Zillow is anticipating a major shift in its operations and the U.S. real estate industry writ-large.
Zillow executives said during the company’s fourth-quarter earnings call on Thursday that they expect its Zillow Offers direct-to-consumer, online homebuying and re-selling program to become a revenue giant within five years, dwarfing its current top revenue stream, Premier Agent, its online paid advertising program for real estate agents.
In the next three to five years, Zillow plans to purchase an average of 5,000 homes per month for all cash from people around the country, and the company’s Homes division that oversees Zillow Offers will bring in expected annualized revenue of about $20 billion. Through its acquisition of Mortgage Lenders of America, the company expects to originate more than 3,000 home loans per month.
That would be an astronomical sum for a company that just reported record annual revenue of $1.3 billion for 2018.
Meanwhile, Zillow’s Internet, Media and Technology division — which includes Premier Agent — is expected to bring in roughly $2 billion annually over the same period, according to Zillow, which will nearly double that revenue stream.
In the fourth quarter of 2018, Zillow’s Homes segment accounted for $41.3 million in revenue, far below the $221 million Premier Agent brought in.
“It’s not magical – it’s going to take a lot of time, it’s going to take a lot of investment that I hope you’ll want to take with me,” Zillow Group’s newly re-appointed CEO and co-founder Rich Barton, said on his company’s earnings call. “There’s all this pent-up demand.”
“When we first got started with Zillow Offers we were inundated with consumer demand,” Barton added. “We have found one really interesting path through this chasm of despair. Another path is fully ‘uberizing’ and automating the guided path. We know a lot of people won’t do Zillow Offers, but we still want everybody to get to that better place.”
Zillow Offers is currently live in seven markets across the U.S., and a spokesperson for the company told Inman it receives a Zillow Offer request every five minutes, an estimated $100 million in demand value per day. Currently, the company converts 3 to 4 percent of the offers it makes, according to Barton.
The platform first launched in Phoenix in April and has since expanded to Las Vegas, Atlanta, Denver, Charlotte, Raleigh and Houston. It additionally plans to launch in Riverside, Dallas, Miami, Minneapolis, Nashville, Orlando and Portland this year. Zillow Offers competes directly with other similar online homebuying programs from rival companies such as Opendoor, Redfin Now, Offerpad and Knock. Together, these programs are also known as “iBuyers.”
Zillow purchased 499 homes and sold 141 in the fourth quarter. As of December 31, 2018, Zillow held 509 homes in inventory or $162.8 million in value.
Since launching the platform, Zillow has purchased a total of 686 homes and sold 177 homes, meaning the company sold nearly five times the amount of homes in the fourth quarter that it did in the second and third.
As Zillow’s Homes segment grows, so does its operating cost. The segment’s adjusted earnings before interest, tax, depreciation and amortization, was reported at a loss of $20 million in the fourth quarter, likely due to the increased number of homes the company is purchasing.
Executives from the company told investors that they should expect fluctuation in the numbers of homes bought and sold, and turnaround time, as the program continues to grow.
“We are in the middle of a critical transformation that is reshaping our company and redefining the rules of real estate as we know them,” Barton said.
Through the platform, a seller in one of Zillow Offers’ markets requests an all-cash offer on their property from Zillow through its website. If the seller accepts Zillow’s all-cash offer, the company directly buys the home from the seller, prepares it for showings with some light sprucing up and then quickly re-lists it for sale. The company works with local real estate agents on both ends of every transaction.
On the earnings call, an investor asked Zillow executives if it was unreasonable to assume that one day every home seller would go to Zillow first.
“No we don’t think that’s crazy,” Jeremy Wacksman, the president of Zillow Group responded. “The Zestimate is that place where every seller is already starting and now right next to that customer is to get an offer button. Now they have three options with that as well as an agent.”
“Every seller is scared to get started,” Wacksman added, “And they’re starting here and they want to know how to sell and that’s what makes these two businesses work so well together. Regardless of if we buy their house via Offers or if we help them with a great Premier Agent, we’re helping them sell.”
Barton said that, as prices come down, he sees more and more people opting to take convenience over the alternative.
Zillow Offers and Premier Agent work together, with leads from homeowners not interested in Zillow’s offer subsequently sent to agents that advertise through the Premier Agent platform.
“Premier Agent is as important to us as ever,” Barton said, in an email to Inman founder Brad Inman.
“First, they are the backbone of our business,” Barton added. “Second, we know that while Zillow Offers is going to be interesting to lots of consumers, it won’t be to everyone. Those consumers will need fantastic agents who are partners, not just advertisers.”
Premier Agent has become a polarizing platform for Zillow. The company made big changes to Premier Agent in April, dropping unvetted email leads from the platform in favor of connecting agents to leads that were first verified by the company via a phone call.
Redfin CEO Glenn Kelman, on his company’s fourth-quarter earnings call, admitted that most of its all-cash iBuyer offers are rejected. Redfin has also continued to expand its iBuyer, Redfin Now.
Additional reporting contributed by Inman Deputy Editor Andrea V. Brambila.