Zillow is facing two class-action suits for allegedly misleading investors and failing to inform them in a timely manner about the struggles of its iBuying business.
More lawsuits may be forthcoming as Zillow does damage control in the wake of closing Zillow Offers, through which it used a proprietary algorithm to buy and sell thousands of homes. The company shuttered its iBuying business in early November just after apparently pausing it. It laid off a quarter of its staff as it canceled Zillow Offers, citing the unreliability of its model for forecasting home prices.
“Put simply, our observed error rate has been far more volatile than we ever expected possible, and makes us look far more like a leveraged housing trader than the market maker we set out to be,” Zillow CEO Rich Barton said at the time.
It’s not clear that its real-time pricing was accurate either, as accusations flew that Zillow was overpaying for homes.
The federal lawsuits, filed Nov. 16 and Nov. 19 in Seattle, are similar, and both seek class-action status on behalf of shareholders who acquired the stock between Feb. 10 and Nov. 2.
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Both lawsuits accuse the company of drumming up positive sentiment about its iBuying activities with “materially false and/or misleading statements” in the months before it closed the operation, and of failing to disclose “material adverse facts” surrounding them.
The suits name co-founder and CEO Richard Barton, CFO Allen Parker and COO Jeremy Wacksman as defendants alongside the company.
“We are aware of the lawsuit filed yesterday and are currently reviewing it. As a general practice, we do not discuss pending litigation,” a Zillow spokesperson said by email.
Zillow’s stock price has fallen by nearly 50% since late October, when it first revealed the challenges within its iBuying business. It is common for shareholders to seek redress after a public company’s stock falls steeply in value.
Zillow’s board of directors made the decision to “wind down” Zillow Offers “in light of home pricing unpredictability, capacity constraints and other operational challenges faced by Zillow Offers that were exacerbated by an unprecedented housing market, a global pandemic and a difficult labor and supply chain environment,” the company said in a third-quarter filing.
Attorneys representing the lead plaintiffs for the two lawsuits, Dibakar Barua and Steven Silverberg, could not be reached for comment.
Earlier this month, New York City-based Pretium Partners inked a deal for 2,000 of the nearly 10,000 homes Zillow acquired through its iBuying activities for an undisclosed price.
Zillow has said it will sell the rest to all types of buyers, from individuals to institutional investors.