It’s been tough months for Zillow Group Inc. (Nasdaq: Z), which is shutting down its Zillow Offers division and laying off 25% of its workforce while real estate firm iBuyer lost money on many of the homes it turned around.
Zillow employs around 300 people in Metro Phoenix, more than half of whom worked for Zillow Offers in 2019. It is unclear how many of these workers could be laid off.
Matt Kreamer, spokesman for Zillow, said the company will continue to close the contract houses and not cancel contracts.
“We will focus over time on salespeople already signed with us and our current home inventory,” said Kreamer.
He said Zillow will sell his holdings in the coming quarters.
According to a study by Greg Hague, CEO of 72Sold, Zillow had 250 apartments in the market in the metropolis of Phoenix on Oct. 24, prices averaging 6.2% less than what the company paid for them.
Of those 250 homes, 182 had discounts averaging $ 41,000 per home, Hague said.
Hague said his phone rang from his customers offering homes for sale and asked Hague to help them purchase one of these Zillow listings.
“They call us and say, ‘Show us one of those Zillow homes they’re giving away,'” Hague said.
But Hague warns its customers not to act too quickly.
“We looked at these houses and many of them are still not good deals because they paid too much for the houses,” said Hague. “We looked at the houses and they have to reduce them a lot further. Many are not good buys. “
Hot Phoenix Market
Zillow’s buying activity increased this year as the subway Phoenix market was blazing hot.
The iBuyer bought 321 homes on Metro Phoenix in September, up from 27 in September 2020, Hague said.
“You made the decision to go deep into the real estate market – the flip market,” said Hague. “They are just fins. You buy and sell. “
Meanwhile, San Francisco-based Opendoor bought 585 homes in metropolitan Phoenix in September and sold 394 homes that month.
“Their average purchase price was $ 419,900 and their average sales price was $ 425,000,” said Hague. “There was a little leeway in there, but not much.”
Chandler-based Offerpad acquired 152 homes in September and sold 103 homes that month, Hague said.
Offerpad’s average purchase price was $ 397,750 and the average sale price was $ 400,000, which also brought in a modest profit per home.
“Overall, we see in the field that Opendoor and Offerpad are also cutting prices and trying to get rid of inventory as the market is softening,” said Hague.
Justin Thorstad, founder of Libertas Real Estate, said he saw Zillow pay $ 50,000 to $ 100,000 above the value of a home.
“The way they rate value is through the Zillow algorithm, which historically has never been accurate,” said Thorstad. “How could it be? There is no human judgment in that.”
Handling of operations
When Zillow announced its third quarter financial results on Tuesday, the company announced its intention to discontinue its Zillow Offers activities, which will include reducing the company’s workforce by 25% over the next few quarters. That move came a little over two weeks after Zillow announced he was going on hiatus from home buying.
The news broke Zillow’s stock. Zillow stock closed at $ 87.20 per share, 10.24% less than the previous closing price of $ 97.15 per share. Track the stock here.
“Ultimately, we have found that expanding Zillow Offers further is too risky, too volatile for our earnings and business, too little return on equity opportunities, and too small a segment of our customers,” said Richard Barton, Co-Founder and CEO, and Allen Parker, CFO, in a letter to shareholders dated November 2nd announcing the exit from this division.
For the three months ended September 30, Zillow reported a loss of $ 328.2 million on total sales of $ 1.74 billion. That loss is a huge departure from the net income of $ 40 million the company posted over the same period in 2020 with total sales of $ 656.7 million.
Zillow had produced a report about two months ago that looked at the top four iBuyers – Zillow, Opendoor, Offerpad, and Redfin Now.
These four iBuyers bought 1,744 homes in the second quarter, up from 798 in the first quarter.
Hague said he predicted this iBuyer model wouldn’t work.
“I don’t expect Opendoor and Offerpad to find a way to make money in the next 12 months as sellers can easily see what their home is worth,” he said.
In response to Zillow’s announcement today, Opendoor released this statement:
“We are in the midst of a generational shift towards a fully digital experience with a huge, unmet need for a seamless real estate experience. With a track record of excellence in execution and longstanding investments in consumer experience, technology, pricing and operations, we are well positioned to meet consumer demand with a world class product and service. Opendoor is open to business. We have shown strong growth and economic unity and aim to serve homeowners across the country with simplicity, safety and speed. “
Offerpad made its own statement:
“At Offerpad, we’ve been in the iBuying business for almost seven years. Our real estate DNA and unique model enable us to proactively adapt our pricing, renovation and sales process to changing market conditions. We believe iBuying will continue to grow and shape the future of real estate. We are growing at a rapid pace. We announced seven new stores this year, and more will follow in 2022. “
[ad_2]
