Zillow Group Inc. reached a deal to sell about 2,000 homes from its ill-fated house-flipping program, the company’s biggest bulk sale as it starts unloading thousands of homes and terminates the business.
Pretium Partners, a New York City-based investment firm, has agreed to buy Zillow homes across 20 U.S. markets and plans to rent them out, according to people familiar with the matter.
The digital real-estate company said it intends to sell roughly 9,800 homes it owns, plus another 8,200 it had been in the process of buying. The company expects to lose between 5% and 7% on these sales. In the transaction with Pretium, Zillow received market price for the properties, these people said.
Zillow’s home-flipping practice involved buying homes, lightly renovating them and then selling them quickly, making money on transaction fees and home-price appreciation. The firm and other so-called iBuyers used an algorithm to make home-price estimates and determine what to pay home sellers.
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Zillow said last week that it was shutting down the business because it couldn't accurately predict future home prices and was losing too much money. The company expects to record losses of more than $500 million from home-flipping by the end of this year and is laying off a quarter of its staff.
The sale to Pretium kick-started Zillow’s unwinding of the iBuying business.
Pretium, which owns around 70,000 single-family homes, plans to hold on to the homes and operate them as rentals. The business has been a success for the firm and others that focus on leasing homes near hot metro areas where families often feel priced out of the for-sale market. A burst in new household formation, which had been delayed earlier in the pandemic, also boosted demand for rental housing.
"We continue to invest in communities and improve access to housing throughout the U.S.," a spokesman for Pretium said.
As of July, single-family rents were up 8.5% compared with the year prior, according to housing data provider CoreLogic, the highest such increase in at least 16 years.
In addition to the homes Zillow had left at the end of the third quarter, the company said it has another 8,200 in contract to buy and will also need to sell. Zillow has said the full winding down of its home-flipping business is likely to take multiple quarters.