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Soon after a TikTok went viral for calling out Zillow’s “flipping” business, the company changed course — though that viral video has likely little to do with it. Here’s what’s going on.
- In 2018, Zillow began iBuying (instant buying), giving homeowners an easy way to sell their property quickly and without the hassle of process or costly fees. Zillow would then renovate these purchased homes (“flip”) for a profit.
- Last month, a Las Vegas real estate agent claimed an unnamed company (but was quite obviously Zillow) was manipulating the housing market. Shared through a TikTok, his convoluted scheme showed Zillow buying a high volume of homes in a concentrated area to drive up home prices for higher profit.
- But in reality, iBuying has been losing money with flipped homes selling for less than cost. Even worse, recent tweaks to the purchasing algorithm led to aggressive home purchasing while competitors like Opendoor and Offerpad remained more cautious due to the constantly changing market. Zillow ultimately lost over $380 million in the third quarter.
- And that’s why Zillow announced an end to their iBuying division this month, which includes laying off a quarter of its workforce.
So what’s happening to all the homes Zillow bought at above asking price? Sadly, instead of selling to struggling homeseekers, Zillow is negotiating deals with private investors. And as company stock fluctuates in the wake of all these updates, the question remains as to how Zillow will evolve into more than just a destination for listings.
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Want to learn more about factors affecting the real estate market? Opendoor shares five fundamentals here.
Resource Center:
- Bloomberg (Where we found this story) 2 weeks old | 6 minutes long
- Business Insider A simple explainer 9 days old | 6 minutes long
- Bloomberg The TikTok drama 2 months old | 4 minutes long
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Due to last quarter’s losses, it looks like we’ll have to clean house.
Art Credit: ASCII Art Archive