Zillow announced today that it is ending its Zillows offers program. This announcement comes after reports that the company had sold over 7,000 houses with the intention of selling them to home-buyers. The company stated that Zillow Offers served only a small percentage of its customers, and that it had discovered that home prices are unpredictable.
The company claims that the program will reduce the value of houses it purchased in Q3 and plans to purchase in Q4 by over $500 million. According to GeekWire, Zillow says that the company will have to lay off almost 25% of its employees in the next few months as it winds down its business. This includes almost 2,000 employees.
Zillow had just months ago promoted Offers as a growing segment of its business.
Zillows Q2 financial statements for August revealed a different story. The company stated that Offers was a significant part of its business, and that it had secured a loan of approximately $450 million to continue financing Zillow Offers growth. Vice reported that tech companies were rushing to acquire real estate in order to sell it to home-hoppers.
Despite Zillow's enthusiasm, the company didn't benefit from what it sold. Bloomberg reports that Zillow's Homes division, which operated Zillow Offers, suffered a loss of over $380 million. The company stated in its Q3 shareholder letter that growing Offers at the scale it desired was risky and that it provided too few opportunities for return on equity.
Zillow offers had issues below the surface
The program was showing signs of trouble. A Monday report said Zillow was seeking to sell over 7,000 homes it bought to investors and not individual buyers. The company announced in October that it would stop buying houses and cited labor shortages as the reason.
Zillow stated in its shareholders letter and press release that it will continue to focus on its core business, which is providing a platform for people to view houses for sale and get pricing estimates. The company even says that the Offers program disappointed 90% of those who did not sell their homes to it. This could have a negative impact on the core business as people may be turning away from Zillow. The company does not provide any details about how it disappointed potential sellers, even though it offered what it called a fair market value.
