Formerly an automated evaluation model, the Zestimate 2021 will be a “live offer” in many markets. The company also announced that it is finally making money on the homes it buys and sells through Zillow listings.
Homeowners across the country will soon see a live listing on Zillow’s home buying and selling platform, replacing the Zestimate on Zillow’s flagship platform, Zillow.com.
This is something the company has long been teasing, and just one of several ways the company is cutting customer acquisition costs on its Zillow Offers platform, which just turned a profit for the homes it sold in the company’s first quarter .
“This year, many customers in the Zillow deals markets will find that their Zestimate is an initial live Zillow offer,” said Zillow CEO Rich Barton on Wednesday during the company’s earnings call for the fourth Quarter and the end of the year.
“This will begin to achieve the big, hairy, bold goal we set ourselves 15 years ago when we launched Zillow of setting an actual price for every roof,” added Barton. “As the Zestimate begins to move from fantasy to reality, we are a small but important step in making that happen [big hairy audacious goal]. ”
A live listing is essentially Zillow’s first listing for a home. The final offer would be made subject to Zillow’s own judgment and other terms and conditions, but the live offer would be the first step a homeowner takes to sell to Zillow.
The Zestimate is an automated valuation model that just tries to gauge what the house could get in the open market.
Zillow has long realized that it’s not in the flipping business. But almost three years after launching the Zillow Offers direct buy and sell platform for private customers, the company made an average of money for every house it buys and then sells for the fourth quarter, according to the company’s earnings report.
Lowering customer acquisition costs was an integral part of this, along with other macro trends.
In a letter to shareholders, Zillow announced that the fourth quarter of 2020 had an average return of $ 19,206 per home sold.
Zillow calculates the number by subtracting the total profit from the homes he sold in the quarter, the costs he paid – only for the homes he sold – plus the renovation costs, holding costs, selling costs, and interest paid.
Zillow Offers’ strong performance was attributed to a number of factors, including an unexpectedly sharp appreciation in home prices, a higher percentage of recently purchased homes – due to the company’s interruption of transactions in the early days of the pandemic and the entry into the quarters with low inventory levels – and improved operational accuracy across the company, including assessing the right level of renovation, according to a letter to shareholders.
Essentially, Zillow Offers benefits from the blazing real estate market, just like any home seller.
The company also benefits from the Closing Services division launched at the end of 2019. Zillow’s Closing Services business has expanded to 25 markets in the past 12 months, and the vast majority of the company’s customers now use this internal closing service.
“Home income benefited from [the fourth quarter] from customers increasingly using Zillow Closing Services when buying a home from Zillow Offers as we add capacity to meet demand, “Barton said in the letter to shareholders. “Zillow offers a unified economy and also benefits from lower home purchase costs when we use Zillow locking services for the homes we buy.”
The increased profitability of the Zillow Offers segment wasn’t entirely unexpected thanks to the hot real estate market, but some of the price acceleration that boosted the platform’s profitability may only be temporary, according to Allen Parker, Zillow’s CFO.
However, the improvements in the renovation, selling, and holding costs segments include “some real operational improvements that are permanent,” said Parker.
“We are constantly learning and improving over time, resulting in a continuous improvement in the customer value proposition of our offerings,” said Parker.
The increased profitability also doesn’t reflect a major change the Zillow Offers platform is currently going through. This is the migration from managing Zillow Offers transactions through partner agents to in-house management with licensed agent employees.
The company began this change in the first quarter of 2021, so the overall impact of the shift on the economy is likely to become a little more apparent in 2021.
Email to Patrick Kearns