A huge surprise by one of the country’s largest residential firms is catching attention from consumers to housing market professionals.
Housing sector giant Zillow Group announced it was closing the doors on its home flipping operations because they lost millions.
The company was selling most of its houses in major metro areas, like Dallas – Fort Worth, at a loss.
Zillow acquired homes from sellers and fixed them up and resold them for a profit. The problem was that these homes were being sold at a loss instead of the intended profit.
In a letter to stockholders. Zillow forecast $240 million to $265 million worth of losses on homes it has lined up to purchase in the fourth quarter.
This makes sense because Zillow is shutting down its home buying operations and laying off workers in the division.
“We expect to acquire close to 9,000 homes and sell approximately 5,000 homes at the midpoint of our fourth-quarter revenue outlook,” the letter to shareholders says.
Zillow is selling over 80% of Dallas – Fort Worth area homes at a loss, according to a report by Business Insider. The company is also losing money on over 60% of the houses it sells in its five largest metro markets, the Business Insider reported.
The downfall of Zillow’s home flipping business comes when housing prices in North Texas are at record levels. Most homes in the D-FW area are selling above list price, and many get multiple offers.
James Gaines, the longtime Texas Real Estate Research Center economist, said he’s not surprised Zillow stubbed its toe in the home flipping business.
“I think it got out of hand with them,” Gaines said. “They started buying properties faster because they had the money.
“In essence, they probably paid too much in the first place, but they had to pay those prices to get the properties.”
