Zillow Offers is the latest arm of the wildly popular real estate brand Zillow.com. Zillow Offers is the latest attempt by Zillow.com to monetize their traffic as leaders of real estate web traffic.  Currently Zillow.com is estimated to have 36,000,000 visitors per month which is about 3x the traffic of their next competitor!  Their website is free for the general public and other than advertising, they have few ways to generate significant income from most of the public.  This is where Zillow Offers comes in. 

Most of the public has been trained for years to think of Zillow when thinking about their real estate. They are really just an online real estate information database company that created Zestimate, a home valuation estimates of over 100 million homes based on publicly available and user-submitted data. For more information on Zestimate read: Zillow Zestimate Accuracy & Usefulness.

So what is Zillow Offers exactly?

The way they pitch Zillow Offers service to homeowners is this:

So you’re thinking of selling your home? That’s great news! Maybe you’ve outgrown your living accommodations because your family is growing. Maybe you’re downsizing now that the nest is empty. Perhaps you’re simply looking for a change. Whatever your reason, if you’re considering putting your home on the market, you would typically follow a process similar to this:

• Find an amazing real estate agent.
• Determine how much your home is worth.
• Make your home worthy of showing.
• Show your home to prospective buyers.
• Receive a purchase offer and negotiate favorable terms.
• Close the deal.

That’s more or less the process that homeowners have followed since the golden age of real estate began. It’s messy, time consuming, and inefficient. But it gets the job done. Why? Because that’s just the way it’s always been done. Well not anymore! Click a few buttons and we will buy your house in minutes, no repairs needed, for cash!

Does this pitch sound familiar?  That’s because it’s how investors and wholesalers have been buying distressed properties directly from sellers for decades.  Zillow is looking to institutionalize this direct from seller buying process.   They are buying real estate at a significant discount directly from sellers and then selling for a profit. 

Where is Zillow Offers Available?

Zillow Offers launched in 2018 and currently (as of Jan 2020) serves 22 markets across the USA, with 4 more expected by mid-2020.

How Does Zillow Offers Work Exactly for Sellers?

Homeowners in one of these Zillow Offers markets may see an option to receive an offer for their home while on the Zillow site. All they need to do is click that link and answer a few questions about the state of their home to begin the process. These are basic questions about the age of the home, square footage, and any upgrades or updates. Zillow encourages the homeowner to upload pictures to accompany the questionnaire responses. This step is very quick and should not take more than 3 minutes.

From the time that they click submit, Zillow advises that a preliminary offer will be sent within 48 business hours. After that, the homeowner has 3 days to accept it. Upon acceptance they will be contacted by a dedicated Zillow Offers Advisor. This advisor is their single point of contact for the remainder of the process and will be able to answer any questions they have regarding the Zillow Offer sale. Although a real estate agent is not required for this, some homeowners may prefer to have an agent work with the advisor on their behalf.

Ironically, the offer from Zillow Offers is unlikely to match the Zestimate for the home. This proves that, even in the eyes of Zillow, the home valuation really is just a starting point and not a real-world appraisal of the home’s value.

As previously mentioned, the initial offer that the homeowner receives after their submission is strictly a preliminary offer. If they accept that and begin the process, the Zillow Offers Advisor will arrange for a detailed home inspection and appraisal. The homeowner will then receive a final offer based on the outcome of this appraisal. Depending on how close the home is to being market-ready, their final offer may be significantly less than the initial Zillow offer. This takes into account any improvements or fixes that Zillow feels will be required to bring the property to selling condition. 

It’s worth noting, Zillow’s final offer is not just wordplay. This is a take-it-or-leave-it offer and there is no negotiating for a better one.  

How is Zillow Going to Make Money from Zillow Offers?

Zillow Offers might be touted as a great, new, easy way to sell a home with less hassle, but make no mistake about it;. They are in the business of making money, at least generating revenue. Zillow made over 40% of their revenue from buying and selling homes according to their most recent financial reports.

How are they doing this? They are buying thousands of properties, investing in minor repairs, and selling them for a profit. Despite their claim that they are not in the business of flipping homes, the fact remains – Zillow Offers are substantially lower than the market value of the home, and they look to sell their newly acquired home within 90 days.

Zillow also brings in a considerable revenue from the fees they charge homeowners for the convenience of a quick sale.

How much of a fee? According to Zillow that convenience fee can be 10-15% of the home’s value, or higher, depending on the home, market conditions and other factors.  Zillow charges homeowner the same as a traditional sale for what they call “Selling Costs” and describe it as this: This covers the transaction costs of buying your home, and the prep cost of listing and selling your home after you move out. This includes the buyer’s agent commission. On top of this cost they charge a 1-2% “Closing Cost” which is described as “This is an estimated cost that includes title, escrow, and transfer tax, typical in a traditional sale.” Then finally there is a 1-3.7% “Zillow Service Charge” which they say is “Our fee covers the cost of home ownership before resale including taxes, maintenance, and utilities, as well as the potential risks associated with the sale.“

The lumping on of these closing costs are the one place traditional wholesalers and investors can beat Zillow Offers on easily. Most negotiations with sellers to buy a property at a deep discount include no closing costs. Investors and wholesalers typically pay all closing costs as incentive for a deep discount on the property. No investors would charge anything like a “Service Charge” or get away with it unless the seller was extremely distressed. It just doesn’t work that way.

Zillow Offers Results to Date

Despite providing for close to half of Zillow’s overall revenue, Zillow Offers is still far from profitable for the company. The huge overhead of purchasing homes that do not immediately sell places a strain on the balance sheet. In Q3 Zillow purchased 2291 homes, while only selling 1211 of them. 

Zillow’s push into the iBuyer market hasn’t gone unnoticed by its industry rivals. Market leader, Opendoor, purchased almost 10,000 homes last year between January – July. Compared to Zillow, Opendoor purchased 4.7 times the number of homes that Zillow did in the month of January. As Zillow accelerated its entry into new local markets this lead fell to 2.4 times. With the current plans for expansion not stopping any time soon it looks as though Zillow will close the gap even more in 2020.

Final Thoughts on Zillow Offers

Zillow is leading the charge of becoming the largest iBuyer in the market.  They are capitalizing on brand recognition to accelerate the buying of properties at discount prices. People have grown to love the brand and when they are looking to sell fast they are turning to their favorite real estate brand to save the day. Zillow is more than happy to gobble up your heavily discounted real estate as fast as possible.   In the markets they are operating in mom & pop investors know there’s a new 800 lb Gorilla in the room when making offers. Zillow Offers is in it’s infancy stage and should not be dismissed.