Reading Between The Lines: What Zillow's iBuying Pause Really Means


We're operating within a labor- and supply-constrained economy inside a competitive real estate market, especially in the construction, renovation and closing spaces.


We have not been exempt from these market and capacity issues and we now have an operational backlog for renovations and closings. Pausing new contracts will enable us to focus on sellers already under contract with us and our current home inventory.


says Zillow's Chief Operating Officer. And so goes Zillow's iBuying momentum.


Do you really buy the reasoning? Sure, it's likely Zillow is experiencing delays renovating and closing sales for their Zillow-owned homes.


Why would Zillow stop iBuying completely?


What do they see from their vantage point? Is the housing market softening and turning concerningly bearish faster that the rest of us realize?


Or is Zillow telling us that iBuying is really hard, and really dangerous if you don't execute at a world-class level?


Step 1: provide a competitive offer in an already overheated market (iBuyers operate in overlapping markets).


Step 2: close the initial transaction which incurs transfer taxes and recordation fees (closing costs).


Step 3: renovate the property.


Step 4: list the property and facilitate showings.


Step 5: close the sale, bear carrying costs (interest) of credit facility, and risks of buyer falling through.


When all is said and done, iBuyers have shown how hard it is to make a profit on a per unit basis. If the market cools off, you can lose tens of thousands of dollars per property, and that appears to be happening to Zillow, at least in some of their markets.


From our own research across multiple markets, we see Zillow may have done quite a bit of buying high and now they're in a tough spot where they need to sell low.


Take 621 Kings Ct in Dickinson, TX


  • June 29, 2021: Zillow purchased this property for an estimated $270,000
  • August 6, 2021: Zillow lists for sale at $290,000
  • August 20, 2021: price drop to $279,200 (-3.8%)
  • September 3, 2021: price drop to $264,200 (-5.4%, -8.9% from initial asking price)
  • September 16, 2021: pending sale
  • October 15, 2021: buyer fell though, re-listed for sale at $254,200 (-3.8%, -12.3% from initial asking price)

As you can see from this example, Zillow bought a property, renovated it, and is currently struggling to sell it for 5.8% less than what it bought it for. After closing costs, Zillow will lose tens of thousands of dollars on this particular sale.


Blame it on the AVM?


AVM means Automated Valuation Model and it's the computer algorithm that determines how much Zillow should offer for a given property. Our guess is that Zillow is taking a pause to improve the accuracy of its pricing models and quality of its operational execution against this challenging business model.


It's less likely Zillow predicts such dangerous market conditions that it would entirely stop its iBuying operations. If market deterioration were predicted, it would simply provide lower offers to build in a larger margin of safety to protect profits. That said, we did see all iBuying come to a stand still in late Q1 and Q2 2020 due to pandemic concerns.


Another market observation




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