Facing the prospect of selling hundreds of homes at a loss, Seattle-based Zillow plans to close down its house-flipping division and lay off a quarter of its staff, CEO Rich Barton said Tuesday.
“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,” Barton said in a statement.
Zillow Offers is the company’s iBuying operation, a practice similar to house-flipping in which Zillow itself buys and then resells homes.
Zillow said the “wind-down” of Zillow Offers will take “several quarters and will include a reduction of Zillow’s workforce by approximately 25percent.”
Zillow did not immediately respond to questions about the details of the workforce cuts. As of August, Zillow employed about 6,400 people, roughly 2,300 of them in Washington.
In an earnings call Tuesday, Barton called the decision “tough but necessary.”
“I’m sorry for how difficult and disruptive this will be,” he said of employees who will be laid off.
The company’s iBuying division hit a stumbling block in recent weeks as the company paused buying new homes, citing a “labor- and supply-constrained economy inside a competitive real estate market.”
The result: Zillow faced selling homes at a loss. Analysts who reviewed 650 of Zillow’s more than 3,142 homes found that two-thirds of them were listed for less than Zillow paid to buy them, with an average markdown of 4.5percent, according to an Oct. 31 analysis from Ed Yruma, managing director at KeyBanc Capital Markets.
In its third-quarter earnings announced Tuesday, Zillow wrote down about $304 million worth of homes it purchased and expected to sell at a loss. The company said it expects additional losses of $240 million to $265 million in the fourth quarter.
Zillow Offers does not buy and sell homes in Seattle but is active in Portland. Tucson, Mesa and Phoenix saw the steepest markdowns, Yruma found.
Because of deals already in progress, Zillow said it will continue spending money on new homes through the end of this year before selling them early next year.
Zillow shares had already taken a hit before the announcement, dropping 12percent earlier on Tuesday.