Seattle-based Zillow Group, Inc. (Nasdaq: ZG) is shutting down Zillow Offers, its direct homebuying service.
The move, announced Tuesday along with the company's third quarter 2021 earnings results, comes just weeks after Zillow said it wasn't buying any more homes through the end of the year. According to Zillow, shutting down its iBuying service will take several quarters.
"We've determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility," Zillow Group co-founder and CEO Rich Barton said in a news release. "While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers. Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience."
Zillow also said it will lay off about 25% of its workforce as a result of shutting down Zillow Offers. In its latest quarterly filing, the company listed 7,999 full-time employees nationwide. In March, Zillow told the Business Journal that it had 2,500 employees in the Seattle area.
The move is sure to have ripple effects for housing markets across the U.S., as Zillow has purchased thousands of homes through its Zillow Offers program. It also may be an indication of how the iBuying model, which has gained momentum through the pandemic, could be sensitive to even minuscule shifts in a housing market that has many homebuyers competing with hedge funds.
Tuesday's news marks a rather abrupt change of course for Zillow, which praised the success of its direct homebuying business just three months ago during its second quarter 2021 earnings call. Zillow Offers brought in $772 million during the second quarter of 2021, a 70% year-over-year increase. Revenue climbed this quarter as well — Zillow Offers brought in $1.17 billion during the third quarter of 2021.
In February, the company started using its home value estimation tool, Zestimate, to make initial cash offers through Zillow Offers in more than 20 cities.
"Zillow Offers value proposition of a fast, fair, flexible and convenient close has proved more than durable, even in this sizzling hot seller's market," Barton said during the company's Q2 earnings call in August. "I confess to being quite excited by how well Zillow Offers is doing in such a hot seller's market, which has me, for one, kind of probing at the perimeter of my penetration and (total addressable market) expectations."
The news around Zillow Offers became more bleak recently. According to MarketWatch, a KeyBanc analysis of 650 homes bought by Zillow found 66% were worth less than the purchase price.
During the company's third quarter 2021 earnings call Tuesday, Barton said Zillow only converted about 10% of the serious sellers who looked to Zillow Offers, and the remaining 90% would often feel disappointed. In general, he said price forecasting was more volatile than Zillow had planned, and that led to balance sheet volatility that was beyond what Zillow was comfortable with.
In addition to Zillow Offers and its platform to find a home, Zillow provides mortgages through Zillow Home Loans and a platform for partner agents called Zillow Premier Agent.
Zillow reported total revenue of more than $1.7 billion for the third quarter of 2021, up from $656.7 million during the third quarter of 2020.
The Business Journals' Real Estate Editor Ashley Fahey contributed to this report.
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| Rank | Prior Rank | Business name |
|---|---|---|
1 | 1 | Amazon.com Inc. |
2 | 2 | Microsoft Corp. |
3 | 3 | T-Mobile US Inc. |