Last year, I wrote about the real estate industry’s love-hate relationship with Zillow. If you missed that post, you can catch it here.
And now there’s even more to love … or hate … depending which side of the fence you’re on.
As a publicly traded company, there’s a lot of information available on Zillow. In 2018, they had gross revenue of $1.3 billion dollars. Of this, $899 million came from fees paid by real estate agents to advertise on Zillow.
Zillow also reported a $120 million loss for the year.
OFFSETTING LOSSES BY SELLING HOMES
In an effort to boost profits, Zillow is targeting sellers as they roll out a new service in select markets in the US. Here’s how it works:
- Interested sellers fill out a questionnaire and send photos of their homes
- Zillow makes an offer for the home
- Someone from Zillow visits the home to confirm condition
- In as little as a week, the home closes and the seller receives their funds
- Zillow turns around and lists the home on the market. Any profit they make, they keep.
While this might sound appealing to potential sellers because they aren’t required to make repairs to their home, stage their home, and live in their home while it’s on the market it doesn’t take a brilliant business mind to realize that the only way Zillow can run a program like this is by paying below-market prices for homes.
In fact, they’re pretty up-front about disclosing that to potential sellers.
They also aren’t saving sellers money on fees. Traditionally, sellers can expect to pay commissions of 6% if they want to attract quality agents to buy and sell their home. (Three percent for their listing broker, and 3% for the buyer’s broker.)
Zillow charges sellers a fee between 6% and 9%. Not only are sellers receiving below market prices for their homes, they’re paying above-market fees.
Traditionally, when you hire a broker to sell your home you are paying for their expertise, their marketing, their contacts, their market knowledge, and their ability to negotiate for you. Agents who are strong in these areas are worth every penny you pay them.
Are you wondering what you are paying Zillow a 6-9% fee for?
They’re not negotiating for you (in fact, they’re negotiating against you!). They aren’t representing you (they’re representing themselves) so their market knowledge isn’t important.
What you’re actually paying with this fee is Zillow’s FUTURE commission costs – the fees they’ll need to pay when they list the home, and a bit more on top of that. That’s just crazy!
Pay those fees, and you’re helping Zillow improve their profit margin on the sale of your former home.
The same home you sold to them at below-market value.
If you’re going to pay commissions (and that’s in effect what you’re doing when you’re paying Zillow’s fees) then at least get some benefit from that. Put your house on the open market and maximize your opportunities. Don’t leave all your profit in Zillow’s lap!
WHY WOULD ANYONE USE THIS SERVICE?
Two reasons: It’s quick. And once you come to terms with Zillow, in theory your money is guaranteed.
You can have your funds in a week or two from the time you contact Zillow. So if you are desperate to quickly get your hands on the equity in your home – and you don’t mind the fact that you’re not getting the most you could (and remember – you’re paying more in fees than you would otherwise), then this program could be for you.
However, most sellers will be best served by working with a reputable and experienced real estate broker who can help them net the best possible price for their home not a company who is using homeowners to turn a profit.
If you have tips about products and services you use to keep your home healthy & safe, please let us know! And, as always, we would love to hear your questions. We’re here to help with all things home-related!