To all the agents in the house,
"Zillow Offers is back on track, which is nice," Zillow CEO Rich Barton said on the company's most recent earnings call this August. Two months later, Zillow Offers, the company's iBuying division, is off track. Zillow suspended iBuying purchases through the rest of 2021, the company announced this week. What happened and how does this affect real estate agents?
First, my brilliant expert analysis. This is a BIG DEAL. Zillow's controversial purchase of ShowingTime, the company facing National Association of Realtors' questions about its listing displays, and REX suing Zillow and NAR are each important.
But the Zillow Offers division is the most important matter to both the company's own future, and if Zillow can really change how people buy and sell homes.
Three years in, Zillow Offers makes up 60% of the company's revenue and expenses (to say nothing of Zillow's debt). Beyond numbers, Zillow Offers is the crux behind "Zillow 360," which, crucially, is Barton's vision of Zillow being with the customer every step of the way in the home transaction.
As to what has now gone awry, Zillow declined to comment beyond its initial press statement, though Barton's remarks on the August earnings call offers clues:
"We're growing this thing as rapidly as we can, and really quickly in an operationally complex way and we're tuning it simultaneously," the CEO said at the time. "So it is a challenge and we've got to focus on increasing automation. We've got to get better and better at pricing. We have to reduce costs all at the same time. So there is an executional constraint or challenge, but I do believe, and I'm confident, we're up for it."
In terms of pricing, real estate industry consultant Mike DelPrete wrote a column that, citing public records from Phoenix, asserts Zillow has (at least in that market) paid higher purchase prices than chief competitors Opendoor and Offerpad. Zillow purchased homes at $65,000 higher than the Phoenix market median price in September, DelPrete reported.
So, one theory is that Zillow, home of the Zestimate, must change how it values homes.
Zillow's press release announcing the purchase suspension also said that the company is at "operational capacity." That suggests an inability to process the now over 1,000 homes a month it is buying. Like perhaps any CEO, Barton would like to increase automation. But it seems like the company, which hired roughly 900 new employees in the first six months of 2021, may not have the personnel plus technology to process purchases, renovate homes, and market them for a profitable resale. The whole raison d'etre of iBuying is that if a company scales up enough it will be profitable. Zillow's purchase suspension demonstrates the practical difficulties of scaling up.
As to how the announcement affects agents, I wonder if Zillow utilizes more of them to resell homes, as either in-house agents or contractors from Zillow's "Premier Agent" list.
And more broadly, the suspension may temper Barton and his colleagues about proposing an entire shake-up of the real estate industry, one that possibly leaves agents in the lurch.
But, agents, let me know your thoughts about this week's big news. I can be emailed at mblake@housingwire.com, and will grant you anonymity in what you send along.
Sincerely,
Matthew Blake
Senior Real Estate Reporter
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