RELATED: Zillow Group CEO Spencer Rascoff steps down as co-founder Rich Barton takes over at online real estate giant
Zillow Group is doubling down on its home buying and selling business with lofty projections of annual revenue of $20 billion within five years, a surprising move that will lead the 15-year-old Seattle real estate giant down an entirely new path as a company.
The company will pin its future on Zillow Offers, a program launched last year that lets potential sellers request offers directly from Zillow. To hit the ambitious goal of $20 billion in revenue in three to five years from the Homes segment, which includes Zillow Offers, would be a serious accomplishment. Zillow as a whole brought in $1.3 billion in revenue for all of 2018.
Leading the company through the transition will be its original CEO and co-founder Rich Barton. Current CEO Spencer Rascoff, who took over the reins from Barton in 2010 is stepping down, but will remain on the board. The third side of Zillow’s “leadership triangle,” co-founder Lloyd Frink, will take the role of executive chair from Barton.
Barton called the shift to focus on home sales the beginning of “Zillow 2.0.” He said the company, which went public in 2011 and today has a market value of roughly $7 billion is “on the threshold of becoming a brand new startup.”
“This is why we founded Zillow, to actually change the way people bought and sold houses, and the way they found a new place,” Barton said in an interview with GeekWire. “This was our original conception, something like this to actually solve the headaches that we were experiencing, that our moms and sisters and brothers were experiencing.”
Investors weren’t immediately wowed by Zillow’s executive shuffle and change in trajectory, but the company later won them over. Zillow stock immediately dropped roughly 7 percent in news of the changes, but it about an hour later, it was up about 6 percent.
Rascoff said companies like Amazon, Uber, Instacart, Postmates and others have “moved the goal posts” of what consumers expect. Today, everyone wants “one click, magic happens,” Barton says, and that concept has disrupted countless industries. Zillow believes it can take advantage of this sentiment with Zillow Offers.
“We have evolved form being a media company to delivering more of a full-stack transactional experience for home shoppers because that’s what is expected and demanded by consumers,” Rascoff said, noting that Zillow’s evolution is not yet complete.
Barton, a board member at Netflix, compared Zillow’s shift to Netflix’s change to emphasize its streaming service over its DVD mailing operation.
The so-called iBuyer market of companies that purchase homes directly from sellers and turn around and sell them is a crowded one. Competitors include fellow Seattle tech-powered real estate company Redfin as well as others like Offerpad and Opendoor.
Barton acknowledged that Zillow is behind some of its competitors, but he said he is up for the challenge, adding “I love a good race.” Zillow’s advantage, he said, comes from its huge audience of more than 157 million average unique users in the fourth quarter.
That audience is requesting a Zillow Offer roughly once every 5 minutes, the company said. Zillow argues that translates to $100 million in demand value every day.
Zillow plans to drastically step up the pace of purchasing homes. To get to $20 billion in revenue from the Homes segment, Zillow projects that it will purchase 5,000 homes a month.
Zillow has purchased 686 homes and sold 177 homes since Zillow Offers launched in April 2018. Today, Zillow Offers is available in seven markets, and it plans to double that to 14 markets in 2019.
At the end of the year, Zillow held 509 homes in its inventory at a value of $162.8 million.
The homes segment is not yet profitable, reporting a loss before income tax of $27.2 million on $41.3 million in revenue. Barton said profitability will come as Zillow Offers and the Homes segment scale up, but he didn’t give specific timing.
“It’s definitely going be awhile, and it could happen in the three-to-five-year time frame, but honestly we just don’t know,” Barton said of profitability in the Homes segment. “A lot of it will depend on how rapidly it grows for how long, and how big ultimately this way of buying and selling homes can get.”
In addition to calling its shot on home sales, Zillow also wants to build up a significant mortgage business. Spurred by its acquisition of Mortgage Lenders of America last year, Zillow aims to originate 3,000 home loans within three-to-five years. The company also wants to originate mortgages to a third of all Zillow Offers deals.
Under the program, some homeowners in Zillow Offers markets will see a button on Zillow that says “get an offer.” The seller fills out a short questionnaire and sends in a couple photos. About 48 hours later, Zillow comes back with an offer and an agent to work with. The seller and Zillow set up a call to walk through the offer and schedule an inspection. Then Zillow sends a revised offer after seeing the house. If both sides are happy with the situation, the seller signs forms digitally and picks a closing date. Zillow takes care of the rest.
Contractors working for Zillow undertake small renovations to prepare the home for sale. Zillow works with local agents to list and sell the homes and pays commissions to agents on each transaction.
Zillow attaches a service fee for the seller that the companies said is in exchange for avoiding the hassle, time commitment and uncertainty of a traditional home sale. During the fourth quarter of 2018, that fee was an average of 7 percent.