Hundreds of sellers awaiting new builds will have to sell their homes another way after Zillow canceled contracts for closings set for late 2022 through its defunct iBuyer, Zillow Offers.
After vowing to honor outstanding purchase agreements made through Zillow Offers, Zillow has canceled 400 of approximately 8,172 contracts with homesellers nationwide, the company has confirmed.
The news is the latest in the ongoing iBuying saga that began for the company in early November when it announced it would shut down its iBuying business.
According to the Phoenix Business Journal, the homesellers will receive compensation for the canceled contracts, which includes earnest money and a varying bonus for agreeing to terminate the contract by Nov. 30.
The majority of the homeowners seem to be waiting on new builds that are still under construction, the Journal said.
“We went to Zillow because they told us that they were a preferred partner of Minto Properties, the building contractor in Florida,” Marietta, Georgia homeseller Jerry Culpepper told the publication. “Our estimated closing for the new property is between January 2022 and March 2022, so Zillow put our closing date as Feb. 18, 2022, for contract purposes only.”
“They told us we could close at any time when the Florida property was ready — earlier than this date or later; no worries,” he added while noting Zillow had agreed to pay $351,085 for his property. “We tried to change our closing date to Dec. 31, 2021, or even in January, but she said that nothing could be changed.”
Culpepper said Zillow has offered him $3,500 for canceling the contract, which accounts for a $1,000 deposit and a $2,500 bonus. Meanwhile, Buckeye, Arizona homesellers Tony and Sarena Miller said the portal offered them $10,000 for canceling the contract on their 1,580-square-foot home that Zillow was set to purchase for $418,872.
“We expected them to uphold their end of the deal,” Sarena Miller said. “We thought this was a done deal.”
Zillow spokesperson Matt Kreamer told the Phoenix Business Journal the company is doing its best to compensate homesellers for the inconvenience and anticipates no more homesellers, outside of the 400 who have been already notified, will face contract cancellations.
“For a small subset of customers closing later in 2022, we determined we can no longer support their closing and are releasing our earnest money to them,” he said. “Typically, homes close in 30 to 45 days. Each customer’s circumstances and homes are unique, but unfortunately, we don’t discuss the particulars of each situation.”
When Inman inquired about the cancellations, a company spokesperson reiterated Kramer’s statement and said all Zillow Offers contracts enable Zillow or the homeseller to back out of a deal. When Zillow backs out of a deal, the spokesperson said the contract requires Zillow to provide earnest money.
In early November, a Zillow spokesperson told Inman that selling to institutional investors is part of the company’s broader strategy while declining to reveal an exact number of current homes that Zillow still owns. But in the company’s letter to shareholders, Zillow said it had 9,790 homes in its inventory at the end of September. It was under contract to buy another 8,172 homes at that time.
The company intends to honor these purchase contracts, the spokesperson said at the time, meaning Zillow would need to turn around and sell approximately 18,000 homes before Zillow Offers draws to a complete close.
Phoenix-based labor and employment lawyer John Balitis said Zillow currently isn’t at risk of facing lawsuits over the cancellations; however, they could if it becomes a widespread issue.
“The question all this begs is whether homesellers with Zillow Offers contracts in place could pursue class action claims of their own if Zillow continues to cancel those contracts as the iBuying division winds down,” he said. “This clearly is a possibility depending on how widespread the contract cancellations are and depending further on how much flexibility the contract documents give to Zillow to abort transactions with customers who have homes on the market with Zillow.”
“It doesn’t appear that any home seller class-action lawsuits have been filed yet, but that doesn’t mean we won’t see them in the near future,” he added.
Over the past month, Zillow’s stock has tumbled as the company faces continued public scrutiny and several securities fraud lawsuits due to Zillow Offers closure. The company opened on the Nasdaq at $53.61 per share on Tuesday, down from the previous day’s closing price of $54.26.
“I’m sorry for how difficult and disruptive this will be,” Zillow co-founder and CEO Rich Barton said of the Zillow Offers closure process on Nov. 2. “[However], our core business and brand are strong, and we remain committed to creating an integrated and digital real estate transaction that solves the pain points of buyers and sellers while serving a wider audience.”