What Happened to Zillow’s iBuying Business?
On October 18, Zillow announced that its iBuying division (instant-buying) “Zillow Offers”, would stop buying homes for the rest of the year.
In two extremely bad weeks, 64% of the nearly one thousand homes that Zillow had listed for sale, were being marketed for less than the company paid for them.
How Did Zillow Lose Control?
It began in 2018, when Zillow started the iBuying business. “iBuying” refers to the process in which profitable tech-enabled companies buy houses, make some light renovations, and then sell for a decent gain. Zillow went all out on this strategy, and it has yet to make a profit through home flipping.
The announcement of Zillow’s home-buying initially sent its stock down. It did recover, but stumbled again after some analysts created doubt on the Zillow Offers division's bottom line. In early November, Zillow announced it would cease operations for Zillow Offers and lay off 25% of its staff.
That decision highlighted some difficulties the company faced with iBuying.
Zillows five biggest markets showed that it could be headed toward losses in the millions of dollars from its iBuying division; it still has thousands of unsold houses—because of purchasing homes at higher prices than the estimated selling price.
Why does it matter?
- For sellers, Zillow offered a chance to sell their home quickly. Some real estate agents reported cases of Zillow paying well above the expected market value, which meant a big payday for some sellers.
- Many investors are looking at the earnings results of the Zillow’s competitors to see if they've been afflicted with the same issues.
- According to Bloomberg, before Zillow shut down its iBuying arm, it was looking to pass off 7,000 homes to an unnamed buyer — or buyers — for $2.8 billion.
- If Zillow sells these homes to investors, that could intensify the lack of supply in the market.
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