A proposed class action lawsuit alleges that Seattle-based Zillow Group concealed problems in its home-buying business from shareholders before abruptly shutting the unit down two weeks ago.
The suit, filed by lawyers for Zillow shareholder Dibikar Barua in federal court in Seattle, appears to be the first in what could be a series of cases over the real estate company’s decision to shutter Zillow Offers. Other trial attorneys are actively seeking Zillow shareholders to participate in additional litigation against the company.
Such cases are common when unexpected decisions by companies cause their share prices to plunge. Zillow Group’s share price fell 60% over the course of three days in early November as the state of Zillow Offers became clear.
Under the Zillow Offers program, the company bought thousands of homes, intending to sell them for a profit, using its scale and price-estimating technology to its advantage. Zillow Offers competed against similar offerings from Opendoor, Offerpad, Redfin and others, which are still pursuing the business model.
Zillow devoted an extensive section of its annual 10-K regulatory filings to warning investors about the risks and uncertainties of the Zillow Offers business, following standard corporate practice.
However, the lawsuit cites positive public statements that Zillow executives made about Zillow Offers in the months leading up to the shutdown.
As recently as Sept. 13, for example, Zillow Chief Operating Officer Jeremy Wacksman told a Piper Sandler conference 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,” according to the suit.
The complaint also cites this quote from Zillow Group CEO Rich Barton in the company’s second-quarter earnings release on Aug. 5: “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 suit, filed by the Seattle law firm Rossi Vucinovich P.C., alleges that such “material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Zillow’s financial well-being and prospects from the investing public and supporting the artificially inflated price of its securities.”
Announcing the shutdown on Nov. 2, Barton said in a statement, “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.”
Approximately 25% of Zillow Group’s workforce, or about 2,000 people, are being laid off as a result of Zillow Offers closing. The company is taking write-down of more than $500 million related to the shutdown.
The suit seeks unspecified financial damages. Zillow is reviewing the suit but doesn’t comment on pending litigation, spokesperson Viet Shelton said.