While the real estate industry was haggling over its trade association’s logo, the biggest dog in the real estate space, Zillow, was prepping an announcement to not only get deeper into the transaction but to become the transaction.
It’s good news for consumer innovation, but it will make the industry dizzy as it tries to sort out its future in a rapidly changing landscape.
Zillow announced Thursday that it would begin buying homes as an iBuyer like Opendoor and OfferPad starting in Phoenix and Las Vegas. And it promises to use real estate agents on its deals. The company is jumping head-first into the fast-and-furious home sale business in which homesellers can choose to unload their homes quickly and with certainty — and sidestep the process of a long, drawn-out homeselling process. The jury is out on whether sellers will realize less value in the sale.
The announcement is a big deal. For one, it marks a pivot for Zillow from being a marketplace for other iBuyers to competing alongside them.
Most importantly, the Seattle-based juggernaut will begin to invest much deeper into the transaction itself. It stuck its toe in this pond when it purchased transaction management platform dotloop, a controversial move a few years ago. Its announcement to launch Instant Offers, a test program creating a marketplace for other iBuyers, was another move along the way of more fully participating in real estate rather than just operating as an advertising platform.
But now as an actual buyer and seller of properties, Zillow is breaking ranks with its advertising tradition.
In a 2015 earnings call, Spencer Rascoff insisted, “We sell ads, not houses. So we’re not actually in the transaction, we’re in the media business.”
How serious is this initiative?
In an investor call yesterday, Zillow CFO Kathleen Philips described the size of the addressable market of Zillow buying and selling homes as $1.8 trillion versus the real estate advertising market of $17 billion. The company will separate the two businesses in its financial reporting, another indicator of its strategic importance. Phillips also said the company will use funds from its balance sheet to capitalize home purchases, but go to the debt markets later on, like Opendoor and Offerpad have done.
That is Wall Street, what about Main Street?
We can expect Zillow to begin innovating around the iBuyer movement, which promises a slew of new innovations like virtual showings, automated appraisals, digital loans and instant offers. Quicker, faster and more certain home sales are on the horizon.
Opendoor and OfferPad have led the way on this revolutionary path, but Zillow is now fully engaged, and we know the Seattle-based portal plays to win.
More competition could speed up how homes are sold in the future with digital transactions becoming a reality. This may also be a step toward a bifurcated real estate services market, digital sales versus more traditional high-touch transactions.
The move is another example of tech innovators moving further ahead of legacy real estate companies on the innovation front. Instead, agents and brokers are left servicing clients, which isn’t bad news, because that is what they do best.
And of course, Zillow cannot walk away from its ad business. With $1 billion in revenue, are you kidding? But it has come up with another way of delivering both consumer and agent value, a tightrope it’s walked masterfully for more than a decade.
Oh, and FYI: I suspect it is not in the cards for Zillow to become a broker. Being a broker is a tricky enterprise and not very profitable for many.
Zillow follows the money.