Zillow Inc. announced on Monday that it will pause buying homes directly from sellers until at least the end of this year.
The surprising announcement was not a result of changing real estate market conditions, but rather due to construction labor shortage. Zillow stock was down 9 percent on the news during Monday trading, adding to the 55 percent drop since its peak in February.
Until now, the Zillow Offers program has been buying homes directly from sellers (a form of iBuying), renovating them to increase value, and then reselling them.
The Offers program has thrived in recent market conditions because it makes sense: According to Chicago real estate expert Tom Campone when Estate Monthly interviewed him in October, the number one home selling tip is to “do the small home improvement projects that will return the highest ROI—this is normally cosmetic updates to kitchen and bathrooms.”
Zillow has been relying on local contractors to complete those renovations, but the current construction labor shortage has made that difficult, increasing held inventory awaiting renovation.
This industrial-scale house flipping has been controversial among real estate agents because of Zillow’s inherent buying advantage, and the price-raising effect it has on markets.
So this tiktok about companies like Zillow potentially manipulating the housing market has been making the rounds (2.2m views etc). The premise is that companies will buy up all the houses and then use their clout/resources to drive up the prices (thread) pic.twitter.com/zFykA6AnaN
— Jim Dalrymple II (@Dalrymple) September 23, 2021
Zillow is taking a break from buying U.S. homes after the online real estate giant’s pivot into tech-powered house-flipping hit a snag https://t.co/C6ZHbsTi04
— Bloomberg (@business) October 17, 2021
Just another example of the #technologyfallacy (& "how people are the real key to #digitaltransformation"): Zillow halting its iBuying feature because it can't find enough people to do the "gut check" final offer on homes. #ISYS8621 https://t.co/LaJISyPyU0
— L. Pereira (@lexgetdigital) October 19, 2021
This article is opinion and not a substitute for professional advice. Disclaimer