The Netflix of mortgage

If this all sounds like a shift to move Zillow from an advertising service to an all-inclusive online platform for all components of the real estate transaction process, that’s because it is. Barton foresees Zillow as “the winner in online real estate 2.0,” clearly aiming to fully disrupt the housing industry just as Amazon and Netflix have done in their spaces.

Barton has been on the Netflix board of directors since 2002.

Consider this nugget from a recent interview Barton did with GeekWire:

F2“This is why we founded Zillow, to actually change the way people bought and sold houses, and the way they found a new place. This was our original conception, something like this to actually solve the headaches that we were experiencing, that our moms and sisters and brothers were experiencing.”

Zillow has 195 million monthly unique visitors to their website, and 80% of all US homes have been viewed on Zillow. Every single day, home buyers get younger and more comfortable with online transactions, even on purchases as significant as a home.

Zillow has the clear potential and obvious desire to evolve into one of the largest mortgage lenders in America, with upside on par with what Amazon and Netflix have achieved.

Zillow Offers – grand plans, and how they want it to feed their mortgage business

In January, Zillow announced that they were going to start buying and selling homes in five new markets in 2019 through their expanding Zillow Offers platform. Still just a little over a year old currently, Zillow Offers will be buying and selling homes in at least 15 major metropolitan markets in America by the end of 2019.

Consider this from Rascoff from their 2018 second quarter earnings call transcript, which came just after their acquisition of Mortgage Lenders of America:

“So just to give you some napkin math for a second – about 400,000 homes sell a month in the United States,” Rascoff said. “If Zillow Offers is buying and selling, say, 10,000 homes a month, that’s about 2.5%, 2% or so of the market. If we’re doing that type of home buying and selling volume, homebuilders typically have a 75% attach rate on their in-house mortgage of homes that they’re selling. At a 75% attach rate on 10,000 homes a month at 9,000 in revenue per mortgage origination, that’s $67 million a month of mortgage origination revenue or about $800 million a year. So for anybody who is wondering why we just bought a mortgage lender, just to hit some of those numbers again, at a mere 10,000 homes sold a month from Zillow Offers, a 75% attach rate gets to over $800 million a year of revenue opportunity for mortgage origination.”

Clearly, Zillow will want to control the mortgage loan process and fee income on homes they sell through Zillow Offers, a program they are rapidly expanding.

Zillow’s massive online following will also see Zillow Offers homes featured more prominently on their platform. Recently, a Zillow spokesperson said that the company is running “tests” on Zillow.com and its various mobile apps that show its own for-sale homes at the top of its home search pages, ahead of other competing listings.

Zillow recently announced purported enhancements to the accuracy of Zestimates

A little over a year and a half ago, Zillow launched a contest to see if anyone could create an algorithm that could beat the one they were currently using to form “Zestimates,” the online real estate giant’s property value estimation tool. If anyone was successful, they’d give them $1 million.

F2On January 30, Zillow announced that a team of people had succeeded in creating a model that they said bested the Zestimate. The winning team included data scientists and engineers from around the world: Chahhou Mohamed of Morocco, Jordan Meyer of the United States, and

Nima Shahbazi of Canada.

Zestimates are a primary driver of Zillow web traffic, which leads to familiarity with the site, which leads to home searches, which will eventually lead to more Zillow Offers purchases and sales and more Zillow Home Loans business. If only for the publicity alone, this was a smart $1 million investment.

Zillow starting to position themselves as a thought leader on the lending side of the housing industry

If you spend some time scrolling through the archives of the “Research” page of Zillow’s website, you’ll see an interesting transformation starting to take place. Prior to 2019, Zillow Research was primarily limited to reporting of housing industry related indicators like new and existing home sale data, home appreciation indices and tracking of the direction of mortgage rates and rents.

Then starting in January, in a clear departure from their “simply report the housing numbers” media strategy, Zillow began posting a series of op-ed columns on affordability, age/race, the environment and other social and thought leadership issues that impact the housing industry.

The 800-pound gorilla is in the room

Zillow’s connection to the point of sale of real estate transactions is staggering. Their leadership has a strong track record of growth and innovation at Zillow and in other ventures. Home buyers continue to get increasingly more comfortable with online transactions each day. As the mortgage industry continues to slowly muddle through a complete digital transformation, Zillow now has the framework in place to continue to accelerate their home buying, selling, and financing arms. And they now have aggressive stated growth goals for those platforms.

What they’re trying to pull off is risky, for all the reasons noted. Their growth plans largely conflict with their current revenue sources. The mortgage industry is heavily regulated and experiences constant change. With great risk comes great reward. With their online following, Zillow has the opportunity to become one of the largest mortgage lenders in America, just a few years after entering the space.