Patrick Clarke | Bloomberg
The Zillow Group has taken a hiatus from buying U.S. homes after the online real estate giant’s turn to home renovations ran into an obstacle.
Zillow, which acquired more than 3,800 homes in the second quarter, will stop making new purchases by the end of the year as it works with its existing portfolio of properties.
“We operate with a limited workforce and supply in a competitive real estate market, especially in the construction, renovation and closure sectors,” said Jeremy Waxman, Chief Operating Officer, Zillow. “We have not been exempt from these market and performance issues and we now have an operating portfolio for repairs and closings.”
Zillow shares fell 11.4% to $ 83.54 in New York, the largest intraday drop in more than seven months. Shares are down 31% this year to close Friday after nearly tripling in 2020.
Opendoor, one of Zillow’s rivals, jumped 7.9% to $ 25.27 after the company said it was “open for business.”
Zillow is best known for publishing property listings online and calculating the approximate value of a home – called Zestimates – that allow users to track how much their home is worth. The popularity of the company’s apps and websites drives Zillow’s online marketing profits.
But lately he has been buying and selling thousands of homes in the United States. In 2018, the company launched Zillow Offers, joining a small group of home fins with technology known as iBuyers. In a new business, Zillow invites homeowners to request an offer for their home and uses algorithms to determine the price. If the owner agrees, Zillow buys the property, makes light repairs, and returns it to the market.
With the pandemic sparking a buzz in the housing market, marked by cash trading and fast closings, Zillow’s speed and convenience has begun to resonate with consumers looking to quickly sell their homes when they are trying to buy new properties.
Zillow said it will continue to sell and sell homes in between new acquisitions, and will close deals on contracted homes.
“The suspension of new contracts will allow us to focus on vendors who have already signed contracts with us and on our current home inventory,” Waxman said.
The iBuying process is based on algorithms and large pools of capital, but it also depends on people. Before Zillow signs a contract to buy a home, he dispatches an inspector to make sure the property doesn’t need expensive renovations. After buying a home, contractors replace carpets and repaint interiors.
Finding workers to carry out these tasks has been challenging during the pandemic that has spread the workforce across all industries. The staff shortage is exacerbated by Zillow’s willingness to allow customers to set a closing date several months in advance, which means the company could agree to buy the home in August and begin renovations in November.
“Given the unexpectedly strong demand, Zillow Offers has exhausted its ability to buy homes for the remainder of the year,” an employee at a two-state home buying company wrote in an email to a business partner, which was reviewed by Bloomberg. …
This is not the first time the company has stopped purchasing. Zillow stopped buying homes in the early days of the pandemic, as did its main competitor, Opendoor Technologies Inc. While companies ultimately benefited from the housing boom that began after the early economic restrictions were lifted, it took Zillow several months to resume home purchases at their pre-pandemic pace.
In recent months, Zillow has mirrored controversy online and laid the groundwork for accelerating shopping. The company borrowed $ 450 million in a first-of-its-kind August bond placement and placed a second $ 700 million placement in September.
At the moment, the company plans to refer potential clients to traditional real estate agents. While the pause should help Zillow deal with the backlog, it could lose business to competitors, including its main competitor.
“Opendoor is open for business and continues to serve its customers with an easy, reliable, fast and secure move home,” a company spokesman said in an email.