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Zillow Idea Proposal (Z/ZG)

Zillow Idea Proposal (Z/ZG)
 

Will Zillow’s new house flipping business propel or derail the company’s growth?

Report Available: June 7, 2018

 

Blueshift’s initial research found Z/ZG surprising the real estate and investment industries by announcing that it would be entering the home buying and selling/flipping business and expanding its Instant Offers program. The news potentially eliminates or at least reduces the role of the real estate agent, Z/ZG’s primary advertising revenue source in the direct buying and selling transaction. It puts Z/ZG in a position to compete with other so-called iBuyers, who are disrupting the real estate market with their speed, convenience and certainty to the seller. But it is also risky in that it is moves Z/ZG away from a high-margin, asset-light business into a more capital-intensive, lower-margin business.

 

Observations

  1. On April 12, in a move that surprised the real estate community, Z/ZG said it would be testing the actual buying and selling of homes in the Phoenix and Las Vegas markets. Z/ZG also announced that it would be expanding the Zillow Instant Offers program to Phoenix, beyond the initial markets of Las Vegas and Orlando where testing began in May 2017. In its prepared announcement, Z suggested that its participation in the buying and selling of homes through its Premier Agents opens a TAM of $1.8 trillion which is the estimated aggregate transaction value of existing and new homes sold in 2017.
  2. Z/ZG’s newly announced model has both supporters and detractors. One enthusiast said it is good news for sellers, offering them fast cash as the company expects a turnaround of no more than 90 days between when it buys and sells a home even with necessary repairs and updates. After providing data and pictures of their home, a seller can expect an offer in a little as 48 hours. The offer is then confirmed following a home inspection and assessment. At this point the seller can accept the deal, list the home in anticipation of a higher selling price, or do nothing. Z/ZG has made room for its Premier Agents to be involved. In the test markets, West USA (Phoenix), Berkshire Hathaway HomeServices Arizona & Nevada Properties (Phoenix and Las Vegas), and Coldwell Banker Premier Realty (Las Vegas) have partnered with Z/ZG to represent the company in the purchase and sales of these homes. This separates Z/ZG from competitors like OpenDoor and Redfin Now that are not using listing agents to resell the homes they buy.
  3. Others are less enamored by Z/ZG’s new venture. One real estate writer suggests the venture could change what it means to be a broker. He said that although Z/ZG’s buying and selling of homes will not completely cut out real estate agents, it will “downsize” their role. One analyst questions the business model because of the risk and low margins associated with the house flipping business. OfferPad, a startup company focused on flipping homes that was partnering with Z/ZG in its Instant Offers pilot in Las Vegas and Orlando, is severing ties with the company because Z/ZG’s new model is essentially the same service.
  4. Blueshift’s past Z/ZG research, including the Dec. 6, 2017 and March 29, 2017 reports, saw strong growth potential for the company and a willingness of Premier Agents to continue to increase their advertising spending. The only potential headwind that could impact Z/ZG’s growth, according to sources, is the CFBP’s investigation ofitsco-advertising program which accounts for 30% to 40% of its revenue.

 

Will Z/ZG’s new buying and selling of homes disrupt the real estate industry? Will Z/ZG jeopardize its robust real estate agent advertising revenue stream with this new venture?  Will Z/ZG’s buying and selling of homes add or detract from its growth trend? How are agents reacting to Z/ZG’s entrance in the home flipping business? Will major advertisers continue to spend and increase their spend with Z/ZG?  To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Zillow Premier Agents, Real Estate Agency Executives, Real Estate Investors, and Industry Specialists.

 

Companies: Zillow Group Inc. (Z/ZG), Realogy Holdings Corp. (RLGY), Redfin Corp. (RDFN)

 

Research Begins: May 21, 2018

 

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