Zillow bought too many homes at high prices and now it must sell $2.8 billion worth of houses following a failed home flipping business

Zillow started out as a Real Estate listing website for home sellers and buyers, then the company later decided to start acquiring home for a reason best known to them. They bought so many homes just to keep and now they have so many inventories and the overhead cost of keeping the homes is too expensive for the company.   

The news that Zillow will sell and take a loss on some homes sent Zillow stock on a nosedive from its 52 week high of $208 per share to about $65.47 per share. Zillow stock lost over $45 per share in two days and things can get worse for the company as investors continue to panic sell their Zillow shares.

This means that Zillow has to sell 7,000 homes for $2.8 billion and the homes will be sold to institutional investors. Since Zillow is pressured to sell, they may have to take a loss on these homes and sell for cheap.

According to Bloomberg, the company also plans to writedown more than $500 million on the failed home flipping deal.

The announcement was attached to Zillow’s third-quarter earnings report. The company’s revenue and earnings missed analysts’ estimates.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated,” Zillow CEO Rich Barton said in the release. “Continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”

Here are the key numbers from earnings:

Earnings per share: loss of 95 cents adjusted vs. profit of 16 cents per share expected in a Refinitiv survey of analysts

Revenue: $1.74 billion vs. $2.01 billion expected by Refinitiv.

The real estate business was booming for Zillow earlier this year, they thought they found a way to maximize profit but it turned out to be a bad idea. The company will now try to reverse its decision to embark on a home-flipping business.