It’s been a year since Zillow’s ambitious undertaking to buy and sell homes to consumers with quick-close, all-cash offers under the “iBuying” model.
Today marks exactly one year since Zillow launched Zillow Offers, its ambitious program to buy homes directly from consumers in the United States for all-cash over the internet, and then re-list them for sale on its namesake website.
Since then, Zillow leaders have publicly stated that they anticipate rapid and explosive growth for the nascent business, one among many rivals in a growing category of real estate companies known as “iBuyers.” But Zillow is a real estate tech giant built on a largely different business (online advertising), and as a public company, it has had investors and prominent financial voices scrutinizing its moves and questioning, even doubting, its move to spend money to acquire relatively expensive and potentially risky assets in the form as property.
So with one year already elapsed, it’s worth asking: how is Zillow Offers doing so far?
Zillow first launched the platform under the moniker “Instant Offers” in a surprise announcement on April 12, 2018, and throughout the remainder of that year, it purchased 686 homes and sold 177 of them.
“I think it’s scaled far ahead of my expectations,” Mike DelPrete, a real estate tech advisor and strategist known for his focus on iBuyers told Inman. “Zillow is demonstrating a degree of seriousness and a speed of execution of a much smaller company – full credit to them for that.”
Zillow Offers has already grown to eight markets since it first launched in Phoenix, Arizona — expanding to Las Vegas, Atlanta, Denver, Charlotte, Raleigh, Houston and Riverside — and it plans to be in 14 by the fall of this year.
“We are very excited about the rate at which we’ve been able to grow this business,” Errol Samuelson, Zillow’s chief industry development officer told Inman.
Samuelson said the first year of Zillow Offers and the overwhelming interest – in Zillow’s fourth-quarter results it reported it received a request for an offer every five minutes – has shown this isn’t a niche product for someone relocating or an estate sale.
“There are a lot of people who really value the whole convenience and certainty aspect of this,” Samuelson said. “They’re used to that same kind of convenience in the rest of their lives, why can’t real estate be as simple?”
Zillow Offers is a capital-intensive business and a far different business model than what Zillow, a software and tech company is used to, according to Samuelson. Zillow has two $500 million credit lines to purchase homes – of which it’s drawn on $116.7 million, as of December 31, 2018.
“You have to be operationally efficient because this is not a high margin software business,” Samuelson said. “This is a business where you have people on ladders, people with paint brushes. This is very different from running a software business.”
The platform launched with a number of misconceptions, which Samuelson said the industry and business world at large are finally starting to understand.
There was the idea with Zillow Offers was a home-flipping business, which simply isn’t true, Samuelson said.
But there is also the misconception that Zillow Offers was coming into the market to displace the real estate agent. Samuelson thinks Zillow has proven that isn’t the case, in its first year of operations.
“Some of the other iBuying companies were looking for a model where they can reduce the involvement of the agents from day one we’ve made sure we have agents who represent us on the buy side and the sell side,” Samuelson said.
Zillow works with a local brokerage to represent it on both sides of the transaction and has in the past said it pays a market rate commission – which it works out individually with each brokerage – but has declined to reveal the average commission percentage to Inman.
Even with the company’s pilot “Tour it Now” platform, where consumers can get a code sent to their home and tour Zillow-owned houses, Samuelson said Zillow is just trying to streamline the buying and selling process and reduce friction for both the agents and consumers. It’s a strategy he believes will ultimately lead to more transactions in the industry as a whole.
Zillow sees an average of 180 million consumers coming to its websites and apps a month — some of which are just real estate junkies and dreamers, he said.
And yet there were only 5.23 million existing home sales in 2018, according to the National Association of Realtors, the industry’s largest trade group and the trademark holder of the term “Realtor,” itself.
“If you could reduce the friction and streamline the process and make it more certain, couldn’t you potentially see more transactions?” Samuelson asked. “Is that why you see this gap between the lookers and the transactors?”
In fact, in the fourth quarter, 45 percent of individuals that requested an offer on their home and opted not to sell to Zillow, still ended up selling their home. He sees the platform as a great way to introduce sellers to agents.
Zillow takes the seller leads generated from those individuals not interested in selling directly to Zillow, and gives them to local brokerages that pay to advertise through its Premier Agent platform. Those agents pay Zillow an undisclosed percentage of their commission as a referral fee upon closing the sale.
Zillow Offers charges consumers a fee – that averaged 7 percent in the fourth-quarter of 2018 – and shows sellers up front what the offer is and what they’re net will be if they opt to sell. The industry standard commission is three percent on both sides of the deal – which are both typically covered by the seller.
Samuelson declined to make any forward-looking statements since Zillow is a publicly traded company, but speaking to the industry at large, he thinks through innovations like Zillow Offers, the transaction will improve significantly in the next five years.
“There have been improvements but a lot has not changed [in the past five years],” Samuelson said. “As we sit here now, we’re going to see a lot of improvements in the next five years.”
Zillow, despite being one of the titans of the industry, isn’t alone in the space. The company will have competition from well-funded iBuyers like Opendoor, Offerpad and Knock, as well as offerings from real estate brokerages and franchises.
When Zillow Offers first launched, Offerpad had been a partner of the real estate tech giant, with Zillow connecting consumers to Offerpad through a platform known as “Zillow Instant Offers.” Offerpad swiftly ended that relationship after the launch of Zillow Offers and Zillow eventually shuttered the program.
DelPrete told Inman that Zillow’s presence is actually growing the market share for all iBuyers, in each market it’s entered.
“Having just toured a bunch of Opendoor homes in Denver, I can say that that’s where the future battle will be fought,” DelPrete told Inman. “Laying carpet, fixing foundations, painting exteriors – fixing up dozens of houses in a matter of days simultaneously – that’s hard work.”
Ultimately, however, DelPrete thinks Zillow’s biggest competition will be itself and keeping up with its own rapid growth.