How Does Zillow Make Money Buying Houses
A lot of people wonder how does Zillow make money.
You can use it for both buying and selling properties. This real estate company provides various marketing tools that are among the best within the industry. Zillow business model relies on sales fees that are charged whenever one side flips a home. Zillow revenue also profits off of leads and interests from home loans.
This company was founded in 2005. Its headquarters are situated in Seattle, and nowadays, it is regarded as the biggest US real estate website. The very fact that 236 million users visit this website each month speaks volumes about its popularity.
What is Zillow?
As mentioned, this is an online platform that provides support and information to real estate buyers and sellers. Not only can you use it to buy, sell and rent, but unlike most other platforms, it also provides financing options. Zillow helps people by providing them all the necessary data regarding the real estate market.
Zillow is mostly used by real estate buyers and sellers. If you’re interested in buying a new property, you can check the company’s database for just the right home. By relying on its advanced filters (searching based on the current owner, agent, foreclosure, date), you can find a house that suits your needs.
What’s also great about the platform is that it lists properties that will be available in the near future. This pertains to foreclosure and pre-foreclosure houses. You can also check a feature called Make Me Move. Sellers who showcase their house through this tab don’t want to sell the property, but instead, they are assessing the potential interest.
The platform gets about 36 million unique visitors each month, making it the best platform of this type in the United States.
How does Zillow work?
If you are a buyer, you can buy a property by accessing the Zillow Offers program. A buyer can also ask for agent assistance through the Zillow Premier Agent feature. You can use the platform to go through foreclosure or to buy real estate from an owner.
The users can also utilize Zillow’s renting functions. Like most other websites, you can use them to browse rental options. On top of that, a person can submit an application that would expedite all other processes. For example, it will make it easier and faster for Zillow to make a background check.
Sellers have a lot of different options when using this website:
People can put all the properties they want to sell on the website. The platform has one great feature called Zestimates. This helps people assess the value of a property. That way, you won’t be able to miss on profit opportunities.
- Zillow Offers is another function of the website geared towards the sellers. You can utilize it to get really fast offers within the next few hours. If you wish, you can also put your move-out date. The company also offers repair coverage for sellers.
- Zillow Agent Finder is also worth a mention. The company lists trusted agents on its website. That way, you can find an experienced, vetted professional who will provide great assistance when selling a property. Besides agents, you can use the function to find inspectors, home improvement experts, photographers, property managers, and other real estate professionals.
- Zillow can also work for financial institutions and other borrowers. The great thing about the platform is that it also allows you to get a mortgage. Through it, you can get the financial support that will allow you to buy a home. Furthermore, when using Zillow, you can get access to other lending organizations.
Over time, Zillow subsidiaries have grown in numbers. Today, the company holds 12 different companies within its umbrella. They vary in terms of their main activity, although the majority of these organizations are somehow connected to real estate. The list includes StreetEasy, Naked Apartments, Trulia, etc.
Zillow mission statement and vision
The company empowers people when they seek a new home. Their focus is on providing people with the information that would help them move. In order to do so, they rely on advanced technology and tools such as Zestimate.
Zillow mission statement is: to give people the power to unlock life’s next chapter. The real estate organization is followed by a set of values:
- Customers are our north star – The company focuses heavily on user experience. In fact, they make a lot of business decisions based on clients’ feedback.
- Turn on the lights – Zillow places emphasis on information but also transparency. They wish to empower both homeowners, home buyers, and agents.
- Do the right thing – One of the company’s focal points is doing the right thing, regardless of the situation or financial incentive.
- Own it – Accountability is very important for them.
- Better together – Zillow works hard to find the best solutions where each side can get the best out of the platform. They cooperate closely, not only with their employees but everyone else involved in the transaction process.
- Include and empower – The brand always tries to create equal opportunities for everyone involved.
- Think big move fast – They also reward innovative spirit, and they stimulate free thinking within and outside of the company.
- Deliver quality on time, every time Time is a great asset that is often misused. The company makes sure that your time is not wasted and that you get the best product on time.
Zillow Business Model
A lot of people have questions regarding the Zillow pricing model.
The company makes money in a few different ways. We can break it down into 3 different categories: homes, mortgages, and IMT. But, it wasn’t always this way. The company had much fewer revenue sources when it started. At first, they only made money by allowing people to advertise on Zillow.
A good reason why this company is so successful today is due to the way it handles its data. They have created a massive database that includes 110 million US homes. If we consider there are 128 million households in the country, this means that the company tracks almost every one of them.
When you log into the system, you have the option of utilizing Zillow Offers. It focuses on computer-generated analysis. By relying on this data, you can receive a custom offer based on market data, real estate agents’ feedback, and seller data. That way, the platform can generate almost instant offers.
So, how much does Zillow cost?
As mentioned, everyone can use the website. But, you have to pay fees for all these transactions. The seller has to pay a fee of 6 percent. This is basically the same price that a traditional agent would charge a home seller. You should also consider closing costs that range from 1 to 2 percent. This covers escrow, transfer tax, title. Lastly, there is also a service charge of 2.5%.
While these costs might seem a bit higher compared to the traditional costs, you will be able to sell a property much quicker.
Since 2018, Zillow is able to provide lending services. As a borrower, you have to option of either taking a loan or refinancing a property. When people use this feature, they have to pay a fee based on the mortgage interest. The interest rate will vary based on several factors such as duration, down payment, and total amount.
What makes this function so amazing is that you can also borrow from other financial institutions via Zillow. In other words, if you don’t like their rates and conditions, you can choose from more than 50 nationwide lenders. That way, you can still utilize other Zillow features while customizing the financial aspects of the deal.
Perhaps the best thing for Zillow is that lenders don’t pay per contract, but instead, per lead. In other words, the potential Zillow revenue is much higher. Every lender has the option of negotiating this fee, so it will vary from company to company.
There are also subscription plans that allow lenders to advertise on Zillow. By taking one of these plans, they gain access to various tools that would allow them to promote their financial services on the platform.
IMT stands for Internet, Media, and Technology. In other words, it is a segment that allows the company to make profits by selling various marketing services and software. They have further split this category into 3 sub segments: Premier Agent, Rentals, and Other.
Premier Agent refers to revenues that the company gets by selling its SaaS products. By subscribing to these programs, a person gets access to a tool suite. The software allows brokers, agents, and other users to track their progress, leads, and to advertise services.
Again, the platform charges this service on a per-lead basis. These fees can vary significantly based on the market where the agent operates. A great thing for customers is that they can use these tools not only on Zillow but also its subsidiary platforms such as Trulia, HotPads, and StreetEasy.
Rentals and Others subcategories refer to revenues made from advertising. These promotional activities are geared towards landlords and other rental professionals, builders, home improvement experts, and inspectors. It also works based on leads, not based on contracts. And, once again, the fee will vary based on the specifics of a market.
Where does Zillow get its data?
Zillow has a specific approach to building its database. They utilize several sources to create its listings:
- First off, the company relies on several listing services as its basis and main source of information. In the US, the majority of real estate data comes directly from agents and realtors. Zillow is able to access this information via MLS or Multiple Listing Service.
- Zillow does its own process of vetting real estate agents. These agents also contribute to the platform’s listings.
- The company also relies on NAR or the National Association of Realtors. This organization unites various real estate workers, including appraisers, brokers, salespeople, managers, and so on. The platform relies on the association’s databases to enrich its own.
Besides utilizing all these resources, the company also invests a lot in research and development. They try to predict the latest trends. Some of the things they focus on include negative equity and forecasting, rental and mortgage affordability, generational and mortgage research, etc.
Zillow has a lot of subsidiaries. Most of them have fueled the company’s growth by providing certain utilities and functions that the platform was lacking.
- Diverse Solutions
- Mortgage Lenders of America
- Naked Apartments
Postlets was one of the company’s first acquisitions back in 2011. It allowed users to post for sale and rental notices. During the same year, they also acquired Diverse Solution, an IDX business that focuses on listings, email marketing, and mapping for real estate experts.
The company continued its acquisition of real estate brands. In 2012, they acquired RentJuice (rental relationship management), Buyfolion (streamlining of home acquisition), Mortech (mortgage price engine), Hotpads (website for rental listing).
In 2013, they bought StreetEasy. This platform focuses on listings. Retsly is a platform that helps developers create listings, and it was bought off in 2014. However, Zillow made its biggest move by purchasing their major competitor Trulia for $3.5 billion dollars. This marked the company’s quick ascend to the top of the US real estate market.
What are the main threats to Zillow’s revenue?
While the company is very profitable, and it keeps growing, it also faces a few challenges.
Perhaps the biggest issue for the company is that most of these fees and profits are short-term. This makes it much harder to make any predictions or to adapt to market fluctuations. Among others, this might pose problems if a company decides to invest heavily in some major projects.
If these advertisers ever decide to leave Zillow, it could be very hard for the company to replace them (especially in the short run). This is something that potentially could happen if a new, better real estate platform emerged.
Zillow charges property management companies for advertising on its platform, there are also other revenue streams that you can check out in this post.
There is a whole strategy behind it, for example – Zillow acquired many companies that fueled its growth