Zillow gets dominated at her own game

The break appears to be a case of poor planning, a surprising mistake for a company that has been in the online real estate business for almost 17 years. Rather than a cash flow problem, Zillow claims to have experienced supply constraints related to workers and vendors in the field. Leave it up to a tech company to develop an algorithm to predict home values, but mismanage the human side of their business.

To add insult to injury, Zillow’s biggest contender seems to handle high volumes just fine. Open house Technologies OPEN 3.16%

said he was “open for business and continues to evolve and grow,” noting that he has worked hard over the past seven years to ensure he can continue to deliver as he goes. as it expands. Although Zillow long predated Opendoor as a company, it primarily offered an online marketing platform for agents before adding iBuying in 2018.

Zillow said it bought a record number of homes in the second quarter at 3,805, but that remains pale compared to the 8,494 homes that Opendoor bought in the same period. It doesn’t look like short-term business has collapsed completely: the company says it continues to process home purchases from sellers already under contract as quickly as possible. This means that home purchases could continue to grow sequentially in the fourth quarter, even with the hiatus. Zillow has not publicly commented on its fourth-quarter buying forecast, but said its third-quarter outlook implied an “acceleration” in buying activity.

Rather than looking back, iBuying investors may want to view the Zillow news as an opportunity for its competitors. Opendoor is now active in 44 markets, including all but two of Zillow’s 25 markets. Zillow’s break is therefore a golden opportunity for Opendoor. Zillow has yet to say when it will resume new home purchases, but an email from a Zillow offers adviser to an agent seen by the Journal suggests the hiatus will last at least until the end of 2021. .

Zillow’s mismanagement also highlights a key asset for small competitor Offerpad Solutions.

OPAD -0.36%

Led by a former real estate agent, this company has long touted its ground game. Offerpad, which is now a publicly traded company after closing its merger with a specialist acquisition company in September, appears to have taken a head start in understanding how many workers to employ and where, what repairs need to be. performed and how to perform them effectively. An analysis from BTIG Research shows that Offerpad’s contribution profit per home sold was more than 4.7 times that of Zillow last year.

But the news is also a signal that investors may want to start treading more lightly around what has been a record year for the industry so far. The reality is that iBuyers have an incredible amount of market data, can plan acquisitions and inventory months in advance, and have a number of levers to pull to slow down or speed up business, depending on the market. Mike DelPrete, Real Estate and Academic Technology Strategist. residency at the University of Colorado Boulder. Given this, it’s unusual that Zillow’s hiatus has come so suddenly and in all of its markets.

The US real estate market has finally started to cool down a bit. On Friday, Redfin reported that the median home selling price rose 14% year-over-year in September, the lowest growth rate since December 2020. Meanwhile, home sales closed and new listings for homes for sale both fell from the previous year, by 5% and 9% respectively.

So far, no other major iBuyer has said it is suspending new acquisitions this year. As Mr DelPrete notes, it is possible that Opendoor and Offerpad began to slow down their own buying commitments as the market began to change, while Zillow missed the signs. More likely, Zillow, who has always prophesied what he calls the “big reshuffle” amidst a permanence in remote work, simply neglected to do his own reshuffle on the pitch.

Write to Laura Forman at [email protected]