Zillow executive Errol Samuelson announced a major new business initiative for the real estate tech giant in an exclusive video interview with Inman on Thursday: Zillow will finally expand its Zillow Instant Offers program to Phoenix and begin buying and selling homes with its own money there and in Las Vegas, putting it in direct competition with iBuyers like Opendoor and OfferPad — the latter of whom Zillow also partners with on Instant Offers.
Zillow Instant Offers, which launched last year in Orlando and Las Vegas initially, lets prospective homesellers visit the Zillow website to receive an offer on their home from iBuyer investors, including companies such as OfferPad, as well as a professional home valuation and comparative market analysis (CMA) from a licensed real estate agent. The home seller can then choose to take the instant offer from the investor and receive all cash for their home, likely at a reduced rate, or list their home on the open market with an agent and potentially get a higher sale price.
Zillow’s new enterprise — offering to buy homes outright and resell them, using handpicked local real estate agents who are already participating in Zillow’s separate Premier Agent program to represent Zillow in both its purchase of homes and its re-sale of them — will launch within weeks, according to Samuelson, Zillow’s Chief Industry Development Officer. The company projects that it will have somewhere between 300 and 1,000 homes in its inventory by the end of 2018, according to an investor presentation released yesterday.
“Just like before, when a potential homeseller says I’d like to get an investment offer for my home, we will provide an offer and alongside that we will again provide a [comparative market analysis] from one of our Premier Agents,” Samuelson told Inman. “Now, in the event that the homeseller decides they wish to go for the instant offer, we’ll be working with a local agent at a local brokerage in the market to represent us as the buyer of the home and we will also recommend that the seller work with the local agent,” Samuelson added. “In fact, we’ll introduce the seller to one of our Premier Agent customers.”
Samuelson declined to say how many homesellers in Orlando and Las Vegas had used Zillow Instant Offers to request an offer in the 10 months since the program originally launched, but did provide some ratios that are likely to reassure real estate agents: one third of the sellers who requested an Instant Offer went ahead and sold their home, but 90 percent of them chose to list with a human agent rather than taking an instant cash offer from an institutional investor.
Samuelson said these stats highlighted how Instant Offers is a powerful lead-generation tool for agents.
Zillow will partner with West USA in Phoenix and Coldwell Banker Premier Realty in Las Vegas as they roll out the new iBuyer program over the next several weeks. Berkshire Hathaway HomeServices Arizona & Nevada will team with Zillow in both markets, Samuelson said.
“We are not becoming a brokerage,” Samuelson told Inman. “The reason we’ve announced these broker partners of ours is we are working with local brokerages, local agents, and we are sort of sticking to our roots of being a media company a tech company and partnering with brokers and agents to represent us when we’re buying and when we’re selling.”
Zillow spokespeople said that homes re-sold by Zillow itself would be clearly labeled. A Zillow spokesperson also provided the following graphic used to illustrate how Instant Offers and its new program will work:
Zillow employees declined to elaborate on how much money the company will spend buying homes through its new iBuyer platform. Nor did Samuelson specify how much it would pay out in agent commissions for the homes it buys and re-sells. Samuelson said that while Premier Agents would not be charged to participate in the new Instant Offers expansion, homesellers would be charged a fee, though he resisted quoting any numbers.
“The fee, we’re experimenting, so this is early days,” Samuelson said. “We have an idea of what those fees are going to look like, but those could change as we continue to explore and experiment.”
In his interview with Inman, Samuelson repeatedly emphasized that what separated Zillow from other competing iBuyers was its focus on keeping agents at the center of the transaction. However, both Opendoor and OfferPad also say they will work with sellers’ agents. Zillow’s advantage may lie in its Premier Agent program, which last year generated $760 million in advertising.
Opendoor, which has amassed $320 million in funding since launching four years ago, is in the process of raising an additional $200 million that would value the company at $2 billion, according to a report in March. The additional funding, according to a report in The Wall Street Journal last month, would allow the rapidly growing iBuyer to purchase homes in the six metropolitan markets it currently serves — including in Phoenix and Las Vegas.
Armed with $260 million, OfferPad is also active in the Phoenix, Orlando, and Las Vegas metropolitan areas (as well as the metro areas of Dallas Fort-Worth, San Antonio, Atlanta, Charlotte, and Raleigh-Durham).
In a report by the investment banking firm Evercore released last year, analysts forecasted growing enthusiasm on Wall Street for iBuyers, who use new technology to make quick offers on homes and often close within days through reduced friction in the negotiating process.
“We believe that investors should familiarize themselves with this new business model, as these iBuyers are likely to garner increased attention over the next few years,” according to the report, issued in June. “If successful, these iBuyers could improve liquidity in the housing market by reducing friction costs, and drive increased housing turnover (existing home sales).”
Zillow recently has been riding on a wave of positive financial gains, tallying a $10.5 billion market cap in March for the first time since going public in 2011. Following a strong fourth quarter in which the operator of Trulia and StreetEasy posted a record $1 billion in annual revenues, some analysts indicated that in order to grow apace Zillow would need to innovate.
The entry into the housing markets in Phoenix and Las Vegas also coincides with the planned integration this month of the Premier Agent app with Zillow’s transaction management portal, dotloop. Analysts have said that the company could be banking on a lead conversion model that would potentially drive up ROI by accurately measuring agents’ conversion rates.
“In terms of proving out conversion rates — not just getting them, but proving out — it’s all about getting dotloop integrated into the Premier Agent app,” Ron Josey, an internet analyst with JMP Securities, told Inman last month. “Then they can actually say ‘Oh, okay, this is how many leads I got from Zillow and this is how many I actually closed in a month’ and that will help to prove out the value that Zillow is providing to agents.”
Email Jotham Sederstrom