Restructuring and Zillow Offers Wind Down

12 Months Ended

Dec. 31, 2021

Restructuring and Related Activities [Abstract]

Restructuring and Zillow Offers Wind Down

On November 2, 2021, the Board of Directors of Zillow Group made the determination to wind down Zillow Offers operations. This decision was made 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, all of which led us to conclude that, despite its initial promise in earlier quarters, Zillow Offers was unlikely to be a sufficiently stable line of business to meet our goals and needs going forward. We expect to continue to renovate and sell properties currently in inventory through 2022. The wind down is expected to be complete during the second half of 2022 and result in approximately a 25% reduction of the Company’s workforce.

Charges incurred during the year ended December 31, 2021 primarily related to the wind down of Zillow Offers operations and are primarily recorded to our Homes segment. Certain additional immaterial actions have been recorded to our Mortgages segment. We expect future charges to primarily relate to the wind down of Zillow Offers operations and to be recorded to our Homes segment. We plan to fund the cash costs through existing cash and investment balances.

The following table presents a summary of Zillow Offers wind down-related charges incurred for the period presented and our estimate of the total costs we expect to incur over the wind down period (in thousands):


		Year Ended December 31, 2021
	Statement of Operations Classification	Homes Segment		Mortgages Segment		Total Recognized		Total Expected
Inventory write-down	Cost of revenue	$	407,921	$	—	$	407,921	N/A
Other charges:
Employee termination costs	Impairment and restructuring costs	59,914		926		60,840		$99,000 - $112,000
Contract termination costs	Impairment and restructuring costs	9,960		—		9,960		$11,000 - $18,000
Financing-related charges	Interest expense	6,227		—		6,227		$40,000 - $48,000
Accelerated depreciation and amortization	Cost of revenue	4,885		—		4,885		$24,000 - $25,000
Asset write-offs	Impairment and restructuring costs	1,373		—		1,373		$1,000 - $2,000
Total other charges		82,359		926		83,285		$175,000 - $205,000
Total		$	490,280	$	926	$	491,206

The following table presents the accrual activity for exit and disposal costs for the year ended December 31, 2021, primarily related to cash severance employee termination costs and contract termination costs (in thousands):


	Employee Termination Costs		Contract Termination Costs		Total
Balance, beginning of period	$	—	$	—	$	—
Additions charged to expense	54,339		9,024		63,363
Cash payments	(9,160)		(5,248)		(14,408)
Balance, end of period	$	45,179	$	3,776	$	48,955

Inventory write-downs

In determining the value of our inventory, we consider indicators that net realizable value may be lower than cost at the portfolio level, market level, and in certain circumstances by structure type (single family residence, condo, etc.) by reviewing economic analyses, recent trends in home price appreciation and changes to resale strategy. Factors we analyze include gross margin on homes closed in recent months, projected gross margin on homes under contract to sell, historical list price to resale price variances, and trends in gross margin, selling prices and average selling concessions or other costs of selling homes. During the year ended December 31, 2021, we identified that a large portion of homes we purchased primarily in the second half of 2021 had a cost exceeding net realizable value as a result of unintentionally purchasing homes at higher prices than the Company’s current estimates of future selling prices after selling costs. As a result, we recorded a write-down to inventory totaling $407.9 million with a corresponding increase to cost of revenue in our consolidated statement of operations for the year ended December 31, 2021. See Note 5 for additional information on inventory.

Employee Termination Costs

At December 31, 2021, accrued employee termination costs of $45.2 million related to one-time termination benefits and $1.0 million related to other severance and employee costs, primarily pertaining to ongoing employee benefit arrangements, were recorded within accrued compensation and benefits in our consolidated balance sheet.

Asset Write-offs

Asset write-offs of $1.4 million for the year ended December 31, 2021 primarily related to the write-off of intangibles-in-progress, as these capitalized costs are no longer expected to be placed into service.

Accelerated Depreciation and Amortization

We have adjusted the useful life of certain assets impacted by the wind down of Zillow Offers operations to end on the expected cease use date. This adjustment resulted in the accelerated recognition of depreciation and amortization primarily related to internal use software and website development costs.

Contract Termination Costs

At December 31, 2021, $3.8 million of contract termination costs are included in accrued expenses and other current liabilities in our consolidated balance sheet. These costs relate to contract termination penalties and costs that will continue to be incurred under contracts without further economic benefit.

Financing-Related Charges

Financing-related charges incurred for the year ended December 31, 2021 relate to the accelerated recognition of certain deferred debt issuance costs and debt discounts pertaining to Zillow Offers credit facilities and securitization transactions. In addition to the accelerated recognition of deferred balances, our total expected financing-related charges include expected prepayment penalties primarily associated with winding down the term loans supporting our securitization transactions prior to their respective maturity dates.