Zillow is one of the most popular real estate marketplaces. Many think the company makes the majority of its money by charging listing fees, but the truth is that it doesn’t charge anything to list a property on the site.
Zillow primarily makes money by selling services and ads to real estate agents, builders, and property managers to market to home buyers, sellers, and renters on their platform. They also make money via premier branding services for agents.
In the past, they made money by buying houses and reselling them, but they closed their Zillow Offers division in 2021.
Founded in 2004, Zillow was started by veterans of Microsoft, Hotwire.com, and Expedia. Rich Barton, Lloyd Frink, David Beitel, Kristin Acker, and Spencer Rascoff wanted to leverage their deep tech experience to disrupt the real estate market.
Zillow went public in 2011 and trades on the NASDAQ stock exchange.
What is Zillow & How Does It Work?
Zillow is a real estate marketplace where sellers, real estate agents, builders, and property managers can list properties that are for sale or rent. While they primarily target the US market, the company expanded into Canada in 2018.
Zillow has both a website and an app. Home buyers use the website to search for homes or loan financing. Zillow lists the estimated property values of the homes via a proprietary algorithm called Zestimates. Buyers can buy homes directly from the owner or with the help of an agent.
Buyers can also search for loan offers via Zillow’s partners or apply for a loan directly from Zillow. Zillow originates these loans and then sells the servicing rights to other companies. It also provides tools like mortgage calculators to help buyers understand how much they can afford to spend on a loan.
Sellers who want to list their homes can do so directly on Zillow’s site. Zillow even provides them with their Zestimates tool to help them decide how to price their home. It estimates how much it believes the property is worth based on historical pricing data and recent sales, something that sellers used to have to pay for prior to Zillow.
Sellers can also use Zillow to find an agent to sell their home. Zillow offers an Agent Finder tool that allows them to search through Zillow’s extensive database of agents, property managers, inspectors, photographers, and other real estate professionals.
In the past, sellers could choose to sell their homes to Zillow through the company’s Zillow Offers program. This was a helpful service for sellers who needed to sell quickly. Zillow would then handle the sale of the home on their behalf. However, the company discontinued this program in 2021 because they were losing money on it.
Agents and other real estate professionals use Zillow to sell properties they represent or advertise their services. Zillow offers agents the ability to create a profile, buy ads, subscribe to Zillow’s business services, or join their Premier Agent Network. This is a great way for agents to gain new clients since many people are already searching on Zillow. Zillow sends agents leads when buyers or sellers request a Zillow-approved agent.
When it comes to the rental side of Zillow’s business, the company offers a number of tools and services to make the rental process easier for renters, landlords, and property management companies. Those offering a rental list it on the site. People searching for a rental search through Zillow’s listings, find something they like, and submit an application.
Zillow helps rental companies with the credit and background check process. They also offer tools for renters like affordability calculators to help them determine how much they should spend on rent. They also allow renters to save their rental application for 30 days so that they can submit it to multiple companies rather than filling it out again.
Business Model of Zillow
Unlike many online real estate marketplaces, Zillow does not primarily make money off of listing fees. Instead, the company makes listing on its platform free to encourage more people to use its website.
That’s been a successful gamble for Zillow as it’s the most used real estate marketplace in the United States. The company had 10.2 billion visitors to its website in 2021 and 9.6 billion in 2020.
The company has also positioned itself as a one-stop-shop for all real estate needs. They offer listings, tools, profiles for real estate professionals, and support in finding a loan. Their free Zestimates tool helps sellers and buyers understand real estate pricing, so they know what to list their homes for and how much to offer.
Since Zillow has captured a big segment of the real estate market, it can then market other services and charge fees to the buyers, sellers, renters, landlords, property managers, lenders, and other real estate professionals who use its platform.
Zillow monetizes different demographics in different ways, but its primary methods are through advertising and technology services. Zillow charges real estate agents and lenders for ads aimed at the buyers and sellers who are visiting its website. They also offer a Zillow Premier Agents designation to encourage buyers and sellers to do business with those agents.
The company also makes money from ads from builders, property managers, landlords, and other real estate professionals who are offering services relevant to the industry like photography, videography, or estimations.
Zillow makes money supporting rentals and via their loans segment. They help buyers apply for loans via their lending partners and also offer mortgages themselves. Finally, they offer a suite of business services for real estate professionals.
Apart from the services it offers via its platform, Zillow has bought a number of companies that it makes money off of as well, including StreatEasy, Trulia, HotPads, and Naked Apartments. Some of these buys were strategic in order to reduce how much the company would need to spend on advertising to compete against these rivals.
Zillow seems to be focused on the US market but has recently expanded into Canada. It is unclear if Zillow has plans to expand further into other international markets.
Zillow has a number of competitors in the online real estate marketplace sector, including Realtor.com, Redfin, MLS, and the websites of legacy real estate companies like CENTURY 21 and RE/MAX.
Zillow has significant expenses and has faced losses in recent years. For example, they lost $381 million on their Zillow Offers line of business in 2020. That led the company to shut that division in 2021. Zillow’s expenses are primarily on things like sales and marketing, technology, and administration.
In 2021, it brought in total revenue of $8.1 billion but due to its significant expenses, the company had a net loss of $527 million. In 2020, the company had revenues of $3.3 billion and a net loss of $162 million.
While Zillow seems to be increasing its revenue significantly in recent years, it is also losing more money. It’s unclear how profitable Zillow’s business model is.
How Does Zillow Make Money?
Zillow makes money in more than five different ways. These include its Premier Agents program, lending, Zillow Offers, closing services, and other services.
The company does not break down their revenue by each specific source but slots all revenue into three categories: Homes, IMT (which stands for internal, media, and technology), and Mortgages.
Premier Agent Revenue
Zillow makes money via their Premier Agent and Premier Broker programs. This is a suite of marketing and business technology products and services offered to real estate professionals to help them advertise and run their businesses.
This includes a dashboard on Zillow’s website, performance analytics, a customer relationship management tool, and account management tools. It also includes advertising products where agents and brokers pay for qualified leads that come to them from Zillow.
Zillow counts the revenue for this segment in the IMT section of its annual report. The company brough in revenue of $1.8 billion in that segment in 2021.
Home Loans and Mortgage Referrals
Zillow makes money off both originating home loans and sending leads to other home lenders. Zillow operates Zillow Home Loans as an affiliate company. It originates the loans and then sells them to other lenders. They make money on the origination and the sale of the loans’ servicing rights.
Zillow also has a marketplace where buyers can get quotes from mortgage companies and professionals. They make money on a cost-per-lead basis via their marketplace.
Zillow counts the revenue for this segment in the Mortgages section of its annual report. The company brought in revenue of $245 million in that segment in 2021.
While Zillow shuttered this division in November 2021, their most recent Annual Report still recorded revenue from this business segment prior to its cancellation. The company also had to slowly wind down their Zillow Offers program and sell all the homes that were still owned by the company.
Essentially, Zillow made money by offering to purchase homes sellers needed to offload quickly. It would then resell those homes. The company made money by charging a transaction fee of up to 6% when the home was purchased. It would also apply closing costs to the transaction of 1% to 2% of the sales price. It would then also charge a service charge to pay for taxes, maintenance, and utilities of up to 2.5%.
Zillow counts the revenue for this segment in the Homes section of its annual report. The company brought in revenue of $6 billion in that segment in 2021, but their costs exceeded their revenue by over $1 million.
Zillow Closing Services
Zillow offers buyers and sellers title and escrow services. These include things like title insurance policies. Zillow contracts with third-party underwriters to offer this and makes money on the difference between what they charge and the fees they pay to their partners.
Zillow counts the revenue for this segment in the Homes section of its annual report. The company made $6 billion in that segment in 2021.
Zillow groups a number of smaller revenue sources into its ‘Other Revenue’ category. These include the money it makes off rentals, new construction advertising, and sales, display ads, its ShowingTime service. and its other products and services for real estate professionals.
Rental revenue is generated from advertising sold to property managers and landlords. They also generate revenue by offering rental owners rental application products and charge fees for the leases generated on Zillow’s platform.
New construction ads help builders market their homes to buyers. They made revenue on advertising from these groups.
Display ads are ads sold to any ad buyers interested in marketing to Zillow’s demographics. They make money on a cost-per-click basis on these ads.
ShowingTime is a software-as-a-service and call center solution that helps agents and brokerage schedule real estate viewing appointments for their customers. Companies or agents that use this service pay a monthly fee.
Zillow counts all the revenue for these segments in the IMT section of its annual report. The company made $1.8 billion in that segment in 2021.
Zillow Funding, Valuation & Revenue
Zillow (ZG) is currently a public company trading on the NASDAQ exchange. It went public in 2011 at a list price of $20 per share.
Prior to going public, the company went through five successful funding rounds and raised a total of $96.6 million. Well-known Zillow investors include Legg Mason and PAR Capital Management.
Zillow currently had a market cap of $9.1 billion as of August 2022. While the company has significant revenue, it has routinely posted losses. It’s also important to note that a big part of its revenue in 2021 came from its unprofitable Zillow Offers division.
Now that the division has been closed, the company is likely to have much lower revenue going forward. But Zillow might have a better chance of being profitable since both of its other divisions have better profit margins.
|Year||Total Revenue||Net Income|
|2019||$2.7 billion||($309 million)|
|2020||$3.3 billion||($162 million)|
|2021||$8.1 billion||($527 million)|
Is Zillow Profitable?
Zillow is not profitable. The company listed revenues of $8.1 billion in 2021, up from $3.3 billion in 2020 and $2.7 billion in 2019. However, Zillow experienced net losses during each of those years, from $309 million in 2019 to $162 million in 2020 to $527 million in 2021.
To address this, Zillow has been shuttering underperforming divisions to increase its profitability going forward. There is, therefore, hope that the company will be profitable in the future.
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