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Just weeks after Zillow announced that they were pausing their iBuyer program, Zillow Offers, they have now decided to terminate the program altogether. This was announced during the Zillow earnings call on Tuesday where they disclosed record losses ($328 Million) that were almost all a result of the Zillow Offers program and shockingly that they plan to let go a whopping 25% of their workforce.
Sinister Speculations
A few weeks ago when Zillow announced that they were pausing their Zillow Offers program, there was much speculation that Zillow had been able to predict an upcoming dip in the market, but we can now see that nothing was further from the truth.
Zillow's Zestimate system failed them and left them with millions of dollars of real estate that they had overpaid for. Any thought of market manipulation or that Zillow was somehow able to predict an upcoming market dip has gone out the window. They have said that they will continue to refine their Zestimates to be more accurate in the future.
The Zestimate Didn't Work for Zillow Either
Anyone who has been in the industry for some time has been challenged by clients, friends, and family members about your professional opinion of how much they could sell their property for. The conversation usually involves you sharing an estimated selling price, and the other party saying something like "But the Zestimate on my house is $50K more than that." Then you start the process of explaining to the person the inaccuracies of Zestimates, which they may or may not choose to believe. Zillow was been banking on their Zestimates as the backbone of their Zillow Offers program, and, unfortunately, they have learned an expensive lesson on just how inaccurate these estimates can be. Zillow founder Rich Barton said in the earnings report that
“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.”
While many agents could have, and did, predict this, Zillow Offers has certainly been able to continue for longer than many had thought was possible. In the report, Barton cites extraordinary events, like the COVID-19 pandemic and lumber shortages, as putting additional strain on the budding initiative, but many have speculated that it was actually these extraordinary events and the extreme price inflation that resulted from them that allowed Zillow Offers to remain viable for this long.
Market Impact of Zillow's Off Loading
Zillow has made it clear that they want to get out of the house flipping business as quickly as possible and cut their losses. Zillow reportedly has about 7,000 homes worth close to $3 Billion dollars that they need to sell, quickly. While these homes are spaced out across the country, Zillow is more invested in certain markets than others. North Carolina, Texas, and Florida markets may feel the impact of Zillow's distressed sales on property values more than others. Let us know in the comments below how you think this will affect the market!
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