Zillow Takes Aim at Small Investors

This is a little different type of article than I typically write but I found this interesting and wanted to share. A few months ago, Zillow announced its Instant Offers program, which basically allows sellers to get offers on their homes within two days from institutional investors. These investors are highly qualified buyers and close with all cash within a week. At this time, Zillow claims that it is not offering this service to broker deals and charge commissions; it is doing it to fill a need in the industry. They claim that it is actually encouraging sellers to use agents, not vise versa.

Many agents are upset. In fact, according to a recent survey, 87 percent of Realtors think that Zillow is trying to become a broker and eliminate agents. Some agents, however, are excited about this shift and want to work more closely with Zillow.

If you have not heard, this is how the Instant Offers program is working in two test markets. A home seller completes an online questionnaire. From there, Zillow passes this information onto a small group of institutional investors who are buying houses in that market and to a qualified Realtor. The Realtor is tasked with providing a detailed comparable market analysis while the investors are tasked with submitting offers. Within just a few days, the sellers should have multiple cash offers and a CMA to compare the offers to. They then decide to go ahead and accept one of the offers where they can work with an agent to help with the transaction, or they can close the transaction without the help of an agent, or they can choose not to accept the offer and sell the house in a more traditional manner. This could include listing with an agent.

There have been several agents that claim to have received a large amount of seller leads under the new program. They submit the CMA and then are encouraged to follow up to try to get the listing.

I don’t see this as a bad thing for agents. Zillow is not charging any fees to the borrowers or the investors for this service, and claims that it is not interested in creating a brokerage or charging commissions. They generate revenue from ads and selling leads, not houses. Although many agents feel this could change because Zillow is not a profitable company. Entering the brokerage business could be a new profit center. I don’t see it that way, at least not yet. I see this more as a marketing ploy to attract seller leads for agents.

Although I am not concerned Zillow will take over the agent’s job, nor do I see this as a big threat to investors, I could see how one could view it that way. Zillow’s mission with the Instant Offers program is to capture every lead from distressed sellers it can and turn them over to cash buyers or their “pay to play” agents, virtually eliminating the small rehab investor. It is our job to be aware of what is going on and to maneuver our business to benefit.

Here is why I am not worried. First, the cash buyers are going to need steep discounts and the agents that just want a listing are going to be offering inflated CMAs. Those two could be so far apart it is going to hurt Zillow and the Zestimate it is so proud of. (Zillow’s opinion of value) This alone could make the program crash before it even gets going. That is not what I think is going to happen however. My guess is most sellers will end up listing the house with the agents providing the inflated CMAs. The agent will likely have trouble selling it because they will be listing it too high. This could be a great thing for a small rehab investor. Here are two ideas that you can implement to take advantage, assuming the Instant Offers program comes to your market.

  1. You can network with the “pay to play” agents. If you can prove you close on your contracts and build a relationship with them, they too will be bringing a cash offer to the table. There are ways to make your offer more attractive than the institutional investor’s offers. This could be a great way to get noticed by sellers before the distressed houses ever go in the MLS.
  2. You can track listings that appear to be too high in the MLS. Once they have been listed for a while, you can start to market to the seller and/or listing agents. Be careful though. You may not be able to market directly to the homeowner of a listed house unless you are unlicensed. Cash offers on distressed houses are attractive after the motivated seller has their house listed for a while with no traction.

Currently this program is only available in Las Vegas and Orlando, but there seems to be a lot of optimism around it, so there is a chance it hits your market before long.