Zillow’s Tapping The Brakes on Instant Offers Because it Has More Homes Than it Can Flip

The labor shortages and building supply chain issues have hit home for everyone in the real estate investment sector. Some inventory is slow to hit the market, and studies show that flipping a home isn’t as profitable as it used to be.

But for those large-scale investors, work has all but ground to a halt in some areas. That’s especially true for Zillow, which announced that the company would cease buying homes through its Zillow Offers iBuying program due to a backlog of homes it has purchased that have yet to pass muster and make it to the market.

Zillow Offers is one of several iBuyer programs that launched in the past year. The company buys homes directly from sellers, brings everything up to snuff, and then lists them as “Zillow owned.” However, because of ongoing labor and materials shortages, the company can’t keep the pipeline of homes moving.

“We’re operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces,” Jeremy Wacksman, Zillow’s chief operating officer, said in a statement. “Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.”

In Dallas and Tarrant counties, there are 88 total listings being marketed as “Zillow owned” properties. Besides that, the one thing they all have in common is that they are not staged. The homes are empty, and while they may have had “minor repairs” done, they definitely haven’t been remodeled. And very few have decent photographs.

But when you’re acquiring 3,805 homes in a quarter (Q2 of 2021 was a record period for the company), the details can get lost. Zillow has been in the iBuyer game since 2018, and many other brands have joined it since. Opendoor, RedfinNow, and Offerpad are just a few. Several small brokers have partnered with disruptors to bring cash offers to sellers, too.

If you’re worried about iBuyers clogging the market, Zillow’s recent report showed that 1 percent of the market is iBuyers in most areas, but some of the hotter markets have iBuyers climbing up to more than 5 percent of the market.

But will this break from buying doom Zillow’s program?

“Zillow just kept barreling down and now they’ve hit this wall,” Mike DelPrete, a real estate technology strategist, told CNN Business News.

“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 added. “You want to make some adjustments before you get to that point — slow down, switch gears. This is not the preferred outcome for Zillow.”