Zillow Is Ending Its Homebuying Business. The Stock Is Plunging.

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Zillow Group

said Tuesday it would shut down its homebuying and selling business, citing the company’s inability to accurately predict home prices.

“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated and continuing to scale Zillow Offers would result in too much earnings and balance-sheet volatility,” Zillow CEO Rich Barton said.

Zillow still has several thousand homes in its inventory. The company said in its shareholder letter released Tuesday that it purchased 9,680 homes in the latest quarter and sold 3,032, and ended the quarter with 9,790 homes in its inventory and an additional 8,172 homes under contract. The number of homes purchased in the third quarter is a significant increase from the company’s second quarter. Zillow ended that quarter with 3,142 homes in its inventory.

Zillow plans to shut down the program over several quarters, a spokesperson told Barron’s, noting that the company will process, prepare, and sell homes the way it has historically. The company expects to sell most of its homes by the end of the second quarter of 2022.

The program’s end will result in a 25% reduction in its workforce over the next several quarters, Zillow said. According to FactSet, the company currently employs around 5,500 people.

For the third quarter, the real estate firm reported revenue of $1.7 billion and an adjusted Ebitda loss of $169 million in the quarter. Analysts had expected sales of about $2 billion and Ebitda of $114 million.

Shares fell another 12% in after-hours trading after finishing Tuesday down 10.2%.

Zillow’s Internet, Media, and Technology, or IMT, segment and Mortgages segment reported adjusted Ebitda of $207 million and $5 million, respectively. Its Homes segment, which includes the homebuying program, reported a Ebitda loss of $381 million. That includes a $304 million write-down of homes bought at a higher price than Zillow expects to sell them, the company said. Analyst estimates had called for a loss of $56 million for the segment.

Homes comprised the bulk of Zillow’s sales in the third quarter. The segment contributed $1.2 billion of the company’s total revenue in the quarter, or about 71%.

The company began testing its homebuying program, Zillow Offers, in 2017. It operated the business in 25 markets, according to listings on Zillow’s website.

This is breaking news. This article will be updated with more information about Zillow’s announcement soon.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com