Zillow and some of its top executives are being sued for allegedly making misleading claims in advance of the closure of its iBuying arm, Zillow Offers.
Zillow shareholder Dibikar Barua filed a class-action lawsuit against the company in federal court in Seattle alleging that Zillow failed to tell shareholders it was struggling to accurately predict home prices.
“Throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects,” the suit reads.
It claims that Zillow did not disclose the “significant unpredictability in forecasting home prices” the company was struggling to overcome or its inventory backlog, both of which would have signaled to investors that it was “likely to wind-down” Zillow Offers.
Zillow initially announced it would not buy more homes in 2021, and instead turn its focus to renovating and selling its backstock of inventory.
But Zillow CEO Rich Barton later acknowledged their failure was the company’s inability to predict home-price appreciation, and two weeks later it shuttered altogether.
The company dropped the news as part of its third-quarter earnings report. Zillow Offers lost $381 million last quarter, with a total loss of $169 million across the company.
“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated,” Barton said in the release. “Continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility.”
Zillow Group’s share price dropped 60% over three days when it announced the closing of Offers.
Though Zillow noted the risks of its iBuying business in its annual 10-K regulatory filings, the lawsuit bases its claims on statements made publicly by Zillow executives.
Zillow Chief Operating Officer Jeremy Wacksman said in September that that “the strength and the appeal for Zillow Offers just continues to grow and we’re even more confident now that this is going to be a service really in all-weather markets.”
The suit also cites Zillow Group CEO Rich Barton comments from its Q2 earnings release, in which he said, “Of particular note, our iBuying business, Zillow Offers, continues to accelerate as we offer more customers a fast, fair, flexible and convenient way to move. Zillow Offers is proving attractive to sellers even in this sizzling-hot seller’s market.”
The lawsuit alleges that these comments were made knowingly or recklessly with the intent of “concealing Zillow’s financial well-being and prospects from the investing public and supporting the artificially inflated price of its securities.”
The attorneys helming the case released a statement inviting other investors who suffered significant financial damages to join the case. Anyone who purchased Zillow securities between February 10 and November 2, 2021, have until January 18 to be appointed as a lead plaintiff in the case.