In a move that shocked many but perhaps not a complete surprise, Zillow announced late yesterday afternoon that it was laying off a quarter of its staff and ending its venture into iBuying.
This came after a “pause” the company previously implemented mid-October, when it cited supply chain and labor challenges as preventing new expansion of its iBuying arm, Zillow Offers.
With many experts and insiders already skeptical of the ability of iBuying to scale or survive as a model, the loss of a relatively big player has surely sent ripples through the industry and adds fuel to the speculation that the iBuyer world as a whole is on the decline.
“I believe the real issue is that Zillow made bold claims and, as a public company, they felt compelled to deliver on those claims,” says Josh Harley, CEO of tech-focused brokerage Fathom Realty. “At the same time, they were in a race with other iBuyers like Opendoor who were, and are, spending without regard for profitability.”
An Opendoor spokesperson told RISMedia that they are “well positioned to meet consumer demand” and referred to the company’s “track record of executional excellence.”
“Opendoor is open for business,“ the spokesperson says. “We have demonstrated strong growth and unit economics, and we are energized to help homeowners nationwide move with simplicity, certainty and speed.”
The longtime industry leader in iBuying, Opendoor was buying more than double the number of homes Zillow was earlier this year, according to the Wall Street Journal.
Redfin, another iBuying player, also indicated it was moving forward with its iBuying services—though maybe with a little more caution than Zillow. Redfin CEO Glenn Kelman told RISMedia in a statement that the company was “committed to iBuying” and was expanding its iBuying “methodically and carefully.”
“We want to give every homeowner a choice but we’ve always said that the choice most homeowners will prefer is a brokered sale,” Kelman said. “The iBuying business is what we’ve always thought it is, an attractive option for homeowners who are willing to pay more for convenience and peace of mind.”
Even before the Zillow news, Kelman had expressed similar sentiments, telling a CNN panel last week that his company “has always been a reluctant iBuyer” and often sees people end up listing their property traditionally even after receiving an instant offer.
After exponential growth earlier this year, the future of iBuying—even with its relatively small market share—remains an open question. Certain metros and markets have seen iBuyers make significant inroads, though with Zillow’s withdrawal, more and more people are likely to question the sustainability of the model even in these ideal conditions.
When announcing the company’s pullback, Zillow Co-Founder and CEO Rich Barton specifically referred to “unpredictability in forecasting home prices,” seemingly acknowledging the difficulty of making real estate investment based on algorithmic analysis and automated valuation models, which has limited the success of iBuying in many regions.
Also according to the Wall Street Journal, Zillow expects to lose 5% to 7% on the homes it currently owns or has already agreed to purchase.
Harley, not mincing words, says he feels the Zillow model was “broken,” at least at the level of spending the company had reached, and that other iBuyers will have to make significant changes in order to achieve long-term stability.
“With time, there will be a reckoning for all of if they do not get smart and find ways to buy and sell right while generating additional revenue on each sale,” he says.
Zillow stock was down 16% in early trading Wednesday.
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to firstname.lastname@example.org.