#295 Zillow Offers

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Will the future of selling your home be as simple as requesting an offer and passing it off to a company like Zillow? Their numbers suggest that might be true.

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Show Transcription:

Eric Worral: (00:00)
Hey everybody. Welcome back to another episode of RentPrep for Landlords. This is episode #295 and today we’re going to be talking about the future of Zillow offers. If you’re not familiar, this is a product that Zillow has launched in the last few years where they actually make offers on your home there have participating markets and they will actually pretty much take the home for you do any repairs and sell it themselves. And it’s something that’s been growing substantially. And I wanted to dive into the numbers, share some of it with ya and the future potential growth of this market because I find it pretty fascinating what they’re doing and transitioning from their standard business model. And we’re gonna get to that right after this.

Voice Over: (00:44)
Welcome to the RentPrep for Landlords podcast and now your host, Eric Worral,

Eric Worral: (00:49)
There’s probably a decent chance you haven’t heard of Zillow offers. I mean, it has made some news, but it’s not nationwide. So if you’re a, if you want the definition from Zillow themselves and their frequently asked questions page, it says, what is Zillow offers, Zillow offers as an easier way to sell your home with less hassle on a timeline that works for you. If your home is in a participating market and you can request a cash offer from Zillow and a few simple steps. I’m like a traditional or for sale by owner transaction. Your home has never listed. So you avoid showings, open houses and home prep if you choose to move forward with an offer, your dedicated Zillow offer advisor will work with you throughout the process. If you decide to list your home for sale. Instead, we can connect you with the trust and local agent who advertises on Zillow. So that’s pretty a nice set thereof a features keeping it in house.

Eric Worral: (01:36)
So if you do stay with Zillow offers, you can, you know, go right through them to sell your house. But even if you don’t want to do that they’ll connect you with a real estate agent where they will get a commission on that as well. Because that real estate agent is pardoned with them. But this is a really interesting thing that Zillow has been working on the last few years because Zillow traditionally has been more of a medium to connect real estate agents, mortgage lenders and people in the real estate business with people who are maybe either looking for a house to buy, looking for a house to sell or looking for a place to rent or looking for a place that they’re actually renting themselves. So they’ve always kinda been this medium in between connecting people, but now they’re actually getting their hands in the pot in the way of actually purchasing properties.

Eric Worral: (02:25)
And it’s been going really, really well. I was digging into their quarterly results here. They post this on their press release section of zillowgroup.com and first-quarter results for 2019. They mentioned that their revenues increased 51% year over year to 454 million for the quarter exceeding the company’s outlook, primarily driven by the outperformance in the home segment due to the strong demand for Zillow offers. So looking at their quarter three to bring it up a little bit more recent. They haven’t launched their quarter third or fourth quarter results yet. They’re saying that there are results reflect expanded margins in Zillow group’s a segment in sharp focus on Zillow offers execution and going down a little bit, it said that total third-quarter consolidated revenue grew 117% year over year to 745 million driven primarily by significant growth in the home segment said that consumer awareness and demand for Zillow offers is growing rapidly.

Eric Worral: (03:31)
More than 80,000 homeowners requested an offer from Zillow in the third quarter alone. Zillow offers opened eight new markets in the third quarter. Portland, Nashville, Miami, San Diego, San Antonio Austin, Fort Collins, and Colorado Springs. And it says that they expect to be in 26 markets by mid-2020 including Los Angeles. So, some pretty impressive numbers in growth that are happening over there due to this product that is kind of a focus of their vision. As the CEO, he said their third-quarter results were strong demonstrating that Zillow group’s business model expansion to mechanize real estate transactions is gaining traction as consumer demand reveals people want a better, simpler way to buy, sell, rent and finance homes and the finance part. And that was from Zillow, cofounder, CEO, rich Barton. The finance part is interesting too because they had their own lending program that’s developing so that you can pretty much stay in house with one service all the way through you know, from you just saying you have the interest to selling, to selling your house all the way through the process.

Eric Worral: (04:41)
They will even get a local real estate agent involved so that you don’t have to really do anything. And if there’s anything that I’ve learned from following different services end to end on one platforms are getting more and more popular. And even if it comes to something like selling your home any way that you can reduce the amount of anxiety or confusion or steps or just people that you have to be in contact with is really helpful for the user’s experience. And that’s what Zillow is kind of betting on here. So going back to some of their frequently asked questions, cause you might have some still there are a, a, a few interesting things here. So how do I request an offer from my home? Well, you enter your address, C of Zillow’s officer or offers is available in your area.

Eric Worral: (05:27)
So that’ll take a few minutes. You do have to be the homeowner but in just a few days you’ll receive an offer from Zillow. If you accept the offer, they’ll conduct an in-home evaluation, close the purchase of the property using a local agent and then make necessary repairs and then updates and then resell the home. So going back to, I think there were some numbers that they threw around how many homes that they have purchased and sold. Let me see if I can find that. That, that I want to say in the one quarter. Yes. So looking at their first quarter of 2019 they sold 414 homes, which was an increase of nearly 200% over quarter for contributing to 128 million in homes segment revenue. And the company purchased 898 homes, which was up 80% as well.

Eric Worral: (06:17)
So in one quarter they purchased 898 homes. They sold 414 of them. Granted they probably had stock from the past quarter. But of course, if they’re upping all of these things as they go they are going to have more inventory than they are holding as they’re trying to sell that. But really interesting that I think the part that interests me the most about this product is the amount of pure data that Zillow has. Recently, and I don’t have the stats on this, I probably should’ve looked it up, but you’ll have to trust me. Recently I heard that data has become the number one resource in the world, meaning like the most valuable resource in the world. And it surpassed oil you know, typically, you know, going back, you know, Wars are fought over oil and all these kinds of things and oil is this huge, huge commodity and it’s really obvious to understand and see because we all benefit from it.

Eric Worral: (07:12)
You know, we heat our houses, we run our cars on it. Gas is such a huge component of our lives. But data is the one that’s kinda hard to understand and really put your finger on it cause you go, well what is my data actually worth? Well, it’s worth a lot to the point that is now the number one commodity in the world. And what Zillow has is a ton of data right there. Their whole platform is kind of built on data because you can go in and you can get an idea of what your Zestimate is of what you think, what your house is worth. They’re getting users to input their own data to when you claim your listings and you’re updating things they’d know, you know, what the rental market is looking like. They know where people are searching from, how much they’re searching.

Eric Worral: (07:56)
They can launch a program like Zillow offers and know that they got 80,000 people requesting an offer on their home in one quarter. So they have all this data that they have at their disposal. And then as we’re kind of going into this age of technology, artificial intelligence, machine learning, you know, a bunch of things that I will pretend like I fully understand, but I do not for the sake of this podcast, but you have to believe that Zillow is going to be able to leverage this data and be able to a, have a, just a massive amount of incoming leads that are coming through, right? 80,000 people wanting to sell their homes. But also if they have a, you know, software that can, you just kind of run a program that says, you know what we think that these houses in this market and this street, these addresses are under probably underperforming or not quite up to what the market should be.

Eric Worral: (08:50)
They kind of know where the deals are going to be. So it’ll be interesting to see if they can start kind of leveraging their own data. And then, you know, in some ways a, a lot of real estate investors, right? They’ll talk about it, not just a, you know, sending out cold mailers, right. To houses to see if you can find a good deal. But in the cases Zillow, if you get 80,000 people requesting you to make an offer on their house, there’s gotta be a good portion of those that they’re going to make a decent margin on. So I kind of creates an interesting question in that you know, we’ll Zillow offer market value for my home. Here’s what they write. You know, and I take this for what it’s worth, it says, we strive to present an offer that reflects the current market value of your home.

Eric Worral: (09:35)
We then deduct our service fee similar to agent commissions in a traditional sale. So maybe they have their own 3% fee that they already do upfront, so they’re making some money that way. And then estimated repair and closing costs. So you can easily see the net cash proceeds from your sale. So in a traditional sale, you’re responsible for the cost of upfront repairs and improvements needed to get your home ready to sell. But we’ll buy your home as-is. And with Zillow offers, you have the added benefit of a hassle-free experience and an offer that won’t fall through. So you can definitely see why this is pretty advantageous for people. I mean, people come times get in a spot and they just like, I need to sell. I don’t care about getting the best price. I just need the cash. I need to move on with my life for you.

Eric Worral: (10:18)
Fill in the blank. Right? So this could be a pretty nice service or somebody like that. It’s also interesting that if your house, that if it was ready to sell and in good shape, let’s say it goes for $200,000, but as is, is worth 150 instead of you have to spend that money to get it up to you know to get it into good shape so you can sell it they’ll just deduct that 50,000 right out and show you that and say that, Hey, here’s the estimated repair and closing costs. We’ll give you $150,000 for this home. And you know, you don’t have to deal with a whole bunch of hassle and we’re Zillow, we got the money, so we’ll, we’ll buy it from you. So that might kind of raise the question. Is Zillow flipping homes? Well, before I get to that though, it does what kind of raise the question of like Zillow is a business, right?

Eric Worral: (11:07)
Yes. I believe they’re, they’re going to have to be within current market value, but when they’re dealing with such a large, large audience of essentially entire United States, also the 80,000 people that are sending them leads every quarter, I’d have to believe like any business, you’re going to make the best decisions for your business, right? If I had 80 think of it in terms of dating, right? If you’re somebody who is dating a, in your early twenties trying to find a husband or wife and you had five suitors, because you could only muster up five dates in a year, you might, you know, date one of those people longterm. But if you had 80,000, you know, it’s probably gonna change the type of person that you’re going to bring, what you’re going to go on a date with. Right? You, you, you’re going to afford to be a little bit pickier if you had 80,000 people to go on a date with you versus like one.

Eric Worral: (11:55)
So that’s why I believe as far as them saying that they’re going to, you know, give you the best an offer that reflects the current market value. I think it’s, in my opinion, probably not going to be the best offer because of the have the ability, good fortune to be able to be picky with the offers that they Dole out because they have such demand of their service. So the next thing I asked is Zillow flipping homes. Well, they say that we don’t flip homes. We provide a service as sellers, we take care of the repairs and prep work. A homeowner would normally have to do themselves to get a home ready to list. And we handle the showings, open houses and maintenance while the home is listed. So the seller doesn’t have to, flippers tend to buy low and sell high, often looking for distressed homes.

Eric Worral: (12:38)
I don’t really understand why they have this here. I mean, I get it. Maybe flipping flippers have a negative connotation to the general public. I know sometimes you don’t want to buy a flip because you know, the workmanship is not done as well or something because somebody was just trying to get in and get out. But if I look at this from what they said earlier, it sounds like they’re flipping because they’re taking homes that are distressed, you know that need a lot of work and they’re taking on that that responsibility and then they’re turning around and selling it. Maybe distressed. Maybe they’re not buying homes that need like a gut job. Maybe it’s just, you know, some basic aesthetics or a room or two or something. But for all intents and purposes, it sounds like they’re in the flipping business, but maybe they’re just kind of changing the model a little bit.

Eric Worral: (13:26)
But most people that are selling their homes to a flipper are doing the same thing. They’re not taking care of the property themselves. You know, they don’t even want to get it up to a, you know, a good showing. You know, where this thing’s going to attract a lot of buyers. They just want to get rid of it as is. So you know, it kind of sounds like a, you sounds like a marketer wrote that FAQ there. I would know, but I going into this a little bit further let’s see if we got some interesting FAQ is here, do I need to use an agent? How does that work? You do not need an agent to request an offer to sell your home to Zillow, but we’ll work with your agent if you already have one. If you choose not to sell to Zillow, we can connect you with an experienced local agent and then you might be interested in what markets that they are currently participating in.

Eric Worral: (14:11)
I’ll read these off real quick. It says here on, this is as of January 21st, 2020 Atlanta, Austin, Charlotte, Colorado Springs, Dallas, Denver, Fort Collins, Houston, Las Vegas, Los Angeles, Miami Minneapolis, st Paul, Nashville, Orlando, Phoenix, Portland, Raleigh, a, Riverside, California, Sacramento, San Antonio, San Diego, Tampa in Tucson. So pretty good list of places where they are selling currently a notice that they’re not really touching in the Northeast too much. I don’t know if there’s any particular reason for that cause I’m in Buffalo, New York and I would say probably the place on there if I’m just kinda yessing would have been like Nashville, Tennessee maybe. It looks like, you know, they got a lot of the hotter markets in here that are more little bit more volatile. I, you know, you hear that a lot with like Miami, Florida, and LA and up and coming markets like Austin and Charlotte seems to always be doing well.

Eric Worral: (15:12)
Nashville has been exploding, so maybe they’re in markets that are a little bit hotter, but again, they have all the data. They can go through all this. And I’m sure they’ve, they’re writing their own algorithms where there might be a human component of the person who’s actually on the other line when you make a request. And, but I’m sure it goes through an algorithm first where it says we were either not in that market or the next thing it says is we are in that market. We think that this might be a good deal. We should have you talk to a human, here’s a human. So it’d be really interesting to just watch from afar. Would Zillow does a where their company trends? Interestingly when I was looking up their stock code Z G and I’m looking at the one year it said, you know, maybe I’m reading this wrong, but it looks like they’re one year.

Eric Worral: (16:00)
Let’s see here I am reading it wrong. So right now there’s trading at 47 74. And about a year ago, they’re at 31 13. So yeah, you could say they’re close to probably 50% over that that they’re up for the year for their five years. You know, as I mentioned, they’re at 47, 73, five years ago. They’re at 1177 a stock. So stock price has definitely been doing well too. And like their quarterlies are saying it’s largely due to the growth of Zillow homes. So that’ll be an interesting one to follow for the future as well. Current revenues as of 2017 or 1.1 billion, but surely they have increased sense them. Yeah, that’s just kind of a breakdown of Zillow’s offers. I just think it’s an interesting thing, especially if you’re in real estate or you’re a real estate agent there might be a chance that Zillow’s coming in a little bit earlier into the process and buying up homes that never even make it to the market because they’re kind of a streamline in the process and making it easy and trying to find those people that just want to sell and they don’t care if they get the necessarily very best price.

Eric Worral: (17:04)
They just don’t want to do the work to get it to that point. So it’ll be really interesting to follow. All right guys, if you have any questions on this point or comments, I’d love to hear them. You can always reach me at eric@rentprep.com and I look forward to catching up with you guys next week. Have a great week. Take care.