Zillow, the website originally known for one thing — ‘Zestimating’ the value of real estate it’s never seen. If they are good at estimating property values - getting into the home flipping business seems logical. It did not work out well.

The company announced last week it’s getting out of the ibuying business and laying off 2,000 employees, an estimated quarter of its staff, after purchasing properties in the third quarter for more than they are likely to sell, Zillow says.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Zillow Group co-founder and CEO Rich Barton said during an earnings call recently.
Zilow's home-buying division, "Offers", has lost more than $300 million over the last few months.

Zillow reportedly has about 7,000 homes that it now needs to unload; for prices lower than it originally paid.

This validates the fact that you can’t have a computer buy and sell properties.
You would be forgiven for not knowing that Zillow was even in the business of buying houses. For most of its 15-year history the Seattle-based company focused on publishing online real estate listings. Then, in 2018, its CEO, Richard Barton, started to aggressively move the company into a business known as iBuying. The idea is that algorithms would identify attractive homes to flip; Zillow would buy the home directly from the seller; minor renovations would be made; Zillow would quickly flip the house and pocket a profit. At one point Barton aimed to buy 5,000 homes a month by 2024.

Zillow may not have been manipulating the market, but it was certainly trying to use technology to outsmart it. In the end, however, the market won.

Zillow’s flipping flop should serve as a reassuring reminder that not everything can be automated. There are various reasons why Zillow got burned, including a labor shortage making it difficult to renovate homes. But the biggest issue is that its algorithm simply wasn’t up to snuff. It couldn’t deal with the complexities of pricing in a volatile market and resulted in Zillow overpaying for a lot of property.
Those 7,000 houses Zillow is sitting on? Bloomberg reports that they will probably be offloaded to institutional investors like BlackRock rather than regular people.

And while Zillow may be ending its iBuying business, the financialization of housing looks set to continue. Big money is gobbling up real estate and leaving many first-time buyers out in the cold.
Zillow also announced that the company would buy back up to $750 million of its own Class A common stock, Class C capital stock or a combination of both.

Stock buybacks are often done in order to shore up a company’s stock price or because the company feels its stocks are undervalued or to improve the company’s earnings per share ratio. Zillow’s spokesperson declined to say whether these were among the reasons the company is buying back its stock.