Different people identify various things with their homes. Some cherish their youth; others cherish their ancestral home; and yet others cherish their spouse and children. Some stay for their entire lives, while others depart for boarding schools as young as thirteen. But one thing is constant: houses are bought and sold, but homes are built. People make a house into a home by transforming it from ordinary walls, rooms, and gardens. So today we’re going to talk about Zillow, the online real estate marketplace, and how it blends emotions and economics to create the next big thing. We will also understand what is its business model and how does Zillow make money?
What Exactly is Zillow?
Zillow is a real estate marketplace that provides a variety of services to both house buyers and sellers. Its platform covers all aspects of buying, selling, renting, and financing a home. The company’s mission is to provide people with the information and expertise they need about their houses.
Previously, the company offered properties directly sold by Zillow to buyers through its Zillow Offers program. However, the program was terminated in November 2021. Buyers can also acquire homes directly from the owner, through foreclosures, or with the assistance of an agent.
On the renting side, Zillow provides a number of tools to help consumers find a new place to live. Aside from perusing rental listings, users can use Zillow to submit an application to expedite the credit and background check process, use its affordability calculator to estimate their budget, or pay online on the Zillow platform instead of using checks.
Zillow provides three basic options for sellers. They are able to:
- Directly list their homes on the company’s website. Its well-known Zestimates product assists house sellers in determining the value of their properties so that they do not lose money.
- Hire a Zillow-approved agent to assist them to sell their home. They can use Zillow’s Agent Finder function to find real estate agents, home improvement experts, property managers, inspectors, photographers, and any other service they require.
- Sell their home to Zillow directly through its Zillow Offers program (shut down in November 2021).
Finally, on the borrower’s side, several options are presented. Zillow bought Mortgage Lender of America in 2018 to add to its platform. As a result, Zillow provides mortgages directly to consumers. In addition, the company collaborates with other lenders to offer loans on its mortgage marketplace.
Who Owns Zillow?
Zillow went public on July 19, 2011, and trades on the NASDAQ under the ticker symbol (Z). However, ownership remains concentrated in the hands of the company’s executive leaders and early institutional investors.
Zillow has multiple consumer-facing brands, including Zillow Offers, Zillow Premier Agent, Zillow Home Loans, Zillow Closing Services, Zillow Homes, Trulia, Out East, StreetEasy, HotPads, and ShowingTime.
Takeaway: In 2020, Zillow had 9.6 billion visitors to its apps and websites, up 1.5 billion from the previous year. In 2020, they sold 5.3 million homes, a 24% increase over the previous year. In addition, they earned $3.33 billion in 2020, up from $2.74 billion in 2019. This represents a 22 percent increase in revenue per year. However, Zillow will lose $162 million in 2020. The annual data for 2021 had not yet been provided at the time of writing.
Understanding Zillow’s Revenue Model
The Zillow business strategy is built on an online P2P (peer-to-peer), B2C (agency-to-customer), and A2A (agency-to-agency) platform. Additionally, the Zillow platform offers vast listings for home purchasing, renting, leasing, renovating, and inquiring.
According to Zillow Group’s 2018 annual report, 157 million unique users visited Zillow Group brands, mobile applications, and linked websites each month.
Zillow Listing fees:
Sellers can sell their houses for free; there are no fees for listing homes on Zillow, and homebuyers can search for homes for free! If Zillow does not charge for listings, you may be wondering, “How does Zillow make money?”
According to Zillow officials, the company operates similarly to a media company (television, magazines, newspapers, home buyers guide) and generates revenue through the promotion and sale of advertisements on its website.
How Does Zillow Make Money?
Despite the fact that it is free for users, Zillow has numerous revenue streams from which it generates cash and profits. Anyone can list a property for sale or rent on the website or app for free, and the online tools can also be used for free.
Nonetheless, it generated $3.3 billion in revenue in 2020, a 22% increase over 2019. That is enormous. So, let us delve deeper into Zillow’s revenue model and see how it makes money. Zillow has created three revenue-generating reportable segments: the housing segment, the IMT sector, and the mortgage segment.
Zillow makes money in three ways.
#1. Home Segment
The home segment covers the financial results of Zillow Group’s direct purchase and sale of homes via the Zillow Offers service, as well as the financial results of title and escrow services provided by Zillow Closing Services.
Zillow wants to go into the house flipping industry (I learned today that “flipping” means buying a security or an asset with the intention of selling it for a short-term profit rather than holding on to it for the long run to letting its value develop) and launched iBuying in 2019.
A customer sends them information about their home, and they react with a cash offer within a few business days. Customers can accept the offer and agree to list with Zillow’s local agent, or they can decline. If Zillow purchases it, it will relist it and aim to sell it within three months. It thinks this to be a profitable proposition that will create $20 billion in yearly income in five years.
#2. IMT segment
IMT stands for Internet, Media, and Technology, and it makes revenue through selling marketing services, software, and other solutions. Revenue from Premier agents, rents, and new development marketplaces are also included.
Property management companies use its platform to sell advertisements. To maximize the visibility of marketers’ property to individuals who want to own or rent, the whole rental network of Zillow, Trulia, StreetEasy, and Hotpads is used. It also performs the arduous task of generating qualifying leads and forwarding them to marketers for follow-up.
Rental managers spend $3.5 billion on advertising each year, and a platform with a large database and viewers is excellent for advertising. As a result, ad revenues account for a sizable portion of the revenue stream. It also lets mortgage lenders and related businesses like interior designers, architects, home organizers, and so on put up ads.
It charges them on a cost-per-click (CPC) or cost-per-thousand-impressions (CPM) basis. “Click” in this case means that the user wants more information from the lender after seeing the mortgage rate. Simultaneously, an impression merely indicates that an advertisement will appear on their platform.
#3. Mortgage Segment
Zillow bought Mortgage Lenders of America in October 2018, allowing them to become licensed lenders. Later, the service was renamed Zillow Home Loans. Borrowers have the option of taking out loans or refinancing their properties.
Zillow generates money on mortgage interest rates through its Home Loans segment. The interest rate is determined by the loan amount, period, and down payment needed to finance the loan.
In addition, Zillow collaborates with other lenders on its platform. On top of its platform, the company has effectively developed a marketplace with over 50 lenders countrywide.
Funding, Valuation, and Revenue at Zillow
According to Crunchbase, Zillow has raised a total of $96.6 million in venture capital funding during the course of its startup life. Benchmark Capital, TCV, Legg Mason, and PAR Capital Management are among the notable investors.
When Zillow went public in July 2011, it was valued at $540 million, raising an additional $69 million. The company now has a combined market cap of $38.6 billion, representing a nearly 80-fold gain in the ten years since it became a public enterprise.
Zillow announced $3.4 billion in revenue for the fiscal year 2020, a 22 percent increase over the previous year. During the same time period, the corporation reported a net loss of $162 million.
Other Zillow Group Businesses
The Zillow Group has a number of famous real estate websites and technologies that allow it to advertise its services to clients at various stages of the real estate process. Here are some of the other firms owned by Zillow Group.
#1. Trulia
Trulia functions similarly to Zillow. It is a real estate marketplace where buyers and renters may search a database for homes in their desired area. Trulia provides in-depth neighborhood ratings that tell purchasers about school districts, crime, and walkability in a certain region.
#2. Hotpads
Hotpads caters to tenants seeking a new apartment or house. The search engine was launched in 2005 and was purchased by Zillow in 2012. It is a member of the Zillow Rental Network and earns money using the same strategy as Zillow.
#3. RealEstate.com
RealEstate.com, another member of the Zillow Rental Network, is a real estate marketplace where first-time home purchasers can search for and find properties that meet their criteria. While the site caters to a specialized niche, experienced property purchasers will find it useful as well. It provides users with unique and comprehensive search tools that make it simple to choose a new home.
#4. Zillow Mortgages
Zillow Home Loans is a new endeavor launched by Zillow Group to create revenue by allowing home purchasers to fund the purchase of their new home on the same site where they found it.
Does Zillow make a profit?
Yes. They make money through selling real estate agents advertising and upgraded profiles, issuing and reselling mortgages, and, historically, through Zillow Offers. Zillow (Z) (ZG) is a real estate platform that allows people to post their homes for free for sale or rent by owner or agent.
How will Zillow make money now?
Zillow earns money based on the cost-per-lead, which is defined by the services provided and the property price.
Is Zillow in financial trouble?
Unfortunately, for most of its history, Zillow has been losing money. In 2021, the listing giant Zillow lost more than $880 million on its unsuccessful home-flipping business.
What is Zillow’s competitive advantage?
It gathered its information by scraping it from the Multiple Listing Service (MLS). The Multiple Listing Service (MLS) is a local group of realtors that keeps all of their real estate data in one location.
Why are people worries about Zillow?
Because Zillow does not update or remove sold properties. They engage in “false advertising,” advertising for-sale homes as foreclosures. Their zestimates are up to $14,000 off, but consumers sometimes use them as legitimate sale prices.
Is Zillow an ethical company?
Yes, Zillow Group, Inc. is dedicated to fostering high standards of honest and ethical business conduct, as well as compliance with all applicable laws, rules, and regulations.
Does Zillow have debt?
Maybe! Looking back five years, Zillow’s total debt reached $5.011 billion in December 2021.
What problems is Zillow facing?
During the COVID-19 epidemic, properties appreciated at a quick rate, and Zillow’s iBuying algorithms routinely and dramatically overestimated market movements. That is what eventually drove the corporation to permanently discontinue its instant-buying service.
Is Zillow firing people?
Yes. According to a new study, approximately 5% of Zillow’s employees have been laid off as the company changes its attention to technology.
Conclusion
Zillow generates money by selling advertising on Zillow.com and the Zillow mobile app to property management businesses that have vacancies, real estate agents who are seeking buyers and sellers, and mortgage lenders who are looking for borrowers. Additionally, it sells to general advertising, particularly those in the real estate industry.
While the failure of Zillow’s homebuying service has hurt the company’s earnings and reputation, the company still leads the online real estate industry.
Frequently Asked Questions
Who is Zillows biggest competitor?
Top Zillow Alternatives & Competitors
- Realtor.com
- Zumper.
- CoreLogic Matrix.
- LoopNet.
- Apartments.com.
- Redfin
- GoMLS.
- Crexi.
Has Zillow ever been sued?
Another antitrust complaint was filed against Zillow several years ago over its Zestimate valuation tool, but that case was rejected by a federal judge last year.
Does Zillow have a high turnover rate?
The average sales turnover rate is roughly 70%.
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