Facing the prospect of selling thousands of homes at a loss, Seattle-based Zillow said Thursday it would close down its house-flipping division and lay off a quarter of its staff.

The decision to shutter Zillow Offers was “tough but absolutely necessary” as the company failed to accurately forecast the costs of buying and selling homes in a historically hot housing market, CEO Rich Barton said in an earnings call Tuesday.

Details of the layoffs will play out over the coming months. Zillow said the “wind-down” will happen over “several quarters” and did not provide details on how many Seattle workers would lose their jobs.

As of August, Zillow employed about 6,400 people, roughly 2,300 of them in Washington. Zillow Offers does not buy and sell homes in Seattle, but is active in Portland. 

“I’m sorry for how difficult and disruptive this will be,” Barton said of the layoffs.

Zillow reported a loss of $328 million in the third quarter, a loss of $1.29 per share.

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Zillow Offers was Zillow’s bet on iBuying, a practice similar to house-flipping in which Zillow itself bought and then resold homes. The company revealed in recent weeks that the effort was stumbling. With prices cooling, Zillow had paid more for homes than it would be able to resell them for.

“Fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in,” Barton said Tuesday. 

Zillow Offers launched in 2018 and had yet to turn a profit. To succeed, Barton told shareholders in a letter Zillow would have had to dramatically scale up Zillow Offers, which he described as “too risky, too volatile to our earnings and operations, provides too little opportunity for return on equity, and serves too narrow a portion of our customers.”

Home prices have skyrocketed over the last two years as the pandemic and low interest rates pushed new buyers into the market. Meanwhile, few homes were listed for sale, driving bidding wars. 

Now, the market has started to cool. Prices are leveling off and reselling homes for which flippers paid top dollar has become more difficult. Labor shortages and supply-chain issues complicate renovating homes for resale. Zillow lost about $80,800 per home.

“We hadn’t modeled this kind of pricing market or supply market to even be possible when we got this business going,” Barton said. 

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But some of Zillow’s competitors fared better, despite the pandemic frenzy.

Opendoor and OfferPad adjusted their pricing to reflect trends in home prices, according to an Oct. 31 analysis from Ed Yruma, managing director at KeyBanc Capital Markets.

Seattle-based Redfin’s iBuyer, RedfinNow, started offering less for homes in late March, predicting that housing prices would level off, Redfin CEO Glenn Kelman said in an August earnings call.

Redfin continued buying homes in the Seattle area last month. Since RedfinNow launched here last December, the company has bought 255 homes in King, Pierce and Snohomish counties and sold 156, according to county property records

Analysts who reviewed 650 of Zillow’s homes found that two-thirds of them were listed for less than Zillow paid to buy them, with an average markdown of 4.5%, according to the KeyBanc analysis. Tucson, Mesa and Phoenix saw the steepest markdowns, Yruma found.

“Zillow may have leaned into home acquisition at the wrong time,” the analysis said.

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Across the two dozen markets where Zillow Offers operated, Zillow finished the third quarter with 9,790 homes in inventory and 8,172 under contract. The company plans to offload those homes early next year. Barton told CNBC the company was “not in any kind of a fire sale mood, we’re not in a big hurry to sell these homes.”  

In its third-quarter earnings announced Tuesday, Zillow wrote down about $304 million worth of homes it purchased and expected to sell at a loss. The company said it expects additional losses of $240 million to $265 million in the fourth quarter. 

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Notwithstanding their high-profile bets, iBuyers still make up a small portion of home sales. Zillow estimated this fall that the four big players made up just 1% of all home purchases.