Zillow says it is shutting down its home buying business, laying off ~2,000 employees, and taking a write down of $500M+; stock drops 10%+

Zillow Group's ambitious tech-fueled bid to shake up how people buy and sell homes is coming to a surprising end. — The Seattle online real estate giant …

GeekWire 2021-11-03 Taylor Soper

Context & Ripple Effects

Zillow moved from a year-long home-flipping marketplace test to buying and selling homes itself in 2018. The shutdown reverses that strategy and separates its core online real-estate business from the inventory-owning operation.

The decision follows reports that Zillow was seeking institutional buyers for roughly 7,000 homes accumulated through its buying program, tying the exit to the practical task of unwinding owned inventory.

First-order effects

Zillow ends its home-buying operation, eliminates about 2,000 jobs, and absorbs a write-down exceeding $500 million, while shareholders immediately mark down the company’s stock.
Institutional investors become a key potential exit channel for the homes Zillow had acquired, as the company works to dispose of inventory rather than add to it.

Second-order effects

Zillow’s retreat removes its direct participation as a cash homebuyer, leaving its real-estate marketplace strategy less exposed to the operational and pricing risks of holding homes.
The inventory sale process concentrates attention on institutional buyers’ ability to absorb homes from a large platform exit, rather than on Zillow’s bidding algorithm as a source of new purchases.

Third-order effects

Zillow’s reversal draws a clearer line between a housing-information platform and an asset-heavy home-flipping business: combining the two exposes platform economics to inventory valuation and execution risk.
If other real-estate platforms pursue transaction businesses, Zillow’s exit establishes a cautionary precedent that scaling a marketplace does not by itself solve the risks of owning the underlying homes.

The trend: Tech-led real-estate platforms are testing how far they can move from information marketplaces into balance-sheet-intensive transaction businesses without inheriting the risks of home inventory.

Discussion

@opendoor @opendoor on x
Opendoor is open for business. We have demonstrated strong growth and unit economics, and we are energized to help homeowners nationwide move with simplicity, certainty and speed.
@jowens510 Jeremy C. Owens on x
No matter what you thought about what is happening at Zillow, its actually worse: Zillow is getting out of the business of buying and selling homes for good and laying off a full quarter of its workforce.
@jeffnolan Jeff Nolan on x
you have to wonder what effect this has on the leadership team within Zillow. Moral authority within a company culture is more important than ever before and this was a total shit the bed moment for them. Billions lost, 2k people out of a job. Its gonna leave a mark https://twitt…
@kelseyhightower Kelsey Hightower on x
Treating homes like an investment has always felt like a mistake. https://twitter.com/...
@lt3000lyall Lyall Taylor on x
Yikes - it takes a fairly extraordinary degree of incompetence & epic failure of the business model for Zillow to expect to lose 5-7% on iBuying houses it bought to flip in a raging property bull market (1/2). https://www.wsj.com/... https://twitter.com/...
@waltisfrozen Greg on x
I still don't understand how Zillow buying and flipping homes could possibly be legal. Can you imagine how it must feel for buyers who lost their chance at a dream home because the cash buyer who swooped in and bought it was the site they used to find it? https://twitter.com/...
@jowens510 Jeremy C. Owens on x
“Ultimately, we determined that further scaling up Zillow Offers is too risky, too volatile to our earnings and operations, provides too little opportunity for return on equity, and serves too narrow a portion of our customers.” Basically what bears were saying the entire time.
@jonfortt Jon Fortt on x
This $Z #iBuying story is crazy, and underscores the importance of understanding what #bigdata & #AI can and can't deliver. There will be many more emperors wearing disappointingly flimsy outfits before all is done. #zillow https://www.cnbc.com/...
@xerxeswuff Xerxes on x
66% of the junk houses Zillow bought up to flip and artificially inflate the already ridiculous housing market are now underwater i love instant karma 🤘 https://www.marketwatch.com/ ...
@kyweise Karen Weise on x
Oh my. Zillow is shutting down its home flipping business and will layoff a quarter of its staff because its algorithms were too inaccurate Via @pat_clark https://www.bloomberg.com/...
@darrenrovell Darren Rovell on x
A reminder to stick to your core business. Zillow's core business wasn't real estate. It was real estate DATA. https://twitter.com/...
@samro Sam Ro on x
“...will unfortunately involve a reduction in our workforce of approximately 25% over the next few quarters.” https://twitter.com/...
@mikeisaac Rat King on x
this whole saga is WILD https://www.bloomberg.com/... https://twitter.com/...
@dangeiger79 Daniel Geiger on x
Zillow says it's closing its iBuying business and will lay off 25% of its employees - announcement follows revelations that the unit was buying and selling homes unprofitably: https://investors.zillowgroup.com/ ...
@derektmead @derektmead on x
The flipper has become the flippee https://www.bloomberg.com/...
@killedbygoogle @killedbygoogle on x
Absolutely disgusting how much Real Estate they snapped up this past year and contributed to a huge rise in housing prices. https://www.geekwire.com/...
@business @business on x
Zillow is pulling the plug on its tech-powered home-flipping operation after deciding that its pricing algorithms weren't accurate enough to build a stable business https://www.bloomberg.com/...
@seldo Laurie Voss on x
So did Zillow fail to become a buyer and seller of homes directly because it undermined their credibility as a search engine if they were also a broker, or just because they were bad at it? https://www.geekwire.com/...
@pmddomingos Pedro Domingos on x
Relying on a bad ML model is a bad business model. https://www.wsj.com/...
@ajlatrace AJ LaTrace on x
“Zillow may have leaned into home acquisition at the wrong time, and we believe earnings may be at risk due to its current home inventory ($1.17 billion at 2Q21).” https://www.marketwatch.com/ ...
@toddhagopian Libertarian-In-Chief on x
Imagine losing $400 million flipping houses in the hottest market in history Algorithms can only take you so far... https://twitter.com/...
@carnage4life Dare Obasanjo on x
Zillow disaster now official. They are getting out of the home buying business and laying off 25% of their staff. The home buying division lost $421M this quarter. They basically went head to head with Opendoor without any secret sauce then lost big. https://www.cnbc.com/...
@paul_essen Paul Essen on x
Wow, this is a pretty shocking admission of failure from $Z in terms of iBuying. Seems to really validate the more cautious and mixed approach that $RDFN has been going with. https://www.cnbc.com/...
@carnage4life Dare Obasanjo on x
Opendoor subtweets Zillow's earnings to let everyone know their business model@is sound and its Zillow that failed to execute https://twitter.com/...
@jowens510 Jeremy C. Owens on x
$Z is writing off more than $300 million in the current quarter on homes it paid too much for, and expects to lose $250 million or so in the fourth quarter because of it. Yes, that is more than half a billion dollars.

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