Zillow’s Failure a Victory For Real Estate? | Leading Real Estate Coaches, Tim and Julie Harris bring you the facts (and opinions) about the demise of Zillow’s iBuyer program. It’s not just ‘on pause’, it’s OVER.
Why did Zillow’s i-buyer Program turn their balance sheet into a dumpster fire?
“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,” he said. “Our observed error rate has been far more volatile than we thought possible. Fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in.”
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Ok, so Zillow is out of the home-flipping business. What went wrong?
– Zillow ended the quarter with 9,790 homes in inventory and 8,172 homes under contract that it will still purchase, which it will sell over the next six months or so.
– Zillow bought 3,805 homes in the second quarter of 2021 and sold 2,086. This past quarter, Zillow Offers bought 9,680 homes. That pushed the business of closing on homes and preparing them for sale to a breaking point, however.
– Zillow only sold 3,032 homes in the third quarter, which was below expectations and the average gross profit per home sold was a loss of $80,771. Read that again, Zillow LOST over $80,000 per house flip. You would think they would have adjusted their business model after losing $80,000 per flip rather quickly…NOPE, they kept on buying and losing. There’s the dumpster fire…
– Zillow is selling 64% of the homes in their top 5 markets for less than it paid. Example: Zillow is selling 93% of their homes in Phoenix for less than they paid.
What does this mean to the real estate industry?
– It means that Zillow won’t be your competition anymore for listings. It means that sanity will return in the ‘fix and flip’ real estate space where investors will get back to doing what they do best….buying wholesale, fixing, and flipping.
“Zillow’s decision to close its iBuying business is a victory for rationalists everywhere. For years, investment in real estate tech has frequently defied reason, prioritizing a company’s ability to grow over profitability. Sustained unprofitability was the new competitive advantage and red was the new black.
But perhaps this is a turning point. For investors in Zillow, Opendoor, Compass, and a score of others, at some point enough is enough; a credible path to profitability is needed. For Zillow, this — and losing a cool billion — is that point.”
