Zillow Is Buying Homes

Real Estate

https://www.msn.com/en-us/money/companies/zillow-is-losing-millions-on-selling-homes-but-its-ceo-isnt-worried/ar-BB10eAgA?li=BBnbfcL

Click on the article for details. Mary and I had some offers on our listings in Orlando and it turned out great for our sellers! Orlando is a different market than here in Ocala as the IBuyers have confidence in their offers. However, we are seeing more and more IBuying purchases here locally. They obviously have deep pockets and can withstand some years of losses. Enjoy!

 

Zillow has long been known as the place to go when you're looking to buy a new home. It's famous for its Zestimate, which uses proprietary algorithms to estimate the current price of your house (or your neighbor's, if you're feeling nosy).

But Zillow decided to shake things up.

In April 2018, the company announced it was launching Zillow Offers and would purchase homes directly from sellers, doing any necessary repairs before turning around to resell the house itself.

The model, known as instant buying, or "iBuying," marked a major overhaul for Zillow's core business. Up until then, the company had operated in a purely digital realm, removed from the headaches of owning or renovating actual brick-and-mortar properties.


At the company, the dramatic shift is known as "Zillow 2.0," and CEO Rich Barton has laid out a bold vision, painting this moment as a "new frontier in real estate." He wants Zillow's service to eventually transform the industry so that selling a home is as easy as trading in a car. But first, he warns, the company and its shareholders have to be patient.

There's a steep learning curve, and so far, the company is losing millions every month on the new initiative. But Barton believes the big bet will pay off. 

Why Zillow is shifting course
Today, more agents use Facebook and LinkedIn to market homes than yard signs and open houses, and the market for online real estate ads is valued at $19.9 billion, according to Borrell Associates, a research group that compiles an annual outlook on the industry.

Zillow already captures a good chunk of that market; it brought in $1.3 billion in revenue from online advertising in 2019. Co-founded by Barton in 2005, the company scooped up competing real estate sites like Trulia and StreetEasy over the years. With nearly 200 million monthly users across its sites, according to the company, Zillow now operates one of the most trafficked online real estate platforms in the country.

So why put all that at risk?

In a way, the company was boxed into the decision by smaller, newer competitors: OpenDoor launched in 2014 with iBuying as its core offering, followed by OfferPad in 2015. RedFin, meanwhile, had started experimenting with iBuying in 2017.

Related: See the 20 Risk Takers pushing global business forward

"iBuying was an existential threat to the business," said Mike DelPrete, a real estate tech strategist and scholar-in-residence at the University of Colorado Boulder. "Zillow's whole position is based on being the first place consumers go when they're buying or selling a home. They need to take the oxygen out of the room for anyone else and own the space as fast as they can."

As iBuying gained traction on other sites, DelPrete said Zillow ran the risk of losing its competitive edge. But even though many experts feel it was a natural expansion for the company, it still came with a fair amount of risk, particularly because the margins are razor thin.

Selling digital ads next to real estate listings is one thing. But selling homes is a whole different ball game.

"It's pretty unusual to have this kind of business model change for a public company — it's such a risky move," said Mark Mahaney, lead internet analyst at RBC Capital Markets. "It probably helped that Rich was the one coming in to help do it. He has an enormous amount of credibility."

For Barton, that credibility comes from an entrepreneurial success streak. Not only did he rapidly scale up Zillow during his first stint as CEO, but he also founded Expedia and co-founded Glassdoor. He's not afraid of taking big swings.

"I'm very comfortable with risk that is tempered," he said in an interview with CNN Business' Rachel Crane. "I kind of think of it as courage."

Barton had stepped away from Zillow's top job in 2010 and moved into the role of executive chairman. But in February 2019, Zillow brought him back as CEO when the company decided to double down on its iBuying strategy. Zillow's stock shot up on the news, after trading lower for much of the year before.

"Rich has a strong track record in the 'disruptive' space," said DelPrete. "Before he came back as CEO, Zillow was in a bit of a rut with investors. It makes sense to have a changing of the guard if the business is going to pivot."

One-click magic
Before launching Zillow Offers, the company generated most of its revenue through its Premier Agent business, which sold ads and leads to real estate agents around the country. That segment of the business had started to slow, giving the company another incentive to find new revenue streams, according to experts.

Barton likened the homebuying process to a large grocery store. Before Zillow launched, the lights were off and people were shopping in the dark. Zillow's arrival in 2006 was the equivalent of turning the lights on and providing more information and transparency while customers shopped.

"But you get to the checkout line and it's still 1950's technology," he said. "There's a long line, there is chaos in the line, there's a person who's scanning things one at a time."

To Barton, Zillow Offers is an attempt to create an "express lane ... to make it just one click and have magic happen."

In the year since Barton returned as CEO, Zillow Offers has been working hard to make that magic possible. It's expanded from seven markets to 23 in the last year.

How it works: Homeowners come to Zillow to check their Zestimate; if they're in a price range and location where Zillow sees an opportunity to buy, they can click a button and fill out a few basic facts about the home (photos are optional but not required). Within 48 hours, Zillow gives an initial offer, which is a "combination of human and machine," according to Emily Heffter, Zillow's director of corporate communications. She said Zillow makes an initial calculation with the data it has on hand and uses broker partners in the city to make sure it's an appropriate offer.

If the homeowner likes this offer, Zillow sends an employee (not a licensed inspector) to look at the house in person. Then, Zillow makes an adjusted offer, which takes into account any repairs the house needs. If homeowners accept the offer, they can choose a closing date between five and 60 days in the future. Heffter said the entire offer process doesn't take more than a week.

Barton stressed that Zillow's goal is to provide a fair price that gives sellers a "get-out-of-jail-free card," allowing them to move on to their next venture without being "stuck" in their current home, waiting for it to sell.

In November, Zillow published a study that looked at 3,200 homes where the seller had declined a Zillow Offer and went on to sell their home the traditional way. The final sale price was an average of just 0.22% more than the initial Zillow Offer, something the company uses to underscore Barton's point: their offers are market rate.

This is also why Barton takes issue with the word "flipping" when referring to Zillo