Home flipping proves a flop for Zillow
A sudden move by one of the largest housing companies in the country has caught the attention of both consumers and professionals in the housing market.
Housing giant Zillow Group just announced that it is closing the doors of its nationwide home flipping operations over millions in losses.
The company reportedly sold most of its homes in major metro areas – including Dallas-Fort Worth – at a loss.
Like other so-called Ibuyer companies, Zillow acquired houses from sellers, furnished them and resold them at a profit. The problem was that on most of the sales there was no profit.
In a letter to shareholders, Zillow predicts losses of between $ 240 million and $ 265 million on homes to be purchased in the fourth quarter.
No wonder Zillow said this week it is ceasing its home buying activities and laying off workers in the department.
The Seattle-based real estate company has announced that it will take up to $ 569 million in depreciation and amortization over the next few months and reduce its workforce by 25% if it goes out of business. It will be a while longer.
“In the middle of our sales forecast for the fourth quarter, we expect to acquire almost 9,000 apartments and sell around 5,000 apartments,” said the letter to shareholders.
Zillow is selling more than 80% of homes in the Dallas-Fort Worth area at a loss, according to a Business Insider report. And the company is losing money on more than 60% of the homes it sells in its five largest metro markets, according to the Business Insider study.
Zillow representatives did not want to comment on the damage estimates of the business publication.
The shakeout in Zillow’s home flipping business comes at a time when property prices are at record highs in North Texas and across the country. Most homes in the D-FW area are selling above list price and many are receiving multiple offers, estate agents say.
James Gaines, longtime economist with the Texas Real Estate Research Center, said he wasn’t surprised Zillow struck his toe in the home flipping business.
“I think they got out of hand,” said Gaines. “They started buying real estate faster because they had the money.
“Essentially, they probably paid too much in the first place, but they had to pay those prices to get the properties.”
Gaines rejects the idea that Zillow or other buyers will dump their homes.
“I doubt that will happen,” he said. “It won’t be bankruptcy or foreclosure. They will try to minimize their losses. “
Home fins of all kinds have challenged the D-FW home market more. But most of them are individuals, not Zillow or other buyers.
According to a report by Attom Data Solutions, D-FW took third place nationwide in the second quarter with almost 2,000 home flips.
Gaines estimates that ibuying only accounts for around 2% or 3% of the Texas real estate market.
The real estate prices of D-FW are at record highs, in the last year by more than 20%.
“Everyone assumed they could buy houses and the price would go up and they would sell it and make a profit,” he said. “If you are buying to make a quick profit, you have to be very careful.
“You will make your profit based on the price you pay, not what you sell it for.”
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