Zillow will be leaving the house flipping business. It has fired a significant portion of its staff after admitting it had underestimated its ability to forecast home prices accurately.
The company published a grim quarterly earnings report Tuesday that stated it was closing Zillow Offers, its division dedicated to house flipping, and selling. The company also announced it would be firing 25% of its employees, or approximately 2,000 employees. Zillow will be subject to a write-down due to the dissolution of Offers. According to company officials, the loss was approximately $540 million.
Zillow is one of many companies trying to cash in on America's iBuying trend. This trend sees banks, real-estate companies and other companies buying up homes to capitalise on America's hot housing market. This trend involves large companies using high-tech tools and algorithms to bid on properties they don't need. It has contributed to skyrocketing house prices and made it difficult for ordinary people to purchase homes. The companies often purchase houses to resell or rent out to other homebuyers.
Zillow launched Zillow Offers and iBuying in December 2019. Zillow once predicted that it would make $20 billion per year from the venture. In December 2018, the company launched Zillow Offers.
The company's gambles have not paid off. It has also come back to bite them very hard. Vice News reported recently that Offers was actually losing money because it focused on growth rather than actual profits.
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Two weeks ago, Zillow reported that the division would stop its home-buying spree due to labor shortages and supply chain issues. A week later, Zillow reported that the firm had bought too many houses and was now in serious financial trouble. It was forced to sell the properties at lower prices than it had originally hoped, instead of paying the high markups it had hoped for. The wheels seem to have fallen off, and mass layoffs have naturally begun.
Rich Barton, co-founder of Zillow Group and CEO, stated that we have found the unpredictability of forecasting home prices far exceeds our expectations and that scaling Zillow Offers will result in too many earnings and volatility. Although we learned and built Zillow Offers, only a few of our customers were served. We are proud of our core business and brand, and we will continue to create an integrated digital real estate transaction that addresses the needs of both buyers and sellers.
Zillow claims it will refocus on its core business, which is providing a digital platform for consumers to search for homes and not trying to sell them homes.