It is common that you have come across Zillow at some point in your real estate transaction. Zillow is one of the most popular real estate platforms in the United States. So what is Zillow business model? Isn’t the majority of its tools free? Well, not exactly. Here is what you need to know about Zillow and how Zillow makes money.
Zillow is a real estate company that provides various services to homeowners and buyers alike, including mortgage loans and a home search engine.
In addition, Zillow offers services such as advertising tools for agents and other real estate professionals, a website offering home buying services, and a listing service for agents providing houses for rent or sale.
Zillow earns money by selling homes (and charging a commission), collecting lead fees, and charging interest on its home loans.
Zillow’s business model consists of three segments: Homes, IMT, and Mortgages.
Zillow was launched in 2005 and is headquartered in Seattle. It is now the largest real estate website in the United States. A public offering of Zillow took place in 2011. There are over 236 million visitors to the company’s many websites each month.
There is a substantial amount of real estate-related traffic on Zillow. Zillow is a household name in the sector because of tools like Zestimates, an iBuying branch called Zillow Offers, and Premier Agents, which advertises realtors to buyers and sellers. Zillow Group also owns Trulia, Hotpads, and RealEstate.com.
Table of Contents
- What is Zillow?
- Zillow Business Model
- How Does Zillow Make Money?
- What are the Free Services of Zillow?
- Success Story of Zillow
- What is the Funding and Valuation of Zillow?
- What is the Revenue of Zillow?
- Key Takeaways from Zillow Business Model
What is Zillow?
Zillow is a web-based real estate marketplace that serves both buyers and sellers of houses.
The platform is designed to cover all aspects of homeownership, such as purchasing, sale, rental, and loan financing.
Zillow’s mission is to provide consumers with the information and knowledge they need to make informed decisions about their homes.
Zillow offers buyers direct access to houses listed on the company’s site through its Zillow Offers program.
Buyers can also purchase properties directly from owners, through foreclosures, or with a real estate agent (through the Zillow Premier Agent program).
Zillow provides many tools that can assist consumers in finding a place to live when it comes to renting.
Customers can browse listings and apply with Zillow to streamline the credit and background check process, estimate budgets at the Zillow website, and pay online without having to wait for checks to clear.
Zillow offers three primary options for sellers. You can:
- Homeowners can list their properties directly on the company’s website. To avoid losing money on their properties, it offers its well-known Zestimates service to help house sellers know how much their properties are worth.
- Collaborate with an agent who Zillow vets to sell their property. Zillow’s Agent Finder includes real estate agents, home improvement professionals, property managers, inspectors, and photographers.
- Zillow Offers allows homeowners to sell their homes directly to the company. In addition, Zillow offers near-instant offers (typically within a few hours), will enable sellers to choose a move-out date and covers all repairs.
Additionally, borrowers have several options at their disposal. For example, the Zillow Group acquired Mortgage Lender of America to be integrated onto its platform.
As a result, Zillow offers mortgages directly to consumers. Moreover, the company makes loans available through its mortgage marketplace by collaborating with other lenders.
The website also provides consumers with numerous resources, such as a mortgage calculator, to help them with the mortgage application process.
Zillow has acquired more than a dozen companies during its history in addition to its products and services.
These companies’ independent operations will further enhance Zillow’s portfolio of real estate solutions. You can use HotPads, Naked Apartments, StreetEasy, Out East, and Trulia as examples.
|Firm Name||Zillow Group|
|Founders||Lloyd Frink & Rich Barton|
|Number of Employees||5,249|
|Ticker Symbol||ZG / Z|
|Annual Revenue||$3.339 billion|
|Annual Profit||Net loss of $162 million for 2020|
|Market Capitalization.||$27.48 Billion|
Zillow Business Model
Zillow earns money by selling advertising to third parties (home builders, mortgage lenders, etc.) and selling buyer and seller leads to Premier Agents.
Its objective is to turn website views into money, which may conflict with the goals of Zillow, buyers, and sellers.
Zillow makes money through Premier Agents, for instance. But, since agents pay to advertise their services, the options buyers and sellers see are determined by how much the agents pay Zillow – not by the agent’s track record or ability to assist you.
If you are buying or selling a home, you want to work with an agent who can negotiate the best deal for you and meet your goals and objectives.
In addition, meeting with seasoned agents will give you confidence in their skill set and ability to meet your unique requirements.
How Does Zillow Make Money?
Zillow earns money by selling homes (and charging a commission), collecting lead fees, and charging interest on its home loans.
Home sales, investment management, and mortgages make up the three main segments of Zillow’s revenue.
The company launched in 2005 and relied solely on revenue generated from advertising.
The company believed that focusing on a single user niche could provide advertisers with more engaged and targeted clients (compared, for example, to Google).
It was a gamble that paid off handsomely for the Zillow Group, propelling it to prominence as America’s leading online real estate company.
To better understand how Zillow generates shareholder value, let’s take a closer look at each of the three segments below.
You’ve probably grown weary of hearing that ‘data is the new oil’ by now. The fact remains that in the modern business environment, it has emerged as a crucial competitive advantage. You might expect Zillow to have a lot of it.
Zillow’s database contains information on more than 110 million American households. Zillow has information on virtually every house in the United States, with 128 million registered households as of 2019.
Zillow Offers was launched in 2018 and fully utilized this data. It is based on the iBuyer concept pioneered by companies such as Redfin and Opendoor.
iBuyers (or Instant Buyers) analyze big datasets of market data, seller data, and input from brokers before making near-instant cash bids to sellers.
Frequently, they can purchase houses below market value due to the speed and convenience of the sales process, particularly when sellers need to dispose of a home quickly.
Furthermore, the algorithms become more accurate with each order, allowing the iBuyer to make more informed purchases over time.
The Zillow Offers program, which was launched in Las Vegas and Phoenix, effectively achieves this. Anytime the corporation sells a house for more than it purchased it for, less closing costs, it earns money.
Furthermore, Zillow charges a fee for purchasing a property from a seller. The company charges a 6% selling cost fee to cover the transaction’s costs.
Commissions are typically between 6% and 7%, which is comparable to typical sales commissions.
A closing fee of 1% to 2% is added to cover title, escrow, and transfer tax. To cover taxes, maintenance work, and utilities, the corporation charges approximately 2.5 percent as a service charge.
A home sale can be completed in a matter of hours, and bids can be placed almost instantly. A Zestimate is presented to the seller after they submit an online survey about the property.
Zillow announced in February 2021 that Zestimate would no longer serve as merely an estimate but rather a representation of a genuine cash offer.
As a result of the offer, the property will be examined in person to verify that any necessary repairs were carried out and that the information provided was accurate. A cash offer is made shortly after that.
Zillow successfully tapped into a much broader market by converting into a realty company. As a result, approximately 19 billion dollars were spent on real estate advertising in 2019 in the U.S., while the total number of transactions was nearly $1.9 trillion.
The Homes sector made $1.7 billion in 2020. Zillow expands its service into other markets. It is still losing money on each transaction, but it expects to generate a profit soon through its housing section.
When Zillow bought Mortgage Lenders of America in October 2018, they became licensed lenders.
Zillow Home Loans was launched later as a relaunch of the service. Borrowers can take out loans or refinance their properties.
Zillow makes money by charging interest on mortgages in its Home Loans section. The interest rate is determined by the loan amount, the loan term, and the down payment.
Zillow also collaborates with other lenders through its platform. The company’s platform led to creating a marketplace in which it collaborates with over 50 lenders nationwide.
Zillow is compensated based on a cost-per-lead model. Each time a potential borrower is connected, they must pay a predetermined price. Zillow charges for this based on the terms of the agreement it has with the lender.
Zillow charges a monthly fee for its Connect service. Lenders and agents can use Zillow’s tools to increase their visibility.
The mortgage industry generated $174 million in 2020, up from $100 million in 2019. The majority of its revenue comes from its Home Loans business, with a tiny fraction of advertising on its website and subscriptions.
Internet Media and Technology Segment
Zillow makes money by offering software and marketing services within its IMT (Internet, Media, and Technology) division.
Premier Agent, Rentals, and Other are the three divisions of the organization.
Premier agents and Premier brokers are provided with various revenue-sharing programs by the company.
Agents, brokers, and other real estate professionals can use both products to organize their work, track leads, and market their services on Zillow’s platform.
Zillow earns money based on cost-per-lead. Cost per lead varies based on the market but can reach above $100 for properties over $500,000.
Zillow agents can connect with customers on Zillow’s website and other platforms, including Trulia, StreetEasy, and HotPads.
The rental and other revenue is generated by selling advertising services to rental professionals and landlords (for Rental Revenue) or inspections, photographers, builders, and home improvement specialists (for Other Revenue) (for Other).
Zillow is compensated based on the number of leads it generates. However, the market’s competition determines the fee.
According to its annual report for the fiscal year 2020, the company made $1.45 billion in IMT revenues. Premier Agents accounted for most of these revenues, generating $1 billion in revenues.
What are the Free Services of Zillow?
Here is the list of free services offered by Zillow:
Zillow offers free advertising for for-sale-by-owner (FSBO) sellers, as well as those wishing to work with a realtor.
Zillow offers free listings for homeowners and real estate professionals. Zillow attracts more than 160 million users each month, half of whom are buyers or sellers.
Zillow makes money from the listings even though the service is free.
Zillow has many relationships with real estate professionals and offers them a range of services.
When you use the site to sell your home by owner, you are promoted to real estate agents as a potential client.
Many of the calls regarding your house sale will come from real estate agents seeking to assist you in selling your property.
A home listing on one of the major real estate platforms in the United States and Canada, on the other hand, is a significant opportunity.
Zillow’s Zestimate tool can help you price your home, upload images, and track how many people have viewed your listing.
Zillow’s Zestimates released in 2006 make it easy to check home prices. Zestimates is a free tool that combines algorithms and local information to estimate real estate prices.
Zillow’s Zestimates have been contested in the past. For example, Zillow’s Zestimates and Redfin’s data center displayed distinctive values for New York City properties in August 2019, making it nearly impossible to figure out the correct price for a property using either tool.
A Zillow team of data engineers was recently hired to increase the accuracy of Zestimates.
Sellers and buyers seeking this information are advised to contact an experienced real estate agent.
For example, if you are looking for a home in your neighborhood, you should consult a local agent with years of experience preparing a comparative market analysis (CMA).
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Success Story of Zillow
Rich Barton (CEO) and Lloyd Frink founded Zillow in 2005 in Seattle, Washington.
Barton is one of the most respected names in the business, a successful technology entrepreneur of our generation. A Stanford alumnus who worked for two years in consulting before joining Microsoft in 1991, he moved to Seattle in 1991.
This technology giant released a CD-ROM-based trip guide as part of its entry into the travel business in 1994. All this was before Barton stepped in.
As HTML-based travel broker services began to gain popularity, they were becoming more and more popular.
Their remote business capabilities enabled them to expand their reach while allowing them to run from home. Microsoft would benefit greatly from this opportunity, according to Barton.
He pitched the concept to Steve Ballmer and Bill Gates. Then, in 1996, he launched Expedia.com on the web, a company he worked with a partner on.
Expedia became a success immediately. After two years, in 1998, Microsoft spun off the company to take advantage of the late 1990s internet frenzy. As a result, they were able to go public in 1999.
Barton was only 27 years old when the company’s initial public offering was conducted. He remained for another four years. After that, the acquiring company paid $3.6 billion for a 100 percent stake in Barton, doubling his fortune.
In the same year, he was succeeded by Dara Khosrowshahi as CEO of Expedia, who ran the company for 14 years before becoming CEO of Uber in 2017.
Barton was ready to take advantage of the next opportunity after a year off. These are the two qualities he has expressed to me frequently over the years when starting or investing in a business:
- There is an information asymmetry in the market because of a lack of transparency and unreliable data.
- This is a great way to accelerate the company’s flywheel effect.
When he founded Expedia (travel costs were notoriously opaque, with travel brokers pocketing hefty markup fees), he adopted this ideology and invested heavily in firms such as Glassdoor or Nextdoor.
The same ethos would serve him well when he and Frink founded Zillow in 2005. The year before, Barton, as well as Frink, were looking for a house in Seattle.
They encountered a high level of insecurity and frustration. In addition, it was challenging to gather data about public housing since they were often packaged and stored in diverse archives and databases.
There were times when real estate agents made contradictory bids for the same property to maximize their profits.
It was with that dilemma in mind that the crew went to work. Stan Humphries, who led Expedia’s analytics department, was hired to lead the company’s algorithm teams.
A Zillow team spent months collecting housing data, digitizing it, and publishing it.
Harvard grad Spencer Rascoff was selected as another crucial hire at Hotwire, and IAC, which acquired Expedia in 2006, was the company’s co-founder.
Rascoff worked at Hotwire for nearly two years before it was acquired by the Expedia Group, where he met Barton.
Benchmark Capital and Technology Crossover Ventures helped Barton and his team gain a competitive advantage by providing $32 million in funding.
They were able to hire 75 additional employees and refine the product, which entered beta testing in February 2006.
Visitors flocked to the startup’s website in a matter of minutes. Unfortunately, over two million visitors visited Zillow.com in the first two days, resulting in the site’s crash.
Where did it come from? Zestimate, a first-of-its-kind feature that determined the value of a home.
The peak of the American home market occurred in the mid-2000s. Homeowners saw their homes quadruple in value every couple of years, sparking a housing mania that culminated in the 2008 financial crisis.
Zillow jumped straight into that frenzy with a $32 million war chest and an excellent executive team. However, it was not only money availability and reputation that led to the company’s growth.
The Zestimates team created this feature to be as controversial as possible to generate buzz and drive growth.
As homeowners’ property values were made public, the feature sparked disputes among them.
A second advantage is that the corporation operates in different silos based on product lines, enabling them to adapt quickly to changes in the market.
The Zillow iPhone app was launched one year after the first iPhone was introduced. The company formed an entirely new development team just for the app.
The Zillow iOS app was released in 2009 and had already amassed 20% of Zillow’s user base.
Finally, Zillow embraced its data early on. Various media outlets in multiple cities collaborated to produce data on home prices and other real estate-related data.
The startup was able to gain valuable ties throughout the country and constant media coverage.
Zillow terminated collaborations with other significant websites that used Zillow’s data to display homes. The company, for example, announced in 2008 that it would power all real estate listings on Yahoo Real Estate, the most popular real estate website at the time.
The business was unaffected by the 2008 recession. The company first had to lay off 25% of its employees (35 out of 155). After that, however, it quickly recovered.
People used to flock to the internet to watch their house values rise before this happened. Consumers visited Zillow throughout the crisis to get an accurate estimate on how quickly their properties could be sold.
The corporation grew exponentially over the years.
After Zillow’s successful development, it launched its first public offering (IPO) in 2011, which raised $69 million at a valuation of $540 million.
Zillow was the third most-viewed real estate website in the country, with more than 20 million monthly visits when it reached that point.
Meanwhile, Barton was enjoying the party outside. In 2010, he resigned as CEO and gave Rascoff the reins. Raschoff served as a chief operating officer of the company, overseeing marketing, finance, partner relations, legal and human resources.
Zillow’s continued growth brought with it several new challenges. Over the years, the company has been sued by its employees, competitors, and homeowner organizations.
Rachel Kramer, a former employee, claimed that a sales manager in the Irvine office sexually harassed her.
Zillow was sued in May 2017 by homeowners who claimed that the firm artificially devalued their properties, making them harder to sell.
Zillow had its most noteworthy court battle in 2016 when rival Move Inc. (which owns Rupert Murdoch’s Realtor.com) claimed that two of Zillow’s executives were employed to acquire access to its rival’s trade secrets. Zillow acknowledges no wrongdoing in the $130 million settlement.
Zillow has also seen its share of commercial conflicts over the years as it competes for a piece of the $16 trillion real estate market in the United States.
Most of its clashes with Trulia have been with Realtor.com, Redfin, and upstarts like Opendoor and Offerpad.
Trulia was founded one year after Zillow and is based in San Francisco. In the online real estate market, Trulia was Zillow’s most formidable competitor.
Pete Flint, the former CEO and co-founder of Trulia, has made numerous jabs at Zillow over the years, claiming his service was far superior and attracted more customers.
Trulia sued Zillow for patent infringement in 2012, alleging that the company had copied its Zestimates tool when it released Trulia Estimates in 2011.
Zillow’s announcement in 2014 that it would acquire Trulia for $3.5 billion in an all-stock deal came as a surprise. The principal objective of the acquisition was to gain access to Trulia’s user base while reducing the amount of money spent on marketing to compete with it.
Zillow had previously acquired StreetEasy (specializing in New York apartment listings) and HotPads (specializing in rentals).
The Zillow CEO stepped down in 2019 after nearly a decade at the helm as Rich Barton took over the reins.
The following year, the company made the transition from an e-commerce to a real estate company.
Zillow began by buying and reselling homes in Phoenix and Las Vegas. This company used the iBuyer model, which other businesses have now adopted, such as Opendoor.
The business enjoyed a particularly successful year in 2020. A work-from-home policy has forced many employees to reevaluate their living arrangements and find something more suitable for them.
The government’s stimulus checks, and low rates on loans, also made low-cost capital available to consumers.
Zillow announced (in September 2020) that it would create a licensed brokerage to increase efficiency inside its home-buying operation. In addition, the company plans to hire real estate agents shortly to assist buyers and sellers.
Real estate experts were outraged by the decision, and many criticized the firm’s hypocrisy.
Zillow previously said it wouldn’t become a brokerage because it would direct competition with the third-party agents it represents.
Today, combined, Zillow’s corporate entities are the most visited real estate websites in North America.
Over 5,000 employees are employed by the organization across 35 offices in the United States and Canada.
What is the Funding and Valuation of Zillow?
Zillow raised a total of $96.6 million in venture capital funding throughout its existence, according to Crunchbase.
A few notable investors in Zillow are Benchmark Capital, TCV, Legg Mason, and PAR Capital Management.
At the time of its initial public offering in July 2011, Zillow was valued at $540 million, raising an additional $69 million. Currently, Zillow has a market cap of $38.6 billion, nearly 80-fold higher than when it became a public company.
What is the Revenue of Zillow?
Zillow reported revenue of $1.2 billion in the first quarter of 2021. However, Zillow reported revenues of $3.4 billion for the fiscal year 2020, a 22 percent increase over the preceding year. However, over the same period, the corporation posted a net loss of $162 million.
Key Takeaways from Zillow Business Model
Zillow is a real estate marketplace that was founded in 2006. Former Microsoft employee Rich Barton founded the platform in response to a lack of transparency and dissatisfaction with the real estate industry.
Initially, Zillow used a straightforward economic plan entirely based on advertising revenue. The company has subsequently built out its product offering to provide buyers and sellers with a free and transparent transaction experience. Its data covers 86 percent of all U.S. houses.
In addition, Zillow earns money from its Zillow Home Loans service. Moreover, it collaborates with more than 50 lenders, who pay the organization for each consumer it refers.
Zillow offers a world-class platform for buyers, investors, realtors, home builders, and rental property specialists.
There are many features and resources on the website that can assist professionals in growing their real estate businesses, market the real estate sector, and establish and grow their companies.
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