Banking that homebuying demand vastly outstrips pandemic-suppressed supply, Zillow and Redfin are restarting their home flipping programs, both announced on earnings calls Thursday. But they forecast falling revenues ahead, especially if sellers continue to be reluctant to list their homes.

The rival Seattle-based digital brokerages reported stronger-than-expected revenue in the first three months of the year, but ended the quarter sunk in the red.

Home flipping has slim margins and requires huge amounts of capital, but both companies have jumped into the market with vigor, threatened by SoftBank-backed home flipping outfit Opendoor.

Zillow’s revenue stood at $1.1 billion, up 148% from a year earlier, largely driven by quintupling income from its home flipping division, called Zillow Offers. That sector of the company sold six times as many homes in the first three months of 2020 as it did the same period in 2019. The company ended the quarter with $163 million in losses, more than double its losses in the same period of 2019.

Since launching in 2018, Zillow Offers now comprises the bulk of the company’s revenue — and losses. After factoring in the cost of interest, Zillow loses $4,478 on each home it flips.

Redfin posted quarterly revenue of $191 million, up 73% year-over-year and beating expectations of $178 million. The company’s net loss of $60 million narrowed from $67 million a year earlier. Redfin hasn’t banked as heavily on flipping, but Redfin Now also failed to turn a profit last quarter.


Both companies stopped placing cash offers on sellers’ homes in late March as stay-at-home measures to slow the spread of coronavirus generated uncertainty in the market.

“With whole cities shutting down nearly all commerce, no one can say what a fair price is right now, so we’re not making any instant offers,” Redfin CEO Glenn Kelman said at the time.

Redfin is now reopening its instant offers program in Austin, Denver and Southern California’s Inland Empire. Zillow said it plans to restart Zillow Offers within the month, a move CEO Rich Barton said the company was calling “Project Han Solo,” for how the Star Wars hero escaped from a block of frozen carbonite.

As March’s major market slowdown ate into balance sheets, companies sloughed off property holdings and reduced operating costs.

Redfin owned or was under contract to buy $119 million in homes on March 19, the day it zapped its instant offer service. By April 30, the company had shed $63 million of those, with the remaining homes largely under contract to sell by mid-May.

The company expects to take a loss on those sales as home prices decline from expectations. Going forward, Kelman said Redfin will buy fewer homes for less, and flip homes faster to trim costs.


“By May, we’ll know whether homeowners will pay a premium for liquidity in an uncertain market,” he said on the earnings call. He indicated Redfin would pivot away from home flipping and focus more heavily on its concierge listing service, which advises home sellers how to generate curb appeal.

Zillow has said it will cut operating expenses by 25%, freeze new hiring and cut nearly all marketing spending.

Redfin has cut payroll costs and sold $110 million in stock to Durable Capital LP. In early April, the company slashed headquarters salaries by 10% to 15% and laid off or furloughed 1,400 real-estate agents, renovators, recruiters and other operational staff, one-quarter of its employees.

The company announced Thursday it planned to bring back 135 employees from furlough to service prospective home buyers.

A stumbling block for both companies in the months to come is reduced listing supply.

Indicators of homebuying demand have risen to pre-pandemic levels from a late March trough, the companies reported, but new listings are still down 39% compared to last year.


As agents compete to list a smaller number of homes, Zillow has cut by half advertising fees for agents who generate client leads on its app and website in a bid to boost retention. The sector is typically a profit leader for the company. Zillow expects the discounts to generate a 25% decline in revenue, compared to 2019, within that division, with overall revenue remaining flat year-over-year.

Redfin said it expects second-quarter revenue to fall as much as 9%, to $189 million, compared with 2019, and for losses to nearly double.

Shares of both Redfin and Zillow closed slightly higher Thursday, and were well up over their mid-March nadirs. Zillow closed at $48.19, up from $23.51 March 18. Redfin closed at $22.56, up from $10.33 March 18.