What Next After Zillow Just Closed Their Doors?

Dated: November 5 2021

Views: 30

Zillow, the digital real estate company, said on Tuesday that it’s exiting Offers, its business that buys and flips homes, and eliminating 25% of its workforce.

The announcement was attached to Zillow’s third-quarter earnings report. The company’s revenue and earnings missed analysts’ estimates.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated,” Zillow CEO Rich Barton said in the release. “Continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”

The stock dropped about 7.5% in extended trading following a 10% plunge during regular market hours. The shares are now down about 10% for the year as of Tuesday’s close.

Here are the key numbers from earnings:

Earnings per share: loss of 95 cents adjusted vs. profit of 16 cents per share expected in a Refinitiv survey of analysts Revenue: $1.74 billion vs. $2.01 billion expected by Refinitiv

Revenue in Zillow’s Offers business, which competes with Opendoor, climbed to $1.17 billion in the quarter. That’s way up from $186 million a year earlier, which was in the middle of the pandemic and in a dry period for transactions. However, the homes segment, which is mostly Offers, lost $422 million in the quarter, producing an overall net loss at the company.

Shares of Opendoor rose 7% in extended trading. The stock plunged alongside Zillow earlier in the day, dropping 15% at the close.

Zillow launched Offers in December 2019, starting with Southern California markets. The iBuying, or instant buying, product allowed homeowners to sell their home to Zillow for cash, eliminating a lengthy bidding, sales and closing process. They also didn’t have to worry about costly repairs before putting their house on the market.

“After closing on a home, Zillow will take care of necessary repairs, working with local contractors to complete projects like a fresh coat of paint, servicing HVAC units and other work a typical homeowner would do to get their home ready for sale,” Zillow said in a press release at the time.

But the home-flipping market proved to be a drag for a company that had built its brand on listing homes across the country and helping buyers and sellers connect through a marketplace. Prior to shuttering the business, the company said on Monday that it would stop buying houses through the end of the year, citing tight labor and supply markets.

“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” said Jeremy Wacksman, Zillow’s operating chief, in a statement this week. “We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings.”

Barton told CNBC’s “Closing Bell” after the report that Zillow’s ultimate failure was its inability to predict housing prices accurately. At the start of the Covid-19 pandemic, the market dried up. It then bounced back dramatically, and prices in many markets have climbed to record levels.

For the home-flipping business to be profitable, a company has to be able to sell a home for more than the purchase price and have enough margin remaining to cover all the other costs, such as maintenance and sales and marketing expenses. Barton said the company realized that it’s not in a position to accurately predict where home prices will be in six months “within a narrow margin of error.”

Additionally, Barton said the Offers product reaches only a small sliver of the company’s overall audience, which is effectively the entire market of homebuyers and sellers across the country.

Zillow’s internet, media and technology business grew revenue 16% in the quarter to $480 million, with gross profit of just over $130 million.

“We just determined that being an iBuyer was too risky, too volatile and ultimately addressed too few customers,” Barton said. He added that, in closing the business, “the logic is clear, the emotion is difficult” because of the layoffs.

Bloomberg reported on Monday that Zillow was looking to sell 7,000 homes for $2.8 billion to institutional investors, as it looked to unload its portfolio of properties. Some of those sales would be for below the purchase price, Bloomberg said.

Barton didn’t confirm or deny the numbers in the Bloomberg report. He told CNBC that the company has always sold to those types of buyers since entering the market, and he acknowledged that Zillow does have properties that it needs to sell. The company bought 3,805 houses in the second quarter and sold 2,086 in that period.

“We’re not in any kind of fire sale,” he said. “We’ll wind down the inventory in an orderly way.”

________________________

🏡 FIND YOUR NEW HOME HERE!

NEW HOMES FOR SALE North LAS VEGAS: https://myre.io/0qkKcAodVBBg

NEW HOMES FOR SALE HENDERSON: https://myre.io/0jbpj9LBPLy

NEW HOMES FOR SALE SUMMERLIN: https://myre.io/0YRnC8BAPXrl

NEW HOMES FOR SALE LAS VEGAS: https://myre.io/0CMoiL45F7lt

🏠 RESALE HOMES:

RESALE HOMES FOR SALE SUMMERLIN: https://myre.io/0UTj2QDZQr4t

RESALE HOMES FOR SALE HENDERSON: https://myre.io/0EpPM9PibuBl

RESALE HOMES FOR SALE LAS VEGAS: https://myre.io/0JfHHgHCuVok

________________________

✅ CHECK OUT OUR OTHER VIDEOS ON REAL ESTATE, FINANCING, & MONEY TALK! https://youtu.be/_gPoZ4ux9y8 : Another $15K first-time homebuyer tax credit bill emerges & Eviction Report

https://youtu.be/aa22E4khCgI : The Impact of The Federal Eviction Moratorium Extension until October

https://youtu.be/TXcGgXZYfqg : Hiring a Home Inspector with Experienced Training And Certification Will Save you Thousands

https://youtu.be/1aO5_Ft6Gyw : Here Are The Newest And Best Locations To Buy A Home In Overpriced Las Vegas.

https://youtu.be/-uw2HbPbO8c : Vegas Covid Restrictions Opening Up And How To Land A Home In A Seller's Market?

https://youtu.be/B3-sw_jfla8 : Things To Know Before Buying/Moving To Las Vegas And Americans Less Motivated To Work

https://youtu.be/1aO5_Ft6Gyw : Most Overvalued Housing market in America. Spoiler: It’s not in California.

https://youtu.be/ak_d72u4SBo : New Home Lottery Is Back In Las Vegas

https://youtu.be/5DuRlwUC7_o : Las Vegas Sands Leaving Gaming

https://youtu.be/Xdz4ChL5ih0 : Hot Las Vegas Housing Market Is Booming

https://youtu.be/8XoqhQE75Y0 : Real Estate Hustle & Working The Strip

https://youtu.be/jYqV6sNBNMM : How To Compete Putting In An Offer On A House That Already Has An Offer?

________________________

Topics You will Need To Research For Additional Advice: CPA, attorney, insurance, or financial advisor and the information in these videos shall not be construed as tax, legal, insurance, construction, engineering, health and safety, and electrical advice. I only provide expert advice for Financing and Real Estate.
“All INFORMATION IS RELIABLE BUT NOT GUARANTEED. ALL PRICING IS SUBJECT TO CHANGE.”
Blog author image

Dan French

A Southern CA transplant, Dan has over 11 years in home financing with a multi-faceted background in lending and Real Estate. I have The main objective of providing the highest level of customer servi....

Latest Blog Posts

Summerlin Smart Home Tour - 3 BR 2.5 BA in 55+ Community - LV Crib Tours with Dan French

The "Ethan" in Evander at Heritage at Stonebridge by Lennar Homes3 BR 2.5 BA Smart Home in Summerlin 55+ CommunityCALL DAN FRENCH AT 702-557-6176 TO VIEW!This new single-story home design is ideal

Read More

Cesena at Carmel Cliff New Home Build Tour in Summerlin - 4 BR 3.5 BA with Upgrades and Stunning Views

Cesena at Carmel Cliff Redpointe New Home Build Master Plan Community4 BR 3.5 BA Home in Summerlin with Stunning ViewsCALL DAN FRENCH AT 702-557-6176 TO VIEW!The Cesena is a versatile floor plan

Read More

Problems with the Single-Family Housing & Rental Market + Crypto Market Uneasy About The Fed Meeting

There’s a problem with the U.S. single-family housing market.“U.S. housing supply is dwindling once again as homes continue to fly off the market at record prices,” said Jeremy

Read More

Tour Beautiful Henderson Home For Sale | Pool | 3,030 Sq Ft | 5BR 3BA | 1152 Horizon Range

Look no further!! This 5-BR, 3-BA Henderson home features beautiful flooring, kitchen with granite, brick surrounds and custom built-in, and shutters throughout. pool and spa, paved and covered.

Read More