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Zillow attracts more criticism for selling homes to institutional investors

By Mike Wheatley | December 14, 2021

It’s fair to say that Zillow’s foray into the world of iBuying proved to be an unmitigated disaster, with the company forced to shutter the business due to its inability to flip homes for a profit.

The company is at least making good progress in selling off its remaining inventory of homes. It said last week it has sold around half of the 18,000 homes that were left on its books when Zillow Offers closed. However, even with that announcement the company is not free from criticism, with lawmakers raising concerns that many of those homes were sold to institutional investors at a time when the for sale housing market is starved of inventory.

“We are focused on making the homes we are listing for sale available to movers as quickly as possible,” a Zillow spokesperson told REALTOR Magazine last week. “As we wind down our iBuying operations, we continue to sell homes the way we always have, which includes marketing them on the open market to sell them to all types of buyers such as individuals and families, institutional or individual investors, and nonprofits.”

Zillow caught a lot of flak following the abrupt closure of Zillow Offers in November. The decision to close the iBuying business left thousands of homes it owned, or was in the process of buying, in limbo. Zillow said it has 9,790 homes in its inventory at the end of the third quarter with another 8,172 under contract.

Zillow is fulfilling its obligation to buy those homes that were under contract, and says it has now made significant progress in winding down that inventory. More than half have either been sold, were under contract to sell, or had reached agreement on terms.

However, a recent bulk sale of homes to an institutional investor has sparked concerns. The Wall Street Journal reported in November that Zillow had sold 2,000 homes to Pretium Partners, a New York City-based investment firm. Pretium owns around 70,000 single-family homes in 20 U.S. markets, where it typically rents them out.

In a letter to Zillow CEO Rich Burton, U.S. senators Sherrod Brown, Tina Smith and Jack Reed raised “serious concerns” over that deal, as well as reports the company was planning to sell another 7,000 of the homes in its stock to institutional investors, for around $2.8 billion. The worry is that those homes will end up as rentals at a time when buyers are screaming out for more inventory.

Zillow says those reports are not true and that it is considering multiple options with regards to its housing stock.

“We are pleased with the significant Zillow Offers inventory wind-down progress we’ve made in such a short time,” said Zillow’s CFO Allen Parker in a statement. “We will continue to be disciplined in our inventory wind-down strategy and evaluate a variety of options to best optimize net cash flows to the company.”

Zillow closed Zillow Offers due to what Barton said was “unpredictability in forecasting home prices” that far exceeds what it had anticipated. The result was that iBuying was causing too much “earnings and balance-sheet volatility” for the company’s liking. By closing Zillow Offers, the company will benefit from “a more capital efficient balance sheet and business,” he added.

In the meantime, Zillow’s conduct over Zillow Offers has led to multiple lawsuits from investors in the company, who argue they were misled by unrealistic claims over the health of the business.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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