Projections Thursday that Zillow’s still-young iBuyer program could generate up to $20 billion in annual revenues, up significantly from the $1.3 billion the company generated in 2018, prompted mixed reactions from real estate agents, some of whom are optimistic the program could be a lead generation windfall.
Company executives announced the forecast for Zillow Homes — the year-old department underlying the Zillow Offers iBuyer program — during an earnings call otherwise eclipsed by news of record revenues and the departure of longtime CEO Spencer Rascoff. On Friday and Monday, however, some agents who advertise with Premier Agent, the company’s leading revenue generator, resurrected fears Zillow would one day swallow the industry whole, in part by shifting focus from home search and lead generation to buying and selling.
“The most exciting thing about it is we now have legitimate seller leads,” said Laurie Reader, the founder and CEO of Laurie Finkelstein Reader Real Estate, of referrals she’s received from Zillow Offers. “I’ve been in real estate 22 years and to be honest with you, there really are no lead generation tools outside of what we can lead generate on our own.”
Reader, who’s brokerage in Plantation, Florida, generated $193.2 million in home sales in 2018, argued that Zillow could be in a position to create a windfall of referrals for agents. She told Inman that only a fraction of her company’s revenue stream currently come directly from Premier Agent leads.
Zillow has insisted agents will continue to be at the center of all transactions. Consumers who don’t take the offer will be referred to Premier Agents to list their home in a more traditional route, creating seller leads.
“From my perspective, Zillow is super-focused on creating this outstanding consumer experience, which the consumer now is demanding,” Reader said. “Whether we’re working a Zillow Premier Agent lead or working a sphere or repeat and referral lead, that consumer wants everything operating at a 10.”
Dan Sundberg, the director of People and Culture at Kendrick Realty, said he isn’t concerned about the rise of the iBuyer in general and believes adjusted Zillow Offers forecasts might pan out for Premier Agents. Kendrick Realty spends an astronomical $125,000 per month on lead generation, much of it through Premier Agent, he told Inman in August.
“Zillow holding a lot of inventory may be good for the Premier Agents if they explore serious partnerships with high performing agents who can contribute to moving that inventory,” he said.
The brokerage and agent types that may be insulated from the iBuyer craze exist in those upper echelon markets where price points are high. Hao Dang, an agent with Windermere Real Estate and Premier Agent advertiser told Inman that Zillow’s big focus on Zillow Offers won’t have any impact in his market, because the price point is too high.
Still, other agents fear that the technology giant that the real estate industry has been feeding by providing listings will swallow the industry whole and cut agents out of transactions. Zillow has repeatedly denied it has plans to become a brokerage and re-iterated that it will work with agents on all transactions.
“[Agents] will have built a name for Zillow by directly funding them along the way,” wrote Steven Lambert, the broker-owner of Tri Cities Life in Kennewick, Washington, in a comment to Thursday’s story on Inman.com. “Once Zillow has the footprint it wants, assuming the numbers in this article play out, it will phase out the agents as the business of Premier Agent will no longer make fiscal sense.”
Aaron Layman, the broker/owner of Aaron Layman properties in Texas, echoed Lambert’s thoughts.
“It’s laughable that Zillow continues to pretend it doesn’t want to be in the real estate brokerage business,” Layman wrote in a comment. “When you outsource your lead generation to another company, you work for that company.”
With experience as a professional house flipper, Luke Monroe, the CEO and broker of Kendrick Realty offered a unique perspective on the news, saying that even after generating $350 million annually in revenue through the sale of 1,500 flipped homes, the margins for such a business are extremely tight.
“What I inherited and how I approached new acquisitions for that portfolio are a cautionary tale that anyone excited about the move into home flipping really needs to understand,” said Monroe, Sundberg’s partner. “Our company was run by some very smart people in a much better business climate for flipping, and we still ran into serious problems.”
“For Zillow, Opendoor, Offerpad, Redfin, etc., the buzz I’m primarily hearing is about revenue,” Monroe added. “This is not where people should be focusing though.”
Monroe explained that because homes are expensive, buying and selling homes at higher volume will drive huge revenue numbers, even without deep market penetration. “These other companies like Zillow that are getting into flipping and approaching the business with debt are going to be in for a nasty surprise,” Monroe added.
Zillow Offers isn’t exactly a home flipper, however. The company doesn’t buy homes in disrepair and makes light updates. It’s not about buying low, infusing cash, then selling higher. The iBuyer is about the convenience of a quick, certain close.
But even without repairs, Monroe said target net profit margin on these homes is small – it’s less than the average pest repair quote, half the price of a new heating and cooling system and about the equivalent of 4 months of hold time between property taxes, utilities, grass cuts, etc.