Breaking down Zillow’s unlisted video and their shift with bringing on their own agents
Zillow released a video to define the changes coming. To give an audience an overview, Zillow has made their money historically from licensed real estate agents paying them for each lead on their platform. They refer to this as their “Premier Agent” program. Last reported by Zillow on their investor's panel, “Our Premier Agent business is solid, and we have started 2020 with some of the best retention rates we’ve seen in recent history.”
Let’s review Zillow’s financial highlights from 2019:
- 68% of Zillow’s revenue came from Premier Agents in 2018. This number shifted down to 34% with their shift into homebuying (Homes segment).
- Their adjusted EBIDTA generated +304K from their IMT Segment (which is primarily their Premier Agent program) with a net loss of -265K from other segments.
- Their IMT segment generated 24% in adjusted EBIDTA with overall gains at 1% in total.
Let’s break down this video
We value your partnership and it’s important that we keep you updated, as we learn, evolve, and innovate to deliver a great customer experience…We want to do so with locking arms with like-minded partners, such as you.
This video is intended for the premier agent program customers.
Beginning in 2021, in Phoenix, Atlanta, and Tucson, we’re evolving our Zillow Offers services to guide our customers through the entire transaction from start to finish with Zillow employees…Zillow employees will work for Zillow Homes, a brokerage entity focused on Zillow Offers transactions. That means customers who buy or sell through Zillow Offers in those markets will work directly with licensed Zillow Home employees throughout the real estate transaction using new technology and systems to manage each step of the journey.
Zillow is removing the need for partner agents to handle the “Zillow Offers” service.
Over the past two years, our employees have been working with in-field agents. And while that worked fine at times, many customers found the handoffs and the back-and-forth between the Zillow employees and agents to be confusing.
As a Zillow premier agent, this is true given that most customers either believe that you are the 1) Listing agent for the property or 2) a Representative of Zillow in the transaction. Most conversations begin with “I’m a buyers agent, here to represent you through the transaction…” They are expecting a Zillow Home agent here anyways not a <Insert Your Brokerage Here> agent.
Our current Zillow Offer broker partners will continue to assist with some in-market activities, and they’ll also be standing ready to serve those customers who get an offer from Zillow offers but ultimately decide the traditional process is better for them.
This appears to be a short-term hack to keep the “Premier Agent” business kicking. This begs to ask the question, “How easy is it to have the Zillow Offers consultant also handle the traditional transaction. They can be 1099, after-all.”
All Zillow-owned homes will be listed in the MLS's, with commissions paid to agents representing buyers. We’ll also continue to expand our Premier Agent business and partnerships, including connecting other interested buyers and sellers to Zillow Premier Agents, which we think will be the preference of the majority of customers.
The buyer-side commission is staying, for-now. Additionally, “we think” serves as an early indication to further experimentation. It is my best guess that consumers will prefer Zillow Home agents vs. traditional brokers. P.S. Zillow controls online market share — they also own Trulia.
How is the Zillow Offers program performing?
Zillow is reporting a net loss of -7K per home, down from -3K per home in 2019. Their number of homes sold per quarter grew YoY from 786 to 1437.
In mid-2019, it was reported that Zillow was receiving a request for an offer every 2 minutes. At-the-low-end assuming this number stayed consistent (along with average price per home purchased), consumers are accepting between 0.3% to 0.9% of offers. Zillow has continued to get more competitive with their offers as its total revenue per home has decreased.
How does this change the future of real estate?
From both a consumer perspective and a premier agent perspective, consumers prefer consistency. Working with 1 person, or with 1 technology throughout the process of their transaction. This is paramount to building trust. A consumer that searched on Zillow does not want to be told to now search on <Insert Other Brokerage here> website. There are two-macro shifts that will happen as Zillow builds out their model:
- Zillow Home will continue to take more of the process away from traditional agents. These mini-steps are to preserve the large chunk of their business while Zillow determines the best way to take over the process as a whole — Ultimately, it is the best way to preserve user experience
- Zillow Offers will continue to get more competitive. In the meantime, Zillow needs incoming revenue from the Premier Agent program however, as they reach economies of scale (and master ancillary revenues), they will no longer need that program as a whole. They will also begin competing directly with larger brokerages. These brokerages will have to change their stance in order to keep their customer growth or go out of business slowly.
Take a look at what happened to REMAX. Redfin has overtaken its overall search share across the United States. Newer models optimized to preserve homeowner equity and provide great levels of convenience will continue to prevail.