Zillow's Home Buying Spree Paused As Its Flips Begin To Flop

Photo by Breno Assis

​By Colin R. O'Leary
October 29th, 2021

The real estate market hasn't been too kind to Zillow lately. The company recently put a freeze on its new home-flipping program. Zillow first began its home-flipping program, known as Zillow Offers, back in 2018. It was expected to be a big source of revenue for the company, but has yet to turn a profit. After years of rising home prices, Zillow is finding it more difficult to find a return on investment in the home flipping space. Now they are starting to scale back operations for the program because its costing them money. 

Zillow’s aggressive approach to home-flipping hasn't been a total failure, though not in the way they wanted or expected. According to Bloomberg, Zillow's home-flipping program has been good for some sellers, like Abidemi Bolatiwa who lives in Phoenix, Arizona. Bolatiwa recently sold his four-bedroom home in Phoenix to Zillow for $531,300 back in September. He said that Zillow charged him a fee for the sale, but it was less than what a traditional real estate agent commission would have costed.

Bolatiwa said he received another offer from Opendoor Technologies Inc., another home-flipping company and Zillow's top competitor. Opendoor Technologies Inc. offered him a lower price at $504,000. Zillows aggressive approach to pricing is not paying off. Just ten days after Zillow bought the home from Bolatiwa, the company listed the home for $505,900. Weeks later, Zillow cut the price by another $11,000 to $494,900. 

According to Bloomberg, Zillow’s has roughly 250 active listings in the Phoenix market. The homes are currently priced at 6% less, on average, than what they paid for the homes. Zillow announced on October 18th that it would stop making new offers to buy homes, while it works through the backlog of its existing inventory. The news sent shares of the company tumbling down by nearly 10%. The stock has since rebounded though.

Interests rates are on the rise. Inflation is on the rise too. Supply chain issues are making it more costly to acquire materials. This begs the question, after years of rising home prices on the national level, are we finally in for a market correction? Is there something that Zillow knows that the rest of the market doesn't know about? Or is Zillow just putting a freeze on operations so they can unload their existing inventory? Only time will tell.

​Let us know your thoughts in the comments. 

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