RALEIGH – Zillow Group, Inc., which reports earnings for the third quarter today, announced that it would “wind down” the Zillow Offers program, the company’s iBuying service that launched in the Triangle in October 2018.
In announcing the company’s financial results, Zillow Group co-founder and CEO Rich Barton noted in a statement that “the unpredictability in forecasting home prices far exceeds what we anticipated.”
The wind-down will take several quarters, Zillow said in a statement.
The company will continue to operate its core business, which Barton noted was “creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers.”
Ultimately, said Barton, the Zillow Offers program would require absorbing too much volatility, and thus added risk, for the company, in order to continue to scale the program.
Barton and CFO Allen Parker delivered a letter to the company’s shareholders that further explained the company’s decision and its implications.
“Our decision to wind down our Zillow Offers operations, which will unfortunately involve a reduction in our workforce of approximately 25% over the next few quarters,” reads the letter, “was not taken lightly, especially considering the hard work and commitment from the Zillow Offers team.”
“Ultimately, we determined that further scaling up Zillow Offers is too risky, too volatile to our earnings and operations, provides too little opportunity for return on equity, and serves too narrow a portion of our customers,” the letter reads.
“When we decided to take a big swing on Zillow Offers three and a half years ago, our aim was to become a market maker, not a market risk taker, underpinned by the need to forecast the price of homes accurately three to six months into the future,” the letter reads.
In the shareholder letter, the company notes that the unit economics guardrails for the segment was plus or minus 200 basis points. During the period of operating the program, the company letter notes, there were dramatic and unforeseen disruptions to the global economy, including in housing markets nationwide.
Those included “a global pandemic, a temporary freezing of the housing market, and then a supply-demand imbalance that led to a rise in home prices at an unprecedented rate,” the letter details.
During that time, due to those events, the letter reads, the company was unable to accurately forecast the future home prices, in both directions. Instead of plus or minus 200, said the company, “Zillow Offers unit economics swinging approximately 1,200 basis points from Q2 to an expected -500 to -700 basis points in Q4 2021.”
According to a search, using a filter to identify Zillow-owned properties, the company has 75 homes for sale in the Triangle region.
Barton and Parker deliver an earnings report at 5 p.m. ET today.