Zillow to stop home-flipping amid pricing ‘unpredictability,’ could affect Twin Cities housing market

Zillow said Tuesday that it will stop buying and selling homes, citing the “unpredictability” of forecasting housing prices.

The Seattle-based real estate information company said winding down its Zillow Offers homebuying and selling unit will take several quarters and will result in about a 25% reduction in the company’s workforce, which is now at about 5,300.

The announcement comes about two weeks after Zillow said it would pause buying homes through the end of 2021, citing a backlog in renovations and other operations due to labor and supply constraints. The idea was to temporarily stop buying homes and focus on selling those it had already purchased but the company decided since then to shutter its home-flipping business altogether.

In a press release Tuesday announcing the company’s third-quarter results, CEO Rich Barton pinned the reason for closing down Zillow Offers on how difficult forecasting home prices has become.

“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,” Barton said.

The company also disclosed it took a write-down of about $340 million because it bought homes during the third quarter at prices that exceed Zillow’s estimates for what those properties will fetch in the future.

Zillow Offers is among a group of so-called “iBuyers,” which includes Redfin and Opendoor. These companies buy homes, typically from sellers who want to sell their homes quickly, and then put the homes back on the market. The companies have been competing with regular homebuyers as the housing market superheated over the past year amid a shortage of properties on the market.

The home-flipping business has helped juice Zillow’s revenue this year. For the nine months ending in September, Zillow Offers’ revenue increased 88% to $2.65 billion versus the same period of 2020.

With Zillow out of the house-flipping business, John Ahnemann with Keller Williams Realty says the Twin Cities housing market could be better balanced.

"I think it truly was just a market share game but they bit off a little more than they could chew," Ahnemann said. "The market was fine without them before and we will be just fine without them after, and to have a little bit more stability in a very volatile, exciting market is OK."

Zillow said it expects to book an additional $240 million to $265 million in losses in the fourth quarter primarily on home transactions expected to close this quarter.

Shares in Zillow fell 10.2% Tuesday before the release of its earnings and amid published reports about the company’s plans to shutter the home-flipping business. The stock slumped another 12% in after-hours trading following its announcement.

The Associated Press contributed to this report.