This is the ninth in a series of nine reports on the challenges the country’s largest brokerages, portals and iBuyers face in 2023. To read more, take a look back at the challenges they faced in 2022 here.
It was midway through the red-hot 2021 housing market when Zillow Group officials acknowledged they were no longer confident about how long or how quickly home prices would continue to rise.
Struck by this realization, they rushed to shut down the company’s iBuying program and sell off the remaining homes the company had bought in order to fix and flip. And soon after Zillow offloaded the vast bulk of these homes, prices began to fall nationwide.
In hindsight, Zillow officials and outside experts who spoke with Inman for this article said Zillow got out in the nick of time, setting up the company to better weather the slowing housing market of 2022 and 2023.
Now, armed with fewer capital constraints and a team that can focus on expanding options for consumers, Zillow President Susan Daimler says she is confident the company is in position to weather the storm.
“Post-[Zillow Offers], we have this really high-margin business,” Daimler told Inman. “We have a lot of fuel to invest. We’ve always been investors. We really have always had this startup mentality, and really putting bets down about what we really think is going to be best for the customer [and] the best for our partner agents.”
The Seattle-based company is not immune from the challenges facing the real estate field, nor the tech world of which it’s also a part. Prominent companies in both industries have undergone substantial layoffs in recent months.
But industry analyst Mike DelPrete told Inman that Zillow remains on solid footing heading into this year.
“When you look across the field, you have companies cutting, slashing expenses left and right to try to reach free cash flow or stay alive,” DelPrete said. “That’s not the case for Zillow. Zillow’s in a pretty good position where they can continue to invest in the core product [and] new products, and come out of this downturn eventually in a strong position.”
In the meantime like every other company, Zillow will have to navigate a market in which fewer people are shopping for homes, and there are fewer leads to provide to agent partners.
Here are some of the top challenges Zillow will face in the year to come.
Growing through a down market — however long it takes
Reading the economic tea leaves, Daimler recognizes the months ahead are likely to continue to be rough for the real estate industry.
Sales have been down, prices have been falling, and some forecasts expect things to get worse before they get better.
Zillow may no longer rely directly on real estate transactions for revenue. But its business is linked to the declining demand for homes, according to OJO Chief Real Estate Officer Chris Heller, the former Keller Williams CEO.
“The dynamics of the environment has changed and consumer search growth is down, which is a challenge for any company with a consumer direct platform,” Heller wrote in an email to Inman. “That means they have to be better at converting the consumers that are there. That headwind is also an opportunity, however, because consumers that are looking in this type of market tend to be more seriously intentioned.”
In the meantime, Zillow remains armed with a strong balance sheet and cash on hand, DelPrete said. This should help them get through the ensuing period relatively unscathed, he said.
And Daimler said the moves Zillow makes now should help it achieve its main measure of success right now: Earning a bigger stake in the market until the time comes when conditions improve.
The unanswered question, she added, is just how long that might take.
“We’re very eyes-forward on [when] the sun will come out,” Daimler said. “Maybe it’s eight months, maybe it’s 12 months, maybe it’s 18. And we’re going to keep building technology and experiences for customers and agents along the way.”
Finding the ‘super app’ formula
If you attend any public event a Zillow executive has spoken at over the past year, you’ve likely heard about the company’s efforts to build a so-called “super app” experience for consumers.
It’s about more than just souping up the app’s user interface.
With many millions of people using Zillow’s listing portal every month, the company feels an urgent need to provide more options to them — and connect them with Zillow-provided services and agent partners.
One such program under development, but that has yet to roll out nationwide, is an instant-booking service that allows Zillow users without agents to easily reserve appointments for home showings.
In the Atlanta market, a version of this instant-booking program is already being tested. Some users there can sign up for a showing via instant book. They show up at the appointed time, and a Zillow partner agent meets the buyer on-site to show them around — and possibly win their business.
“That lead quality is quite high,” Daimler said. “These folks are the most high-intent, the most transaction-ready. So partners are very excited to talk to these customers, and talk to them much more seamlessly than with all the back-and-forth and really spend the time saying who they are, how they can help, instead of spending all the time on the scheduling.”
Although no timeline has been announced, Zillow plans to roll out the program in more places in the coming months.
And beyond services like this, the company is working to link its existing services — such as its mortgage-lending business — directly into contact with the typical Zillow user.
Zillow as power buyer? Not so fast
This year, 2023, will be the first full calendar year where Zillow won’t be burdened with Zillow Offers, its now-defunct iBuying business.
But that doesn’t mean Zillow is giving up on all capital-intensive assistance with home transactions.
Zillow exited iBuying so early and so quickly — before prices really began to fall nationwide — that Heller believes the exit itself almost looks like a success in hindsight.
“The way they exited iBuying and the speed and timing at which they did, was actually not a failure,” Heller wrote. “At the time everyone thought they were having a firesale and being hasty in their decision, but what they did was smartly anticipate where the market was going.”
With Zillow Offers in the rearview mirror, Daimler and Zillow CEO Rich Barton have both said the company wants to emphasize growing its mortgage origination business — those good, old-fashioned traditional home loans.
Many Zillow users today might have no idea that the company is a mortgage-loan originator, Daimler said. In an effort to correct this, the company is currently undergoing an “internal mindset shift” on how to present its home-loan options to the consumer.
“It’s about how the site is designed, how the site is set up,” Daimler said. “[Mortgages] can’t be buried in the back aisle in the corner. … We’ve got to bring that front and center, and make sure that’s something that we can help them with. And to date, that’s not the way we’re set up.”
Still, home lending has been an area in which many real estate companies have dabbled in recent years, and most — including Zillow — have yet to achieve their highest hopes, DelPrete noted.
“It makes a great talking point, and a great press release, and it could be smart for Zillow to continue to invest in that area,” DelPrete said. “But I think we all need to realize that it is not a foregone conclusion that it will succeed. And it is going to take quite a lot of effort, against the grain of past failures by other companies in this area, for it to take off.”
For months, some in the industry have speculated whether Zillow, having recently freed up capital from its iBuying exit, might be considering entering the power buying space instead. Power buyers specialize in helping buyers make all-cash offers on homes or buy their next homes before they sell their current ones.
Zillow is not interested in providing a power buying option right now — at least not directly, Daimler said.
“That’s not something that we’ll be doing ourselves at the moment,” Daimler said of power buying, “and partnerships are always a great opportunity if it’s not something that we want to operationalize and put large teams against.”
If Zillow were to consider connecting their users with a power buying resource, it would likely be through a partnership similar to the one the listing portal announced with Opendoor a few months back, Daimler said.
Becoming essential for agents
With its 2021 acquisition of the enormous home-showing platform ShowingTime, Zillow made a big play in providing further services for real estate agents.
Since then, it has continued to roll out new options for agents as part of its ShowingTime+ efforts.
“Zillow is clearly assembling pieces together for a new side of the business, which is for building products and services and tools for agents,” DelPrete said. “Really building that out with a focus, I’d say, on helping agents get listings.”
The investment has doubled down on Zillow’s reliance on real estate agents as a central component of its business. In combination with Premier Agent, the lead generation offering, these services amount to a heavy investment in agent services.
The instant-booking service the company has been piloting is an example of one way they’re trying to create new leads in a difficult home-transaction environment, Daimler said.
And once the market recovers, the company hopes that investment in agent services will pay off even more than it does while the market is down, she said.
“We can help a lot more people in the interim,” Daimler said. “And then when that sun comes out, and we get back up to the higher numbers of people transacting, … we will be there ready and with the best offerings for both customers and agents.”
Listing portal, meet AI: Best friend, or existential threat?
A few weeks back, DelPrete mused on the call with Inman that Zillow faced a big opportunity — but one that could also pose a threat to its status as a go-to home search platform.
The OpenAI resource ChatGPT had been taking the public by storm, with a tool that used artificial intelligence to provide highly specific and often useful answers to questions from users.
“For a listing portal like Zillow, their biggest risk is if a company or a technology comes along with a better way to search for real estate,” DelPrete said at the time. “That’s their biggest risk.”
But if the listing portal could get ahead of the trend and leverage its enormous dataset alongside AI-assisted features, it could become an even more powerful tool than any the company had yet proposed, DelPrete said in early January.
“To me, that’s not a housing super app,” DelPrete said. “To me, the housing super app is, what happens when you take this ChatGPT functionality — this really useful AI conversation — and you combine that with Zillow’s dataset in real estate?”
Within a couple weeks of DelPrete’s comments, Zillow unveiled a new AI-assisted feature that allowed for more conversational home searches, similar to what one would plug in on Google.
“Zillow’s natural language search feature takes users’ queries and scans millions of listing details to bring relevant results to the surface,” the company said in a Jan. 26 announcement about the feature. “At the same time, the feature is training machine learning models to better respond to search queries that use natural, human-like sentences.”
The tool allows for searches, such as “$700k homes in Charlotte with a backyard,” or, “open house near me with four bedrooms.”
Many hurdles lie in front of companies looking to take advantage of this technology in a reliable way. But the new Zillow feature only scratches the surface of what the latest AI capabilities could accomplish when aided by a real estate database this big, DelPrete said.
If an AI-assisted search could not only help a person find homes for sale but actually guide them through the homebuying process step-by-step, for instance, that could be a game-changer for real estate search platforms, DelPrete said.
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