Zillow (Z), the online real estate database that serves as a major tool for both buyers and real estate agents, has been spending a lot of its time buying, fixing up, and re-selling homes around the country. The public company revealed in its earnings report for the second quarter that it earned as much as 41.5% of its quarterly revenue off of home flipping alone. This means that the company is looking to create a major shift in the real estate market by becoming a real-estate powerhouse. Essentially, Zillow aims to become a one-stop shop for homeowners to search for a new home, sell their old one, and acquire financing for a new home all through the company.
Zillow Offers Changes Real Estate Industry In 15 Markets
The online real estate database that lets you find out just how much your best friend’s house is worth announced in 2018 that it was going into the house flipping business. ‘Zillow Offers,’ the online platform that allows homeowners to sell their properties to the online company, offers a slightly higher fee but pays with cash, rather than a lower agent fee paid through a bank. That, combined with the fact that Zillow offers flexible moving dates, incentivizes home owners to sell their properties to the company instead of to another buyer through an agent. Right now, average real estate agent fees are around 2.5%-3% to both the selling and listing agent, meaning that the 7.5% Zillow fee is only slightly higher than the combined agent fee in the eyes of the homeowner.
How It Works
Zillow launched Zillow Offers in 2018 with the aim to experiment with house flipping in the Las Vegas and Phoenix real estate markets. Now, the service is available in 15 markets across the country with hopes to expand to 26 markets in the near future. The ease of access that allows homeowners to request that Zillow buy their home means that moving can be easier. However, the reality is that Zillow is not prepared to buy every home that it’s offered. The company revealed that around 69,000 homeowners submitted requests for Zillow to purchase their home during the second quarter of 2019. The amount of homes that the company purchased was only around 1,500. Meanwhile, the company only sold about 800 of those 1,500 homes. This amounts to around $238 million in revenue, which is not profitable for the company—yet.
Zillow hopes that by expanding its Zillow Offers service, it can soon make a profit on its house flipping business. The company does this by buying homes straight from the homeowners. It then starts fixing them up before selling them again within a matter of months. The house flipping business is risky. But because Zillow is already an established business with virtually nothing to lose on a profit loss in individual properties, it makes it a desirable investment opportunity.
The company also has one other thing on its side: technology. Zillow revealed that it plans to implement new features in its app . This will make the home buying process much easier from start to finish. Users will be able to tour a home in real life without having to contact an agent. Empty homes owned by Zillow will have cameras that help the company unlock the home for a potential buyer. The cameras can also determine when the potential buyer leaves, assuring that the home is kept safe.
Zillow Offers is only available in about 15 real estate markets right now. But the company hopes to expand that in the future.