Zillow
Rich Barton, CEO and cofounder of Zillow
- Zillow is pausing all purchases on its home-flipping Zillow Offers program for the foreseeable future, as coronavirus causes states to issue lockdown orders.
- Zillow joined Redfin and SoftBank-backed Opendoor in pausing purchases. Redfin and Opendoor paused operations last Wednesday.
- Zillow ended 2019 with 2,707 homes on its balance sheet, but in a statement, the company says it now only has 1,860 homes in its possession.
- Zillow lost roughly $5,000 per home it sold in 2019.
- In February, Zillow had said it expected its iBuyer business to bring in as much as $20 billion in annual revenue in a few years.
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Zillow is pausing its house-flipping business across its 24 active markets amid economic and public health uncertainty caused by the coronavirus pandemic.
Its announcement on Monday comes after rival iBuyer businesses Redfin's Redfin Now program and Softbank-backed startup Opendoor both halted their own purchases last Wednesday.
iBuyers use technology to quickly evaluate a home's value and purchase the home with all-cash offers, rapidly renovate and repair it, and then sell it at a profit.
Opendoor, a SoftBank-backed startup last valued at $3.8 billion, was the first iBuying company, but has attracted some competition. Zillow launched its iBuyer business, Zillow Offers, in April 2018 in Phoenix, Arizona, the home of the iBuying phenomenon and real estate brokerage Redfin launched its Redfin Now program in January 2017 in the Inland Empire region of southern California.
The pause comes as coronavirus has led states including New York, California, Ohio, and Louisiana to issue "shelter-in-place" or "stay-at-home" orders, shutting down all non-essential businesses and limiting residents' movements. Beyond these public health concerns, coronavirus has led to widespread economic uncertainty that have some of Wall Street's largest firms predicting that we are at the beginning of a recession. The pandemic may last 18 months and come in waves of severity, according to a federal plan.
iBuyers may conduct more business remotely than traditional real-estate brokerages, but there are still in-person meetings.
"While much of our customer experience is virtual and self-service, there are still some elements that require real-world interaction, including home assessments and repairs," an Opendoor spokesperson said in a statement last week announcing the startup's pause.
Zillow lost roughly $5,000 per home it sold in 2019 and finished the year with 2,707 yet to be sold homes on its balance sheet. House-flipping is a low-margin business and profitability is closely tied to market conditions and the ability to shave off operational costs.
"There are a lot of levers to enable homes to eke out profits versus not," Tom White, senior research analyst at D.A. Davidson told Business Insider last week. "One of the main levers is time, or speed selling the home."
Extended time on the market brings additional costs, like home financing, property taxes, and any maintenance issues that need to be taken care of while Zillow holds the home.
In a statement, Zillow said that it now has 1,860 homes in its inventory an almost 1,000 home reduction. Zillow Group CEO and co-founder Rich Barton wrote in a statement that the company has slowed its acquisition rate in the last month and "accelerated" the pace at which it is selling homes.
"Our top priority is ensuring the safety and health of our employees, customers, and partners. Given the concerns for public safety and rapid developments by governments that restrict local real estate activities, we determined it was prudent to pause our home buying to preserve our capital," wrote Barton. "We plan to restore Zillow Offers full operations once health concerns pass and local health orders are lifted. In the meantime, we are working to support our customers and partners in these uncertain times when a home has never been more important."
In February, Zillow had said it expected its iBuyer business to bring in as much as $20 billion in annual revenue in a few years.
With uncertainty over the length of the pandemic and its corresponding economic effects, Zillow and other operators are not sure when home-purchases will resume.
"With whole cities shutting down nearly all commerce, no one can say what a fair price is right now, so we're not making any instant offers," Redfin CEO Glenn Kelman wrote in a statement announcing its pause last Wednesday. "We expect to be making instant offers again soon, but only when the market becomes more predictable."