits Home-Flipping Biz, Lays Off 25% Of Staff

Real estate tech giant Zillow (NASDAQ: ZG) has fallen on hard times. It’s announced that it’ll quit the iBuying “home…

Real estate tech giant Zillow (NASDAQ: ZG) has fallen on hard times. It’s announced that it’ll quit the iBuying “home flipping” business after buying many properties at high prices and struggling to earn a profit from selling them. The company will shutter its entire iBuying division and, as a result, lay off 25% of its staff.

Zillow delivered the bad news along with its Q3 2021 earnings report. It’ll shut down Zillow Offers, its iBuying division, and lay off all employees working there, representing 25% of its roughly 8,000-strong workforce. The layoffs won’t be sudden but rather gradual across “several quarters,” Zillow said.

Zillow entered the home-flipping business in 2018, taking it as its next mission after conquering the world of online real estate listings. The company began buying and selling homes rapidly, paying top-dollar and amassing a portfolio of thousands of units by this year.

It turns out Zillow bought way more houses than it could flip and earn profits, making its thousands of homes a burden on its financial metrics. The initial pointer was its announcement two weeks ago that it would not sign any new contracts to buy homes. Then, a Sunday note from Ohio firm Keybanc said that of 650 Zillow-owned homes it analyzed, 66% were listed below their purchase price.

Bloomberg reported on Monday that Zillow is looking to sell 7,000 homes for $2.8bn and is courting institutional investors as potential buyers. Come Tuesday, Zillow itself admitted defeat; it’s getting out of the iBuying business entirely.

Due to devaluation, Zillow took a $380mn adjusted net loss from its Homes segment in this year’s third quarter. It posted a $328mn overall net loss, compared to a $40mn profit in the same quarter a year ago.

Zillow ended Q3 with 9,790 homes in inventory, triple from 3,142 homes in Q2. It turns out that buying over 6,000 houses in a three-month span wasn’t a really good idea, especially when the prices paid were determined by computer algorithms rather than human haggling.

“I’m sorry for how difficult and disruptive this will be,” Zillow CEO Rich Barton apologized to laid-off employees in a call with analysts. Barton co-founded Zillow 16 years ago and is the company’s largest individual shareholder.