The website that allows you to imagine living in homes you could never afford is out to do to real estate sales what Amazon did to retail.
“Our vision with Zillow Offers and Zillow is a one-stop shop, buy, rent, sell, lending and closing service,” says spokeswoman Jordyn Lee, who says the company is working toward a more streamlined approach to cumbersome real estate transactions.
It’s even partnering with homebuilders to buy their customers’ old homes, with closings scheduled to coincide with completion of the new property. The inability to sell a home is a primary source of new home purchase cancellations, experts say.
“It makes complete sense for an entity like Zillow, that is a dominant force in the housing market with its listing and information service,” says Dr. Vivek Sah of UNLV’s Lied Real Estate Institute. “Expanding into its own brand of residential brokerage will align its services together and provide a one-stop shop to its customer base.”
It also eliminates the awkward process sellers face of showing their home while living in it, and synching the timing of buying and moving to a new property.
A variety of “iBuying” services on the market cater to different niches. Some provide loans to facilitate deposits on new homes before existing home sales have closed. Others allow buyers to design new construction. Zillow is branding itself as the choice for stressed buyers seeking an immediate, hassle-free transaction.
Zillow says it’s not out to undercut sellers, citing a study by ibuying expert Mike DelPrete that indicates its purchase offers are about 3.3 percent less than market value.
That’s not the only seller concession.
“For the convenience of not doing repairs and holding open houses, we do charge a service fee of seven to nine percent,” says Zillow spokesman Viet Shelton, adding the fee is the primary source of revenue and profit from Zillow Offers.
That’s more than a conventional commission of six percent, generally split between agents for the buyer and seller.
In addition to the higher fee, Zillow deducts the costs of repairs the property needs from the amount it pays the seller. Still, DelPrete says, it’s not a moneymaker for the biggest iBuyers, such as Zillow and Opendoor.
Zillow currently owns nine homes for sale in Southern Nevada. Most were purchased in October and listed for sale within a week to two weeks. The Current’s review of public records indicates the properties were listed for an average of 7.1 percent more than Zillow paid to purchase them just days earlier.
Zillow is quick to differentiate its business model from that of home flippers.
“We view flippers as people who buy homes for very cheap making a ton of money, which is not the model of Zillow Offers. We really are making market offers. We put minor repairs into the home,” says Lee. “We do it quickly so we’re not taking inventory off the market. Our goal is to make sure the selling process is seamless and stress free. We have no motivation to lowball sellers.”
“Our sellers are stressed out,” says Lee. “This is a quick way to get an offer and be done with it.”
Sah says he’s doubtful ibuying companies such as Zillow will affect affordability.
“I don’t think it will have much impact on the housing market except providing more competition to current brokerage houses,” he says. “In fact, it may be good for home-sellers as it may bring down the costs of selling homes, as Zillow may be able to subsidize it due to its scale of operations and other services it offers.”
Sah points out that Redfin, another player in the ibuying arena, boasts selling costs that are lower than traditional commissions of five to six percent.
The precursor to Zillow Offers, Instant Offers, launched in 2018 in two test markets — Las Vegas and Orlando.
Las Vegas and Orlando are favorites for iBuyers, says DelPrete, because “they are homogenous. This gives the iBuyer high predictability in terms of a home’s value and resale time.”
Initially, Instant Offers matched prospective sellers with investors.
“What we learned was we were unable to ensure that the consumer experience working with the investor was a good experience,” says spokesman Shelton.
The company put its own skin in the game and expanded to dozens of markets.
“We launched 17 new markets for Zillow Offers and ended Q4 on a $2.4 billion Homes segment revenue run rate – less than two years into this business,” says the company’s Annual Report for 2019.
Zillow Offers purchased 686 homes in 2018, its first year, and sold 177. The next year it bought 6,511 and sold 4,313. So far in 2020, the company has purchased 2,373 properties and sold 4,414. It suspended buying during the second quarter of 2020 because of the pandemic.
Zillow’s transactions represent a tiny fraction of real estate sales today, but analysts suggest within the next three to five years, Zillow could buy “as many as 60,000 homes annually through Zillow Offers, generating as much as $20 billion in yearly revenue,” according to Business Insider.
“Like Amazon (NASDAQ:AMZN), Zillow is looking to control an important part of the home-ownership experience. Given Amazon’s desire to sell consumers everything they need in their homes and lives, I could see Amazon buying Zillow in the future,” Will Ashworth wrote for Yahoo Finance in February.
The prospect troubles Las Vegas real estate broker Mark Sivek, who says he fears Zillow will do to real estate agents “what Travelocity did to travel agents.”
“They are diabolical in their evil genius,” says Sivek, who is vice-president of Las Vegas Realtors but spoke in his individual capacity. “They say they’re just marketing. An agent who is paying to advertise on Zillow is feeding the monster that’s going to eat it.”
“They say they’re a lead generator. That’s ridiculous. We’re buying our own leads back. That’s our data,” says Sivek of the Multiple Listing Service information provided to Zillow.
The president of Las Vegas Realtors, Tom Blanchard, declined to comment on Sivek’s concerns.
Zillow Offers, which is not licensed to sell real estate, currently partners with a real estate brokerage in each market, but not for long. It’s shifting to an in-house model, says Shelton.
Zillow says it’s not out to replace real estate agents, which contribute the bulk of the company’s revenue through paid advertising.
“When Zillow started we really were and still are a media company,” says Lee. “Local agents advertise their business on Zillow. That’s how we make money. They get buyer and seller leads from us. Zillow is a huge part of their business.”
Revenue from Zillow’s Premier Agent advertising program was $466.5 million in 2015. Last year it increased to $923.9 million.
Shelton says many homebuyers are “kicking the tires” when they seek a cash offer from Zillow, with most deciding to pursue a traditional sale.
“We very much see the future as still involving partnerships with agents around the country,” he said.
“What real estate agents are doing today is different,” Shelton says. “But time and time again consumers say ‘I want a trusted advisor in my corner.’ We don’t see that going away. What we’re doing is looking at ways technology can streamline it. It’s less about shepherding paperwork and more about advising my clients and making them feel knowledgeable about the process.”
But Sivek says he fears the day when lockboxes can be accessed without an agent, perhaps via a credit card.
Sivek says he’s also concerned about the collusion among agents, appraisers and mortgage brokers that permeated the market before the housing bubble burst in 2007.
“If Zillow owns the mortgage company, they’ll send out their appraiser,” he says.
“It’s concerning in the sense that there isn’t an independent third party involved in the transaction, which may not be looking out for the consumer,” says DelPrete.
“Real estate is a cash cow,” says Sivek. “There’s lots of money to be made and these people have their eyes on it.”
Nevada Association of Realtors president Chris Bishop says the relationship between an agent and a customer can’t be replaced by an on-line service.
He says the company is unlikely to alienate agents “given they’ve made billions of dollars” from them.
“There are people who need someone to buy their homes today,” says Bishop of Zillow’s cash offers. “The access to information and the nuances agents provide remain essential or they (Zillow) would have taken us over five years ago.”