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iBuying: Zillow Looks In-House for Real Estate Agents
October 6, 2020

iBuying: Zillow Looks In-House for Real Estate Agents

by The CE Shop Team

Zillow Will Begin Licensing Employees to Implement iBuying Transactions

Say it ain’t so, Zillow. Starting January 21st, the iBuying counterpart, Zillow Offers, will drop independent brokerages from their platform and instead, have their own employees become licensed agents with a newly formed brokerage, Zillow Homes. "Zillow-owned homes in these markets will be listed for sale by licensed Zillow Homes employees...the company expects to expand these services to additional Zillow Offers markets later in 2021," the online real estate database company stated in a press release.

What exactly does this mean for iBuying and real estate agents? It could mean many things. For one, this move could set a brand-new precedent in the industry that could increase Zillow’s profit margins while also potentially increasing new opportunities for brokerages on the backend of the iBuying process. But before we dive into the potential impact of Zillow’s news, let’s get into the details of what iBuying is and what Zillow is doing to turn employees into agents.

What Is iBuying and How Does It Work?

iBuying is the 21st-century solution for instantly garnering offers for a home and selling within minutes or days of posting. In comparison to a traditional real estate transaction, this app service uses a proprietary algorithm to assess a home’s value and create an Instant Offer, providing Instant Liquidity and moderate convenience to the seller.

The way iBuying works is as follows: you download one of the many free apps out there and create a profile. Next, you upload your home information, including the deed to prove homeownership, and submit for an Instant Offer.

Minutes (or days) later, you’ll receive an offer. If you accept, third-party contractors will arrive at your home and deduct any necessary costs from the offer. There will also be a service charge assessed for taxes, utilities, insurance, and maintenance. After the deal is executed, the app service will now try to sell your home, either through the iBuying service, their adjunct brokerage, or third-party listing services (e.g. MLS).

On the buyer's side, this process is much simpler. The iBuyer can log into the app and peruse homes that they can almost immediately purchase. This speedy transaction works well for those looking to move quickly but does not always provide the benefits a buyer receives when doing an in-person tour, such as getting a personal feel for the property and having full knowledge of what they're purchasing.

Zillow Turns Employees Into Agents

Instead of recruiting current agents like Opendoor does, Zillow will be taking their agent services in-house under the Zillow Homes brand and have their employees support these transactions. Commissions will be “paid to agents representing buyers” and should increase profit margins for their iBuying endeavors. Right now, Zillow utilizes brokerages for this service.

Brokers on record for Zillow may be disappointed in this new move. However, their services will still be needed for onsite support and any opportunities that occur if a potential iBuyer doesn’t like the offer and decides to pursue a more traditional route. Part of this change also includes “switching to an IDX feed, which will allow data to flow to and from the company to each local MLS,” as reported by Patrick Kearns of Inman. “Previously, Zillow’s real estate portal was populated by listing through a number of disparate agreements between brokerages, franchisors, and MLSs.”

The move may be seen as a maneuver to increase profit margins without paying the full salary a real estate agent would require. However, Zillow may be undermining the necessary expertise a seasoned real estate agent brings to the table and, whether they mean to or not, are almost trivializing the work agents do.

If there is an issue to be brought up regarding this new move, it is the value of service (or lack thereof) an employee-turned-agent would bring to the table. It is possible the technology and support that an iBuying service provides the company makes up for this loss in expertise. For those reasons, it would be safe to say that this idea could either go down as an ingenious decision adopted by the entire industry -- including Offerpad and Opendoor, who still continue to utilize partnership brokerages -- or a terrible decision that goes down in flames. With Zillow’s current market cap being over $23 billion, and a revenue stream peaking just below $3 billion, it’s a risk they can easily absorb.

Does This Make Zillow a Brokerage?

While this move to licensed employees feels like one step further in Zillow’s goal to become a one-stop-shop for all your home transaction needs (see Zillow Home, Zillow Home Loans, and Zillow Closing Services), Zillow still says they will not be acting as a “traditional brokerage.” The RealDeal reports that "Zillow has denied plans to operate a traditional brokerage. Rather, it says some of its offerings require licensing, such as its Flex program, which gives agents qualified buyer leads. Agents pay no upfront costs but get a 'success fee' akin to a referral fee if they close a deal."

In the past, Zillow has adamantly denied they would ever dip their toes into the brokerage game. Now, they have gone against that statement. Considering the increase in real estate transaction services and the embracement of licensed employees, we’re all thinking the same thing: who ya foolin’, Zillow?

Time will be the telling factor for what their next move will be and, more importantly, how regulators, lawmakers, and consumers will react.

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