Zillow is facing another lawsuit from shareholders alleging company executives misled investors about the failure of its house flipping business.
A lawsuit filed in federal court in Seattle last week alleges executives made “false and misleading statements” about the success of Zillow Offers even as its efforts to renovate homes and forecast their resale prices floundered.
The Seattle-based company announced in November that it would close Zillow Offers and lay off a quarter of its staff. The deal was Zillow’s attempt at iBuying, a home-flipping algorithm-based version in which homeowners can get a near-instant deal on their home.
Executives said at the time that Zillow failed to accurately predict future home prices. Zillow’s stock price fell sharply after the announcement, and the company lost more than half a billion dollars last year.
Shareholders have filed at least six lawsuits since.
Several of the cases allege that the company failed to adequately disclose issues with Zillow offers. Others say the company’s board has failed to implement the internal controls and corporate governance policies necessary to enter the competitive iBuying market. Five lawsuits were consolidated into two cases.
The latest complaint alleges that Zillow management “significantly increased the prices Zillow Offers would pay for homes in order to induce more home sellers to accept offers to meet Zillow’s volume goals.” The company ramped up home purchases last spring in an effort known inside Zillow as “Project Ketchup,” according to court and media documents.
The filing also claims that Zillow underpaid contractors, causing them to deprioritize Zillow jobs, which then left homes in Zillow’s inventory longer. Throughout, the company’s management “brought about the success of Zillow Offers,” according to the complaint.
Zillow has not commented on the allegations in the latest complaint. But in similar cases, the company argued that its executives correctly warned investors that Zillow Offers was testing an “unproven business model” and refined its price predictions.
As home prices skyrocketed in 2021, Zillow was initially underpricing homes and trying to adjust its Zillow offering pricing models assuming price growth would continue, the company’s attorneys wrote in a statement. petition filed in another shareholder case this month. But after making these changes, house price growth “suddenly and precipitously declined” last year. This left Zillow overpaying for the homes.
Shareholders cited media coverage in which unnamed Zillow employees said members of the company knew it was paying too much for homes.
Zillow argued that the lawsuits did not explain how the executives benefited from the alleged fraud.
“Plaintiffs’ ‘theory’ boils down to the illogical assertion that Defendants hid the truth only to later admit to withholding information, but did not profit from their alleged fraudulent acts,” Zillow’s attorneys wrote.
Zillow’s share price continued to decline as the housing market cooled.
Zillow lost about $528 million last year, down from $162 million in 2020. CEO Rich Barton earned nearly $21 million, including a base salary of $670,000, or about 146 times salary of Zillow’s median employee, according to SEC filings.