Zillow to lay off 25% of its workforce and shutter house-flipping service
Zillow said Tuesday it is laying off a quarter of the real estate firm's 6,400 employees as it shuts down the company's house-flipping operation, a painful setback for a player that has sought to expand its role linking property buyers and sellers.
In a statement explaining the abrupt move to pull the plug on the side business, called Zillow Offers, CEO Rich Barton said "the unpredictability in forecasting home prices far exceeds what we anticipated." As a result, continuing to grow Zillow Offers "would result in too much earnings and balance-sheet volatility," he added.
In a tweet, Barton also said the decision was "difficult, but necessary." Closing Zillow Offers may require several quarters to complete, the company said.
The announcement suggests that Zillow's algorithmic approach to pricing homes has struggled to accurately predict real estate prices at a time when housing values are rising across much of the nation. Earlier this month, Zillow Offers had halted its home-buying operations, citing difficulty in finding contractors and others renovate the homes and flip them to eager buyers.
As part of that decision to halt home buying, Zillow was trying to sell 7,000 homes, according to Bloomberg — a move that was worrying, noted Bank of American Securities analysts in a research note.
"The decision to abruptly sell 7,000 homes could point to one of two things that make us even more cautious," the analysts noted. First, Zillow could be concerned enough about the housing market outlook "that it is willing to sell a very large amount of homes quickly and likely at a loss."
Second, the decision to sell so many homes could signal "undisciplined execution has led [Zillow Group] to take what we see as a drastic step of reducing its owned home portfolio."
The decision to exit the business comes only weeks after executives touted the home-flipping offering as one that could eventually reach half of all housing stock.
"We, over time, believe this can be a service that is offered to the majority, to over 50% of the housing stock," Zillow Chief Operating Officer Jeremy Wacksman said in a September 13 virtual technology conference. "We will get there."
It never got there. Zillow said Tuesday in its latest quarterly earnings report that it will write down real estate worth $304 million after buying homes that are now worth less than the company's current estimates of their future sales prices. The company also expects to recognize an additional $240 million to $265 million in losses on homes it expects to finish purchasing in the fourth quarter.
Zillow shares fell 11.5% on Tuesday and slipped another 6.4% in after-market trading.