Zillow, during an incredible competitive seller’s market, snapped up about 8,000 homes in the third quarter. Now, the company is hoping to bring in $2.8 billion by selling 7,000 of those homes. Unfortunately, the average homebuyer still may not be able to benefit from the sale.
To unload the bulk of these properties, the company is targeting investors after what Bloomberg described as a "fumble in its high-tech home-flipping business." After speaking to sources with Zillow—who requested anonymity—Bloomberg reported that Zillow’s shares dropped 8.6% on Monday, and it wouldn't be making new offers on home-flipping this year.
This is after Zillow’s purchasing algorithms led it to several winning offers just as homes started to appreciate at a slower rate. “I think they leaned into home-price appreciation at exactly the wrong moment,” Ed Yruma, a KeyBanc analyst, told Bloomberg.
But don’t think the takeaway here is, “Aw, poor Zillow.”
Dan Price—founder of the credit card processing company Gravity Payments who famously cut his CEO salary by millions to offer workers a minimum wage of $70,000—tweeted this response:
Zillow ended up in its current situation—still a quite profitable one—after applying a practice known as iBuying, in which homeowners looking to sell seek an offer from Zillow and the company uses algorithms to come up with a price. "If an owner accepts, Zillow buys the property, makes light repairs, and puts it back on the market," Bloomberg journalists Patrick Clark, Sridhar Natarajan, and Heather Perlberg wrote. "The company bought more than 3,800 houses in the second quarter, making progress toward its stated goal of acquiring 5,000 homes a month by 2024.”
It didn’t, however, take into consideration a shortage of workers to renovate its newly-acquired properties. "Since around 2018, the United States has seen a shortage of tradespeople available to complete projects like kitchen remodels, bathroom remodels, flooring and electrical work," editors Lexie Pelchen and Samantha Allen wrote for Forbes Advisor. “In addition to this, the supplies that they need to complete their jobs—including wood and metal—aren’t available due to a shortage of materials, created as a result of the COVID-19 pandemic, so supply prices are skyrocketing.”
Pelchen and Allen added: “According to Adecco, the world’s second-largest human resources provider and temporary staffing firm, an estimated 31 million baby boomers who were working in the skilled trades were expected to retire by 2020 and not be replaced.”
Mitchell Clark, a writer with The Verge technology blog, wrote on Monday that it's difficult to predict what will come of Zillow's sale, but the company and other investors aren’t having quite the mark on real estate that many assume they are having. Investors comprised about 20% of the market in 2020, according to a Vox report. Both Zillow’s own and its competitors’ iBuying operations only accounted for about 1% percent of the housing market in the second quarter of 2021, Zillow reported. “In some ways, those numbers are both terrifying and reassuring—a fifth of the housing market is a massive and influential chunk, but it also means that it likely wasn’t a private equity firm (or Zillow) that outbid you on your dream home,” Clark wrote.
Unless it is, Twitter users actually seeking homes added to the conversation.
RELATED: One in five houses is bought by someone who never moves in, real estate firm says
RELATED: Turns out, fighting the temptation to strip property from Black families isn’t asking too much
To unload the bulk of these properties, the company is targeting investors after what Bloomberg described as a "fumble in its high-tech home-flipping business." After speaking to sources with Zillow—who requested anonymity—Bloomberg reported that Zillow’s shares dropped 8.6% on Monday, and it wouldn't be making new offers on home-flipping this year.
This is after Zillow’s purchasing algorithms led it to several winning offers just as homes started to appreciate at a slower rate. “I think they leaned into home-price appreciation at exactly the wrong moment,” Ed Yruma, a KeyBanc analyst, told Bloomberg.
But don’t think the takeaway here is, “Aw, poor Zillow.”
Dan Price—founder of the credit card processing company Gravity Payments who famously cut his CEO salary by millions to offer workers a minimum wage of $70,000—tweeted this response:
Zillow ended up in its current situation—still a quite profitable one—after applying a practice known as iBuying, in which homeowners looking to sell seek an offer from Zillow and the company uses algorithms to come up with a price. "If an owner accepts, Zillow buys the property, makes light repairs, and puts it back on the market," Bloomberg journalists Patrick Clark, Sridhar Natarajan, and Heather Perlberg wrote. "The company bought more than 3,800 houses in the second quarter, making progress toward its stated goal of acquiring 5,000 homes a month by 2024.”
It didn’t, however, take into consideration a shortage of workers to renovate its newly-acquired properties. "Since around 2018, the United States has seen a shortage of tradespeople available to complete projects like kitchen remodels, bathroom remodels, flooring and electrical work," editors Lexie Pelchen and Samantha Allen wrote for Forbes Advisor. “In addition to this, the supplies that they need to complete their jobs—including wood and metal—aren’t available due to a shortage of materials, created as a result of the COVID-19 pandemic, so supply prices are skyrocketing.”
Pelchen and Allen added: “According to Adecco, the world’s second-largest human resources provider and temporary staffing firm, an estimated 31 million baby boomers who were working in the skilled trades were expected to retire by 2020 and not be replaced.”
Mitchell Clark, a writer with The Verge technology blog, wrote on Monday that it's difficult to predict what will come of Zillow's sale, but the company and other investors aren’t having quite the mark on real estate that many assume they are having. Investors comprised about 20% of the market in 2020, according to a Vox report. Both Zillow’s own and its competitors’ iBuying operations only accounted for about 1% percent of the housing market in the second quarter of 2021, Zillow reported. “In some ways, those numbers are both terrifying and reassuring—a fifth of the housing market is a massive and influential chunk, but it also means that it likely wasn’t a private equity firm (or Zillow) that outbid you on your dream home,” Clark wrote.
Unless it is, Twitter users actually seeking homes added to the conversation.
RELATED: One in five houses is bought by someone who never moves in, real estate firm says
RELATED: Turns out, fighting the temptation to strip property from Black families isn’t asking too much