- Zillow Group Inc. is taking a break from buying U.S. homes after the tech maker hits a snag with its pivot into online real estate portfolio.
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Zillow acquired more than 3,800 properties in the second quarter, but will stop pursuing new purchases for the remainder of the year as it works through a backlog of properties currently in its pipeline.
We re operating in a labor supply and demand-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing space, said Jeremy Wacksman, Zillow's chief operating officer, in a statement. We are not exempt from these market and capacity issues and we have an operational backlog for renovations and closings. Zillow shares dropped in early trading more than 6% on Monday in New York City. The stock had slipped 31% this year through Friday's closing after nearly tripled in 2020.
The company said it will continue to sell and market homes during the break from acquisitions and will close deals on homes that are under contract.
Pausing our current contracts will allow us to focus on sellers already in contract with us and our new property inventory, Wacksman said.
Zillow is best known for publishing real estate listings online and calculating estimated values called Zestimates, that let users track how much a house is worth. The popularity of the company's apps and websites fuels profits in Zillow s online marketing business.
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But, more recently, it has been buying and selling thousands of U.S. homes. In 2018, the company launched Zillow Offers, joining a small group of digital home owners known as iBuyers. In the new business Zillow invites homeowners to request an offer on their house and uses algorithms to generate a price. If an owner accepts, Zillow buys the property, makes light repairs and puts it back on the market.
Mit the pandemic setting off a housing frenzy marked by cash bids and fast closings, Zillow s pitch of speed and convenience has started to resonate with consumers who want to sell their homes quickly as they try to buy a new property.
The iBuying process is reliant on algorithms and large pools of capital, but it is also powered by humans. Before Zillow signs a contract to buy a house, it sends an inspector to make sure the property doesn t need costly repairs. After it buys a house, contractors paint carpets and replace interiors.
Finding workers for those tasks has been challenging during a pandemic that stretched labor across industries. Staffing shortages have been exacerbated by Zillow's willingness to let customers set a closing date months into the future, meaning it could agree to buy a house in August and begin renovating it in November.
Given unexpected high demand, Zillow Offers has hit its capacity for buying homes for the remainder of the year, an employee who works in the company s home-buying operation in two states viewed an email to a business partner that was written by Bloomberg.
It is not the first time that the company halted some purchases. In the early days of the pandemic, Zillow stopped buying homes as did its main competitor, Opendoor Technologies Inc. While the companies ultimately benefited from the housing boom that started when early economic lockdowns lifted, it took Zillow several months to resume purchasing homes at its pre-pandemic pace.
In recent months, Zillow has laid the groundwork to curb online controversy and offsetting costs. The company borrowed $450 million in an August bond offer which was the second of its kind and priced a first $700 million offering in September.
For now, the company plans to refer potential customers to traditional real estate agents. While the pause may help Zillow work through the backlog, it can lose business to competitors, including its main rival.
Opendoor is open for business and continues to serve its customers with a quick, secure, fast and trusted home move, a spokesperson for the company said in an email.
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