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Zillow is shutting down its homebuying unit, the company announced Tuesday.
The company's iBuying division, known as Zillow Offers, hit turbulence in the last several weeks, leading to a pause in operations last month. Now, the unit will be shut down and Zillow will lay off roughly a quarter of its workforce, CEO Rich Barton said in the company's third-quarter earnings release.
"We've determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility," Barton said. "While we built and learned a tremendous amount operating Zillow Offers, it served only a small portion of our customers. Our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience."
The wind-down of the business will take "several quarters," Barton said, and will result in Zillow laying off about 25% of its employees, he said.
"The most difficult part of this decision is that it will impact many of our colleagues," Barton said. "This is not something we take lightly. We are grateful for their efforts, and we are committed to providing a smooth transition."
Zillow pressed pause on Zillow Offers last month after the company said it had a backlog of homes that required renovations.
But an Insider analysis revealed other issues with the company's iBuying strategy. Of the hundreds of homes Zillow has recently listed for sale in its five biggest markets, 64% were being marketed for less than the company originally paid for them.
The numbers were particularly staggering in Phoenix, where 93% of Zillow-owned listings were priced below what the company originally paid.
In the Minneapolis-St. Paul metropolitan area, Zillow was listing two-thirds of homes for less than it paid.
Zillow also appears poised to take losses on the majority of its listings in Houston and Dallas.
The company will write down roughly $304 million within its Homes segment, which includes Zillow Offers, as a result of buying homes in the third quarter at higher prices than it expects to be able to sell them for in the future, according to its third-quarter earnings release.
Zillow is expecting between $240 million and $265 million in losses in the fourth quarter from homes it expects to purchase that quarter, the company said.
Instant buying, otherwise known as "iBuying," refers to the process in which deep-pocketed, tech-enabled companies buy up homes, complete light renovations and then sell them for a gain. Companies like Zillow and its competitors rely on algorithms to value homes before purchasing them.
Zillow bet big on the strategy, launching Zillow Offers in 2018.
Though it had yet to turn a profit through home-flipping, Zillow Offers raked in $1.47 billion in revenue in the first half of 2021.