How Does Zillow Make Money? Successful Zillow Business Model

Are you in the real estate business? Then listing your property in Zillow can be beneficial for you. Being an online real estate marketplace, it offers different services to home buyers, sellers,  renters, real estate agents, property managers, mortgage professionals etc.

Generally, their services include advertising tools and other features for real estate agents and professionals to own, sell, rent or loan a property. It has only become possible because Zillow comprises about 110 million properties in the US. Further, Zillow works as a Zillow Group subsidiary, whose portfolio owns ten other large brands like, StreetEasy, Trulia, HotPads etc.

Meanwhile, it’s free to use Zillow’s mobile app, online tools and list properties here. But still, it has reported a revenue of $789 million in 2020 Q4. Additionally, it also created a record visit of 36 million monthly on this website in the same year.

So, if the tools or features are free of charge, how does Zillow make money? Launched in 2006 by Rich Barton and Lloyd Frink, Zillow develops its business model to earn profitable revenue. Along with Zillow Offers, it makes money through Premier Agent Program, selling ads and the loan’s interests.

Go through the article to know more about How Does Zillow Make Money?

History of Zillow?

The history of Zillow is quite impressive. Rich Barton and Llyod Frink, two former Microsoft executives and founders of Expedia, got the inspiration to establish Zillow Group, Inc in 2005.

At that time, they were actually frustrated while looking for a house in Seattle. They noticed the public housing data was hard to find in different archives and databases. Moreover, realtors were asking for different prices for the same property to earn a profit.

In order to save others from such troubles, Barton and Frink planned to set up an organized database. Their main focus was to put all real estate properties’ information in one place to find them easily. With this in mind, they hired Stan Humphries as a Chief Economist. He and his team put efforts into collecting housing data from various sources, digitizing them and publishing them on Zillow’s official website.

Meanwhile, Spencer Rascoff, co-founder of Hotwire, joined Barton. As a nice start, the team received $32 million in funds from two venture capitals, Benchmark Capital and Technology Crossover Ventures. Eventually, they hired 75 employees and launched Zillow’s beta version in February 2006 in Seattle, WA.

Initially, the site became so popular that it got two million visitors within two days of launch. That led the site to crash. It’s because of it Zetimates tool that helped home sellers to assess their home’s value. People saw the rising of the American housing market where their houses’ value doubled within few years. So everyone started buying houses which caused a financial crisis in 2018.

Further, as the data on the site were publicly available, the Zestimates tool created controversy. But users were quite satisfied because they could know when their property value increased. So, they could sell it at a reliable price.

By April 3, 2008, Zillow launched Mortgage Marketplace. Now taking mortgage loans from lenders become easier for borrowers direct from the site. Moreover, the mortgage rate went higher on March 3, 2009. Consequently, Zillow received more than 7,00,000 loan requests within three months of that same year.

In 2010, two new things happened in Zillow. First, on April 2, it launched its iPad app with a multi-touch user interface. It offered people a photo-driven shopping experience from home. Second, in that same year, Spencer Rascoff was announced as CEO of Zillow. At the same time, Barton stayed as the executive chairman of the company.

On January 13, 2011, Zillow introduced local real estate agents with ratings and reviews on the site. Now buying and selling have become easier as people can search for agents nearby.

On November 12, 2012, Zillow acquired HotPads as another subsidiary. It helped to expand the number of rental audiences as people were more relying on this company. Additionally, it offered advanced productivity solutions and marketing tools for rental professionals.

Also, in 2013, it acquired StreetEasy, another real estate marketplace focusing on New York apartments. The biggest hit was acquiring Trulia, the fiercest rival of Zillow, with $3.5 billion on February 18, 2015. Eventually, it formed the Zillow Group, a portfolio of the largest real estate and home-related brands.

By May 22, 2017, Zillow started testing instant home sales in Las Vegas and Phoneix. Then, on the next year, April 12, it introduced Zillow Offers for buying and flipping homes directly in these two markets.

Also, in July 2018, Zillow released a tool for renters to check and submit their credit and eviction history report to landlords.

By January 2019, the company achieved 36 million unique visitors on their site. On the other hand, that same year, Barton became the CEO of Zillow.

In February 2020, the stock went 18% higher than the previous years. However, due to the COVID-19 breakdown in 2020, Barton announced to cut expenses by about 25% and stopped recruiting new employees.

What Services Zillow Offers?

Zillow is a leading rental marketplace, and real estate comprises data, knowledge and necessary tools for the consumers to buy, sell, rent or financing homes. Its living database provides all home-related information to empower consumers. So, they can make smart decisions about homes, mortgages or other properties.

To understand how does Zillow make money, you first need to know its services. Zillow offers various services for buyer and sellers both. Some of them are free, whereas some charge a fee to utilize.

Here are the two services Zillow offers for free.

  • Zillow Listings: It’s free to list homes at Zillow’s website as a seller or real estate agent. With 194 million average monthly visitors only in Q2 of 2019, it’s surely helpful to list your home at Zillow.
  • Zillow Zestimates: It’s another great free tool that estimates the market value of homes. It does this by combining local housing data and algorithms to assess detailed real estate value. Zillow’s data engineers team ensures that the Zestimates tool always provides accurate data.

Here are the following services Zillow charges a fee.

  • Ad Sales: Businesses like home builders, property management organizations, loan lenders etc., display advertisements on the website.
  • Zillow Premier Agent Program: Agents can pay for a lead on the Zillow listing using this program to get more exposure. In short, it’s useful to promote their services and sell more.
  • Zillow Offers Program: It’s a home-buying program where selling homes to buyers are easier and faster in a short time. If the home is in a selected market, it’s possible to sell it for cash. Unlike traditional home selling, you don’t need to show it in the listing. Rather you request a reasonable offer, while a Zillow advisor will guide you through the process.

Now, let’s know how these services work for different purposes in the real estate business.

  • For Buying

A housing company can offer you a home directly sold by Zillow via Zillow Offers. You can buy the home at a cheap rate and re-sell them with a good profit. Otherwise, you can contact agents through the Zillow Premier Agent program and buy homes directly from owners.

  • For Selling

Zillow offers the following three options to the sellers.

  • List the homes and post on the website to assess the right market values using the Zestimates tools.
  • As the real estate market is unique and constantly changing, it’s wise to take specialized professionals’ help. Hence, Zillow’s Agent Finder tool provides real estate agents, property managers, home builders, home improvement professionals, photographers, inspectors etc., while selling properties.
  • Sell homes to Zillow instantly with the Zillow Offers program.
  • For Renting

Are you searching for a place to stay? Don’t worry, because Zillow avails you of different buildings or apartments to rent. Here are the services Zillow has for rentals.

  • Browse rental listing to find a suitable house.
  • To speed up the credit analysis and background checking procedure, you can submit a rental application via Zillow.
  • Make a budget using its rent affordability calculator.
  • Pay online instead of checks using Zillow rent payments. Here you can schedule a payment, set an auto-payment and track it.
  • For Borrowing

To give mortgages or loans directly to consumers, Zillow acquired Mortgage Lender of America in 2018. It also became partners with other lenders to offer loans with the lowest fee.

You can find a correct lender through a Zillow agent while comparing different lenders’ rates and programs. In order to get the right mortgage, Zillow offers you various tools like a mortgage calculator, refinance calculator, debt-to-income calculator or amortization calculator. Such as a mortgage calculator helps to estimate down payment, home loan, interest rate, property tax etc.

How Does Zillow Make Money?

On Zillow, property listing for sale or rent is absolutely free of cost. Using Zillow mobile app or website and its online tools are also free for the users. So, if everything is free to use, then how does Zillow make money?

Generally, Zillow works as a media company where it earns revenue through selling ads and promoting businesses. In essence, Zillow’s revenue model is based on three main segments: Homes, IMT and Mortgages.

Let’s go deeper to know more details.

1. Homes Segment

In the present world, data are very crucial to search for something. Even for businesses, proper and organized data are required to stay in the competition. Zillow is also not any different in this case.

Its database embraces more than 110 million American homes, including homes for sale, buy, rent and homes that aren’t in the market yet. Further, there were 128 million registered households in the USA in 2019. In short, Zillow contains almost all data about houses in the USA.

So, how does Zillow make money from using this data? The simple answer is through its Zillow Offers, launched in 2018. It’s designed similar to the iBuyer model (short form of Instant Buyer), which other platforms like Opendoor and Redfin have already used.

The iBuyer is a real estate company that makes immediate cash offers while selling properties. The iBuyers utilize computer-generated algorithms, recent market data, agent’s reviews, seller information etc., to make an instant offer to the seller. Unlike traditional transactions, there is no human involvement. You can buy a property fast directly sold by the site at a lower market value.

Therefore, the speed of sale makes this platform so popular and convenient. Moreover, the algorithms get improvised with every purchase on the site. Zillow Offers also follow the same process allowing buyers to make a better decision.

When this program was tested in Las Vegas and Phoneix first, Zillow earned a huge income. Soon, it became an essential part of the company. Now, the company makes a lot of money by selling homes more than it paid for it. But how does it work?

As a home seller, you can use iBuyer to send Zillow the home’s details. They will estimate a sale price, which will be under the market value and offer you that within a few days. You can either accept it, list the property on the site by yourself or an agent or reject the offer. If you’re willing to take the offer, Zillow will buy the home from you, fix it, list it and then re-sell it.

Meanwhile, Zillow charges the sellers while buying homes from them with other additional fees. Zillow takes 6% of the selling cost that covers the transaction cost for buying homes. This is similar to the agents’ charges (about 6-7% average) if you hired them to sell your property.

Additionally, some extra closing fees like 1-2% cover the title, transfer tax, and escrow. Also, Zillow demands a service charge of about 2.5% to make up for the taxes, maintenance and other utilities.

Zillow, no doubt, earns a huge profit through its Zillow Offers program. It’s buying properties under market prices, especially from those buyers who’re in a hurry and re-selling them at higher prices.

That’s why Zillow could make $1.37 billion in 2019 only from its Homes segment. It sold around 4,313 homes at an average rate of $316,000 that year. The company hopes to earn at least $20 million annually in the upcoming years from this segment.

2. IMT Segment

Another way to make money for Zillow is through sales of marketing services, software and other technologies. Altogether they’re known as IMT (Internet, Media and Technology) segment.

This is divided into two main categories, Zillow Premier Agent and Rentals.

  • Premier Agent:

Zillow’s Premier Agent and Premier Broker programs are the profitable income sources. These SaaS tools enable property agents, brokers and other professionals in the real estate industry to organize their works, track leads and advertise their service on Zillow.

However, Zillow charges premier Agents for advertisement and sales leads. The cost of advertisements and leads depends on the competition and market demand. Here are the details.

  • Cost per ads impression– it is the cost for 1000 ads view. That means the Premier Agent will pay depending on the number of views in the ad by web or mobile users. The more impression or views it’ll generate, the more will be the price.
  • Cost per lead– Zillow sells consumer leads to the Premier Agents at a price range between $20-$100.

Additionally, the Premier Agents get access to the Customer Relationship Management (CRM) software and dashboard to organize and track their leads and perform analytics.

Zillow charges Premier Agents and Premier Brokers using the following two pricing models.

  • Auction-based pricing- The number of customer leads an agent receives depend on how much they pay for the ads. The higher the auction bid (agent’s share of voice), the higher the chances of getting potential leads.
  • Flex pricing model- It’s like a flat-rate fee where Premier Agents and Brokers are provided with validated leads without an upfront cost. They only have to pay for the ads if only the sale goes through. In a word, they won’t be paying anything if there is no sale while following a lead.
  • Rentals:

Zillow causes an additional revenue flow by selling advertisement space to rental property management companies, homebuilders and landlords on the Zillow listing. But how does Zillow make money through rentals?

Generally, Zillow charges based on Cost per lead, cost per click and cost per lease. Though, the fee varies with the property value and competition in the market. But the first Zillow listing for rentals is free, especially up to 8 weeks if you don’t get a lead. Then, Zillow charges $9.99/week.

Zillow’s annual report shows that property management companies spend about $3.5 billion annually on ad sales. Simultaneously, the IMT segment made about $1.27 billion in the latest financial year in which only the Premier Agent program earned $924 million. These revenue resources make a huge difference between Zillow and other real estate companies.

3. Mortgage Segment

After acquiring Mortgage Lenders of America in 2018, Zillow became a licensed lender to give loans. Later, this service was named Zillow Home Loans, where borrowers can request loans or refinance homes.

Like the traditional way, how does Zillow makes money from the interest on the given loans? The interest rate depends on the loan amount, duration and down payment to cover the loan.

Additionally, Zillow works with other 50 lenders who have listed their mortgages on this platform. The fee depends on the number of leads generates. It works based on the Cost per lead pricing model, where the lenders pay an amount for every potential lead or borrower they connect with.

Furthermore, Zillow earns an additional income from its subscription charges, called Connect service. It provides agents and lenders with special online tools for better advertisements on the site.

Eventually, Zillow earned approximately $100.7 million in 2019, 26% higher than the previous year. Most of the money comes from Home loans, whereas other lending businesses and subscription fees also contribute a small portion in the revenue.

Understanding Zillow’s Revenue Overview

Initially, Zillow made a good profit while launched publicly around July 2011. It was valued at $540 million and raised $69 million more during the process.

If you look at Zillow’s 2020 revenue scenario, you can see

  • The total annual revenue in 2020 was $3.4 billion, a 21.77% increment from 2019.
  • The total annual revenue in 2019 was $2.74 billion, a 105.68% increment from 2018.
  • The total annual revenue in 2018 was $1.33 billion, a 23.84% increment from 2017.

The Challenges Zillow Faces in the Revenue

Zillow generates revenue mostly from ad sales. However, the real estate industry, along with the digital marketplace, is constantly changing. Consequently, the marketing strategy also needs to upgrade with the change. That’s why it’s not always possible to keep up with the advertising revenue.

Moreover, if the advertisers or agents leave Zillow and join rival groups, Zillow will eventually face loss. Because no matter what, Zillow is a strong platform in the real estate industry. Losing its efficient agents, brokers or property management companies will cause the revenue to go down.

Then again, the Premier Agent program can turn down the advertisers if it can’t generate potential leads. The investors may feel their money is not worthy of this facility.

Even if you take the Homes segment revenue, Zillow is already facing challenges. Zillow lost a net amount of $312 million in 2019 from the Homes segment. It had lost more than $6,000 on each house it bought and re-sold.  

Further, if you look at the housing economy, including technology development, sales, marketing etc., Zillow lost $56,000 on every home purchased and re-sold. Altogether, the company reported a net loss of $162 million in 2020. Henceforth, Zillow needs to come with a new marketing strategy to stay on the top among competitors.

Final Note

Zillow is an excellent online marketplace for home/property buyers, sellers, borrowers, housebuilders and rental agents or professionals. The company offers different services and tools to its professionals to improve their real estate business.

Zillow focuses on advertising sales and generating leads for the agents and sellers. So that the business can boost and more potential buyers visit the site to buy homes. In other words, Zillow serves a complete lifecycle of a user while owning a home, which is buying, selling, renting, renovating and more.

In order to remain the key player, Zillow needs to focus on upgrading its features. Until there is a big change in the real estate market, Zillow will surely dominate the industry. Hopefully, the rapid demand for buying and selling properties may keep its progress at the top.

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