🏡 5 Reasons Zillow Is Quitting The iBuying Business For Good
🏡 5 Reasons Zillow Is Quitting The iBuying Business For Good
The dangers of growing too fast, too soon.
Zillow just posted a massive loss of $339 million in Q3, 2021. It has now decided to permanently shutter its iBuying business, and is laying off 25% of its workforce.
In our last post, we explained iBuying, and how Zillow messed it up.
Today, let’s dig deeper into Zillow’s iBuying disaster.
1. Zillow Grew Way Too Fast In 2021
Up until 2020, Zillow was buying a similar number of homes each quarter.
Then suddenly in 2021, it doubled home purchases from Q1 to Q2. And doubled purchases again from Q2 to Q3!
The hot housing market clearly played a role in Zillow’s decision to step on the gas. But such fast growth can be risky, as Zillow learned later.
2. Zillow’s Gross Margin Wasn’t Big Enough
Opendoor and Offerpad have 5+ years of experience in iBuying. Zillow only started buying homes in 2019.
Not surprisingly, Zillow’s gross margin was much lower than its more experienced competitors.
3. Zillow Made Huge Net Losses Even In A Hot Housing Market
The second quarter of 2021 saw double-digit growth in home prices.
And while Opendoor and Offerpad both made small net profits on the back of this growth in prices, Zillow made a net loss of $28K per home in Q2, 2021!
Operationally, Zillow just wasn’t able to compete.
4. Zillow Bought More Homes In A Decelerating Market
Home prices started decelerating in September 2021.
Opendoor and Offerpad started pulling back on home purchases.
But Zillow actually bought more homes in cooling markets like Phoenix!
5. And It Bought These Homes At Inflated Prices
An analysis of Zillow’s purchases in Phoenix shows that it bought homes for a much larger price than either Opendoor or Offerpad.
Zillow Is Now Listing The Majority Of Its Homes For A Loss
Zillow is now listing the vast majority of its homes for a loss in major markets like Phoenix and Dallas.
Once you account for repairs, labor costs, and other expenses, the scale of these losses becomes immense!
Now you know why Zillow posted such bad numbers in Q3. And why it has decided to quit iBuying altogether!
Shout out to Mike DelPrete, whose amazing research insights informed our analysis.
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