Zillow stops the purchase of houses and tries to manage the accumulated

(CNN) — Zillow will stop buying homes through Zillow Offers for the remainder of the year, while the company’s iBuying program goes from high speed to braking.

The company announced on Monday that it would not close new contracts for the purchase of more homes in 2021 to be able to work with the accumulation of those it has already bought.

The “iBuyer” model, used by Zillow and other real estate companies, consists of buying homes directly from sellers and putting them back on the market after small works are done. But, due to the current labor and materials shortage, Zillow cannot close, renovate and resell the homes quickly enough.

“We are operating within an economy with labor and supply constraints within a competitive real estate market, especially in the construction, renovation and closure spaces,” Jeremy Wacksman, Zillow’s chief operating officer, said in a statement.

“The pause of the new contracts will allow us to focus on sellers who already have an agreement with us and our current inventory of homes,” said Wacksman.

Zillow will continue to market and sell the homes it has acquired through Zillow Offers, in a period of major acquisitions. It bought 3,805 homes in the second quarter, a record for the company and more than double the number of homes purchased in the first quarter, according to a note to the company’s shareholders.

Zillow, known for its online real estate listings, introduced an iBuyer program, Zillow Offers, in 2018 and now operates in 25 cities. Like other iBuyers – such as Opendoor, RedfinNow, and Offerpad – Zillow Offers uses property and market data and algorithms to make a cash offer for an off-market home, and buys directly from the owner.

A surprising decision

IBuyers attract home sellers because closings can take place between 7 and 90 days after the contract is signed and can provide some security and control over the sale of your home without the hassle of finding an agent and preparing the home for the sale. market. According to Zillow, the commission to the seller for Zillow offers is 5% on average, but can vary based on market conditions.

The purchase of homes by iBuyers already represents about 1% of the market, according to a report from Zillow. The share is still a tiny part of the entire market, but it shows enormous growth in recent years, since in some cities such as Phoenix, Atlanta or Charlotte (North Carolina), it now exceeds 5%.

Zillow was not alone among the iBuyers who bought many houses this year. IBuyers bought more homes, at higher prices, in the second quarter of this year than in any other quarter, according to research by Mike DelPrete, an independent real estate technology strategist and academic in residence at the University of Colorado Boulder. This surprised some skeptics who did not believe that the iBuyer model would be attractive to home sellers in a hot market.

Their research suggests that sellers are attracted to the security and ease of iBuying, and market conditions fueled its growth.

Zillow’s move to stop shopping is surprising, he said, especially since it’s so sudden.

“IBuyers have access to a huge amount of data, they can look at months in the future and plan their inventory,” DelPrete said. “So the fact that Zillow didn’t see this coming and wasn’t able to make adjustments before having to resort to an iBuying lock is pretty surprising.”

This change, he said, shows how difficult it is to expand this business model. Large iBuying companies have to be experts in managing billions of dollars of capital, but also in the specific logistical aspects of preparing a home for sale, from drywall and paint to closing. the operations.

“Technology has a limit,” says DelPrete. “Ultimately it takes people to process a lot of transactions.”

A specific Zillow problem

However, the brake appears to be a Zillow-specific issue, not an iBuyer industry issue, DelPrete said.

“Zillow has moved on and now has hit this wall,” he said.

This is not the situation in which a company focused on growth wants to be, he said.

“If you’re trying to be number one in the market, slamming on the brakes is one of the worst things you can do,” DelPrete said. “You have to make some adjustments before you get to that point: braking, changing gears. This is not Zillow’s preferred result.”

Opendoor, the iBuyer leader ahead of Zillow who is a distant second, said in a statement that it is still open for business.