Zillow slows down home buying as he struggles to manage inventory backlog

By Anna Bahney, CNN Business

Zillow will stop buying houses through Zillow offers for the remainder of the year, as the company’s iBuying program goes from full speed to full shutdown.

The company said on Monday that it would no longer sign a contract to buy more homes at 2021 in order to reduce the backlog of homes he has already purchased.

The “iBuyer” model used by Zillow and other real estate companies involves buying homes directly from sellers and then re-listing the properties after doing minor work. But thanks to the current shortage of labor and materials, Zillow cannot close, renovate and resell homes quickly enough.

“We operate in an economy limited by labor and supply within a competitive real estate market, particularly in the construction, renovation and closure of spaces,” said Jeremy Wacksman, director of Zillow’s operation, in a statement.

“Suspending new contracts will allow us to focus on sellers already under contract with us and our current home inventory,” Wacksman said.

Zillow will continue to market and sell the homes it acquired through Zillow Offers, which has experienced a buying tear this year. He bought 3,805 homes in the second quarter – a record for the company and more than double the number of homes bought in the first quarter, according to a note to the company’s shareholders.

Zillow, known for his real estate listings online, launched an iBuyer program, Zillow Offers, in 2018 and now operates in 25 cities. Like other iBuyers – such as Opendoor, RedfinNow, and Offerpad – Zillow Offers uses property and market data and algorithms to make a cash offer on an off-market home and buy directly from the owner.

I Buyers go to sellers of homes as closings can take place 7 to 90 days after signing the contract and can provide some certainty and control over the sale of their home without having to find an agent and prepare the house for the market. According to Zillow, the seller’s fees for Zillow offers are on average 5%, but may vary depending on market conditions.

Home purchases by iBuyers now account for around 1% of the market, according to a report by Zillow. The share is still only a tiny fraction of the overall market, but has seen tremendous growth in recent years, with iBuyer’s share in some cities, such as Phoenix, Atlanta or Charlotte, North Carolina, exceeding now the 5%.

Zillow wasn’t the only iBuyer who bought a lot of homes this year. Buyers bought more homes, at higher prices, in the second quarter of this year than in any other quarter, according to research by Mike DelPrete, independent real estate technology strategist and researcher-in-residence at the University of Colorado at Boulder. This surprised some skeptics who didn’t think the iBuyer model would be attractive to home sellers in a booming market.

His research suggests that sellers are drawn to the certainty and ease of iBuying and that market conditions have fueled its growth.

Zillow’s decision to stop buying is surprising, he said, especially because it’s so sudden.

“IBuyers have access to a huge amount of data, they can see months into the future and plan their inventory,” said DelPrete. “So the fact that Zillow didn’t see this coming and wasn’t able to make any adjustments before needing to resort to an iBuying lock is quite surprising. “

This change, he said, shows how difficult this business model is to scale. Big iBuyers need to be proficient both in handling billions of dollars of capital, but also in the logistical specifics of preparing a home for sale, all the way to drywall, painting and making deals. .

“There’s not much technology can do,” DelPrete said. “At the end of the day, you need people to process a lot of transactions. “

However, the shutdown appears to be a Zillow-specific issue, not an iBuyer industry issue, DelPrete said.

“Zillow kept coming in and now they’ve hit that wall,” he said.

This is not the situation a growth-oriented company wants to find itself in, he said.

“If you’re trying to be number one in the market, slamming the brakes is one of the worst things you can do,” DelPrete said. “You want to make a few adjustments before you get to that – slow down, change gears. This is not Zillow’s preferred outcome.

Open Door, the first iBuyer ahead of far behind Zillow, said in a statement it was still open for business.

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