So, Zillow made headlines recently. Carolina Homes Realty shared a story that said “Zillow slams the brakes on home buying as it struggles to manage its backlog of inventory. I read a LOT of posts from colleagues that felt that David had killed Goliath and the mega i-buyer was on the ropes. Is this true? I think Abe Lincoln said it best, “One can not adhere as absolute truth that which has been posted on the Internet”. Google it.

Is this really news? I guess….it was shared by just about every major news source….it got clicks. But what does it really mean and how does it affect the real estate industry? Depends who you ask. This is just my opinion as a full time Realtor for the past 18+ years.

Who is Zillow? What do they do??

Let’s look at who Zillow is and what they do. They’re not your Trusted Advisors in Real Estate. They’re not walking through homes with buyers helping them find a home that best suits their budget and lifestyle. They’re not sitting at seller’s kitchen tables determining how to get them the most amount of money, in the shortest time frame, with the least number of obstacles to work through. They don’t get paid at the END of the transaction, when all the tasks have been successfully completed.

I look at them like the company store in an old mill town. All the workers/residents are reliant on the company store for most, if not all, of their daily needs. Zillow’s like the Sugar Daddy of real estate.

Here’s an example…

Let’s look at a real-life scenario I just encountered. A client enlists my help to sell their home. I’ve known them for several years; we live in the same area. They know multiple Realtors but chose to work with me based on my knowledge of the local market, experience in the industry….and they trusted me. That’s HUGE. We discussed the market, the condition of their property, what their expectations should be, and set a goal for a sales price of $XXX.

Zillow’s house purchase business segment is not their bread and butter. In fact, they lose money on flipping houses. What the what?? Consider it the marketing, branding, or advertising portion of their business. It’s the old adage, “You’ve got to spend money to make money”.

My clients want to buy land and build a home. A friend suggested that they call Zillow, “They help people with building homes”. Go, Zillow! Once on the phone, my clients were asked if they’d like to sell their home to Zillow. It definitely got their attention but they were skeptical. “Call Mark”, they said. They wanted me to vet the process to see if it was in their best interest.

I had a 30-minute conversation with the rep. Honestly, one of the best conversations I’ve had in recent memory regarding the overall state of the real estate market, where it’s been, and where we think it might go. I definitely wasn’t dealing with a smiler dialer; this was an experienced Realtor with some great insight and opinions.

Eventually, she presented an offer to purchase my client’s property for $32k MORE than the $XXX my sellers had set as a goal. Wow! I pressed on for the details…what’s the Bottom Line? Zillow service charge; repair allowance; closing costs. The NET offer was $307 less than the goal we had set at their kitchen table. In the real estate world, that’s a bullseye! They took the offer and sold the house. All’s well that ends well. However, this sale didn’t go into our Multiple Listing Service. Realtors and appraisers doing future research for house values aren’t aware of the fees and concessions. Public records now show that the property sold for $32k more than what the sellers actually received. Way to go Zillow!

Ease the pain of the losses

While Zillow may lose money on these flips, they can certainly mitigate those loses. They’ll need local contractors for the Millennial Makeover they do on these properties. You know, the Agreeable Gray paint job, builder grade granite, luxury vinyl plank flooring. They’ll sync up with some local contractors and negotiate discounted fees for all the work these trades people will get. Then they’ll need a local Realtor to list all these properties. Then they’ll need a local attorney to close all these properties. The vendors will be glad to cut a deal…75% – 90% of a bushel basket of work is worth more than 100% of a peck. Way to go Zillow!

At this point, Zillow has positioned themselves as the knight in shining armor, riding in on a fine Arab charger, coming to our real estate rescue. The seller loved the quick, cash sale. I didn’t have to measure or photograph the house; solicit multiple offers; or negotiate terms and repairs. The vendors and subcontractors are getting fed regularly. But how is Zillow making money? LOTS of money.

These guys are savvy marketers and salespeople. They’re good!!

It’s all about making the sale!

Quick story. Back in 1987, director Mel Brooks made a movie called Spaceballs that was a spoof of the George Lucas classic Star Wars that had come out about 10 years prior. Lucas granted his approval of the movie with one condition; Brooks could NOT sell any merchandise related to the movie. Lucas owns the merchandising rights to the franchise and didn’t want Brooks tapping into any part of that cash cow. Brooks agreed, but made a slight jab in the movie. He prophesized that the real money being made on the movie was in merchandising. Spaceballs the t-shirt; Spaceballs, the coloring book; Spaceballs the flame thrower. (the kids loved that one)

Zillow the merchandise!

Ads: When Al Gore invented the Internet I don’t know if he realized just how huge of a marketing juggernaut he had created. Those pesky algorithms seem to know exactly what I like; I want; I need. Ad for furniture, click. Ad for tools, click. This is great! I’m going to need all these things for my new home. Click, click. Ching, ching. Way to go, Zillow!

Leads: One of the biggest challenges of ANY business is how to make the phone ring. The carpet cleaner; the pressure washer; the gutter guy; the landscaper. There’s so many!! How do they stand out and get The Call? The visitors to Zillow are the captive audience that Realtors, mortgage lenders, and property managers are craving to get in front of. They’re a valuable commodity.

I’ve built my business the old fashioned, grassroots way of shaking hands and kissing babies. Not quite like that but it has been, and continues to be, word of mouth personal referrals from friends, colleagues, neighbors, past clients, etc. However, we often need an extra boost…kinda like that 20 oz energy drink around 2:30 on Monday afternoon. In business, “You have to spend money to make money” so buying hot leads for prospective clients is as easy as going to the Company Store. Way to go, Zillow!

Premier Agent: For a monthly fee, Realtors can leverage a multi-function program that opens up more doors within the site for branding exposure. Many of the functions and features can be found with other software, programs, or sites. But few cast a net as huge as Zillow’s and attract as many viewers.

Housing inventory is at historically low levels…and have been for a while. (not new news) But advertising houses for sale not only markets the property but also the broker. What if an agent doesn’t have any inventory?? Zillow’s got the goods. Whatta you need? Condo? Land? Single family? Townhome? Premier Agents are linked to listings, that are NOT listed with Premier Agents, via a tab labeled Your Personal Guide. (Premier Agents get exclusivity) I had a seller once that got upset because of this. “Hey, Mark! My neighbor Barney is a Realtor but I wouldn’t let him sell my dog house. Why is his photo next to my listing”?? Barney just slid himself into marketing his neighbor’s house. Way to go, Zillow!

Data: THIS is the commodity that’s in demand. It’s like high grade crack to marketers. A ridiculous amount of time, money, and resources are allocated each year to cyber security. Every day, we simply click the pesky “allow cookies” tab that’s blocking us from viewing what we’ve set out to view. What we’ve done is open the cyber curtains of our bedrooms and invited the site host to look in.

Zillow probably has a virtual Fort Knox protecting the intimate data they’ve collected. A breach would be disastrous for them. (or an even bigger adjective that I can’t think of) However, there’s plenty of data they’ve collected that’s being sold to other savvy web opportunists to enhance their visitors experience (i.e., customize their ads) Way to go, Zillow!

Did the airbags deploy?

Ultimately, I don’t think Zillow has slammed the brakes as much as they’ve simply pushed pause. They just need to do some housekeeping. It’s much the same as during The Great Recession. Banks had foreclosed on so many homes that they had a huge inventory of REO properties. They couldn’t dump all those available homes into the market at once or there would be a glut of inventory that would devalue even more. To keep from oversaturating the market, they sprinkled these in over time. The oversupply they held on the books became known as “shadow inventory”. That’s what appears to be happening now with Zillow. Their challenge, however, is supply chain related. They’ve purchased houses faster than their local subcontractors can polish them up. Rather than sit on an abundance of empty houses waiting for their day at the spa, Zillow will just keep some cash on hand and keep looking for the next product or service to sell.