Zillow faces another lawsuit for botched house-flipping business

Last week, investors in Zillow filed a lawsuit against the Seattle-based proptech giant on the grounds that it made “false and misleading statements” about Zillow Offers, its house-flipping project. This is the sixth investor lawsuit filed since Zillow shuttered the unprofitable initiative.

Why should we care?
Zillow’s failed moonshot project and the severe fallout thereafter—including $528 million in losses over the past year—offer a warning to other proptechs harboring ambitious goals. Zillow Offers hoped to skyrocket Zillow’s margins by offering near-instant purchase offers to homeowners, streamlining renovation processes, and then selling Zillow-owned properties to the platform’s millions of users. But Zillow overpaid for houses while underpaying its contractors, meaning it held onto properties far longer than it should have—exacerbating cash-flow issues and leading to vacant properties that were little more than a liability. Whether Zillow execs adequately warned its investors that Zillow Offers was an “unproven business model” is up for debate, and is precisely the subject of the plaintiffs’ lawsuit. Regardless, Zillow’s impressive ability to alienate key stakeholders, namely its contractors—and, subsequently, anger investors—hammers home the importance of prioritizing business partners’ needs, including through adequate payment. Futuristic (or vulturous) property initiatives can’t succeed without old-school relationship management.