Zillow Shutting Down iBuying Program Due to Major Losses
In 2018, Zillow launched a new division within its massively successful business model. The major deviation was an iBuying program known as Zillow Offers. The purpose was to simplify selling your home. The way it worked was by selling your property directly to Zillow at what they determined was a fair market value. Zillow Offers used an algorithm to value properties accurately and competitively while projecting future value as well. The business model relied on making minor repairs or improvements to homes that Zillow purchased, and then flipping them for a higher sales price. It seems, however, that their plan was a bust. Last month, Zillow reported that they were halting the home buying program due to a backlog of properties that still needed to be renovated before they could be sold. They said that the renovation process could not be completed fast enough to get additional properties on the market.
On Tuesday, November 2, 2021, however, Zillow announced that it will be permanently shutting down their homebuying operations. The primary reason for this is simple - they have been losing massive amounts of money on the venture. In analyzing the homebuying program, it has been noted that 63% of all properties listed for sale in Zillow’s top five biggest real estate markets that were purchased through Zillow Offers are priced at below what Zillow initially bought them for. In the Minneapolis Area, more than 67% of Zillow Offers purchased homes are listed for less than what Zillow paid, and in Phoenix an astounding 93% are listed at sub-purchase prices. Though it has reported $1.4 billion in revenue for the first half of 2021, Zillow Offers has not turned a profit since it began in 2018. It is clear that the company has been losing massive sums on its iBuying venture. In fact, Zillow is anticipating up to $265 million in losses just in the fourth quarter of 2021 alone. Zillow CEO Rich Barton cites the “unpredictability” of home valuation as the main cause that stumped their algorithm and led to the losses.
With the closure of Zillow Offers, the company is expected to have to let go of 25% of their employees as the program winds down over the next several business quarters.
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