Zillow wants to keep cashing in on flipping homes, but first it needs to stop losing money
New York (CNN Business)Zillow is trying to transition from an online advertising business to a full-service real estate company that buys and flips homes a difficult evolution as evidenced by its most recent earnings release.
Zillow ( still earns slightly more than half of its money from ads posted by real estate professionals on its free sites and apps that list homes for sale. But last July it branched out in a major way when it )launched “Zillow Offers,” a new business that buys, flips and sells homes. It already makes up 40% of Zillow’s total revenue.
Zillow buys houses directly from homeowners, pays for minor repairs and resells them. It makes cash offers to buy from homeowners and charges them a slightly higher fee, at 7.5%, than a traditional real estate agent selling a house would. The perk for sellers? They don’t have to go through the home showing process and have a more flexible move out period.
Zillow Offers now operates in 15 US markets, and the company announced four new markets expected to launch in 2020. It said demand from people wanting to sell their homes to Zillow more than doubled from the previous quarter in the three months ending in June.
There’s a wide gap between that demand for Zillow’s home buying service and actual transactions. CEO Richard Barton said on a call with analysts Wednesday that during the quarter, 69,000 homeowners submitted requests for cash offers on their homes from Zillow; the company actually only purchased 1,500 of those homes. And Zillow re-sold just 800 homes during the quarter. Revenue for the segment was $248 million in the quarter.
Investors have feared the company’s move away from its high-margin ad business. Revenue from Zillow’s ad segment grew just 6% to $323.7 million in the quarter and now comprises only 53% of the company’s total sales.
However, executives remain enthusiastic about the effort to disrupt the real estate industry. Barton called it Zillow’s “exciting little moon mission.”
The company is introducing several customer features expected to help grow that business. One is a feature in the app that makes it possible to tour a Zillow-owned home in real life without an agent — the homes will be outfitted with cameras and unlocked via the app — in an effort to make the home buying process easier and faster.
For customers who request but ultimately decide not to go with Zillow’s cash offer for a sale, the company will refer them to a local realtor and collect a commission from that agent.