By Patrick Clark | Bloomberg
Zillow Group is taking a break from buying U.S. homes after online real estate giant’s entry into technology-driven house flipping made a hook.
Zillow, which acquired more than 3,800 homes in the second quarter, will not make any new purchases for the remainder of the year as it is already working through an inventory in the pipeline.
“We operate in a labor and supply constrained economy in a competitive real estate market, particularly in construction, renovation and closure,” said Jeremy Wacksman, Zillow’s chief operating officer, in a statement. “We were not exempt from these market and capacity problems and now have an operational backlog for renovations and closings.”
Zillow stock fell 11.4% to $ 83.54 in New York, the largest intraday slump in more than seven months. The stock was down 31% this year by Friday’s close, after nearly tripling in 2020.
Shares in Opendoor, one of Zillow’s competitors, rose 7.9% to $ 25.27 after the company said it was “open to business.”
Zillow is best known for posting property listings online and calculating estimated property values - called zestimates – that users can use to track the value of their home. The popularity of the company’s apps and websites is driving profits in Zillow’s online marketing business.
But more recently, it has bought and sold thousands of U.S. homes. In 2018, the company launched Zillow Offers and joined a small group of tech-enabled home pinball machines known as iBuyers. In the new store, Zillow invites homeowners to request a quote for their home and uses algorithms to generate a price. If an owner agrees, Zillow will buy the property, perform light repairs, and bring it back to market.
As the pandemic sparked a housing craze characterized by cash offers and quick closings, Zillow’s speed and convenience has appealed to consumers looking to sell their homes quickly when trying to buy a new property.
Zillow said it will continue to market and sell homes and do deals with under contract homes during the hiatus from new purchases.
“Pausing new contracts will allow us to focus on sellers who are already under contract with us and our current home inventory,” said Wacksman.
The iBuying process is driven by algorithms and large pools of capital, but it also relies on people. Before Zillow signs a sales contract, Zillow sends an inspector to make sure the property doesn’t need costly repairs. After buying a home, contractors replace carpets and repaint the interiors.
Finding workers for these roles has been challenging during a pandemic that has expanded the workforce across all industries. The staff shortage was exacerbated by Zillow’s willingness to let customers set an appointment months in the future, which means they could agree to buy a home in August and start renovations in November.
“Given the unexpectedly high demand, Zillow Offers has exhausted its home-buying capacity for the remainder of the year,” wrote an employee who works for the company’s home purchase in two states in an email to a business partner viewed by Bloomberg became .
It’s not the first time the company has stopped buying. Zillow stopped buying houses in the early days of the pandemic, as did its main competitor Opendoor Technologies Inc. While businesses ultimately benefited from the real estate boom that began with the lifting of the early economic locks, it took Zillow several months to buy houses at its pre-pandemic pace.
For the past several months, Zillow has fought off online controversy and laid the groundwork to accelerate purchases. The company borrowed $ 450 million in a bond in August, which was the first of its kind, and made a second offering of $ 700 million in September.
For now, the company plans to refer potential clients to traditional real estate agents. While the break should help Zillow work off the backlog, it may lose business to competitors, including its main competitor.
“Opendoor is open to business and continues to provide its customers with an easy, safe, fast and trustworthy move,” a company spokesman said in an email.