Zillow Pressures Flex Teams to Perform

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Zillow continues to double down on its mortgage business, this time by compelling Flex teams to send back leads that have expressed interest in learning more about Zillow Home Loans – or risk getting kicked out of the program.

Why it matters: Zillow is leveraging its immense market power and forcing its partner ecosystem to change behavior, all in an effort to meet its revenue goals.

The following chart, provided by Zillow to its Flex partners, clearly outlines its performance expectations.

  • Underperformance, in terms of not converting buyer leads or not sending leads back to Zillow Home Loans, can result in “disengagement” – no more leads.
     

  • While Flex teams that convert leads and send customers back to Zillow Home Loans are eligible to get more leads.

 
 

Zillow asks Flex agents to send back leads that have expressed interest in learning more about Zillow Home Loans.

  • Consumers “express interest” through a checkbox on the initial contact form, which is checked by default – so it’s really an option to opt-out rather than opt-in.

This is another clear signal of the critical importance of Zillow Home Loans to Zillow’s long-term strategic plan to double revenue.

Perspective: While Zillow is strongly leveraging its power on the market, it only affects a very small percentage of agents and transactions.

  • Less than five percent of the U.S. real estate agent population works with Zillow (with far fewer Flex agents), and Zillow only touches around three percent of U.S. real estate transactions.

The bottom line: Zillow is curating a small, exclusive ecosystem of agents that are willing to play by its rules, which now includes tight integration with Zillow Home Loans.

  • Zillow continues to lean heavily into mortgage as part of its broader strategy, even though Zillow Home Loans has lost $283 million since 2017.
     

  • At the end of the day, there is only so much Zillow itself can do; it is reliant on its agent partners, and Zillow is exerting immense pressure on those partners to achieve its goals.

Zillow Flex Fee Rises to 40 Percent

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Zillow recently raised the success fees on its Flex program – from 35% to 40% – for the completion of a successful transaction in six markets.

Why it matters: Zillow, like every other leading real estate portal around the world, has tremendous pricing power, and is able to flex that power to squeeze more revenue from agents and the multi-billion dollar commission pool.

Dig deeper: In early 2022, Zillow set itself lofty revenue goals, including generating an additional $1.5 billion per year from its Premier Agent program.

  • This revenue stream, paid for by agents, taps directly into the $70+ billion annual commission pool.

 
 

A key component of Zillow’s strategy is growing its Flex program – Next Gen Lead Gen that monetizes transactions on a success fee model.

  • That success fee has been 35 percent for years, but has recently risen to 40 percent in a half-dozen markets.
     

  • Zillow Flex accounts for around 25 percent of Zillow’s entire Premier Agent revenue, a percentage that has yet to materially change in 18 months.

 
 

The pricing change quietly occurred in September (there was no press release, for obvious reasons) in six markets: Denver, New Haven, Cape Coral, Reno, Oklahoma City, and Greenville.

There is a graduated referral fee band, but in all but two markets the average home value (as computed by Zillow) falls within the highest, 40 percent fee band.

 
 

The bottom line: Zillow’s market dominance, coupled with the exclusive nature of its Premier Agent and Flex programs, gives it unprecedented pricing power.

  • As outlined in my Real Estate Portal Strategy Handbook, most revenue growth at real estate portals around the world comes from raising prices.
     

  • Despite talk of new revenue streams and super apps, the easiest way for Zillow to increase revenue may be to simply raise prices on a captive audience.

Zillow Still Crazy About Mortgages

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In a down market with historically high interest rates, Zillow continues to invest in its mortgage business – Zillow Home Loans – and is the only company among its peers that is adding mortgage loan originators (MLOs) to its headcount.

Why it matters: While other real estate tech companies are shedding mortgage headcount, cutting expenses, and closing their mortgage operations, Zillow’s investment is a clear sign of strategic intent and a reflection of its ability to invest for the long-term.

Zillow’s real estate peers, including iBuyers, Power Buyers, digital brokerages, and mortgage start-ups, have all shed MLOs over the past 18 months.

  • Some companies, like Opendoor, have shut down their entire mortgage operations, while others have cut MLO headcount by half (or more).

 
 

The number of Zillow’s MLOs has fluctuated over time, but there has been a sustained and noticeable increase throughout 2023. 

  • Zillow’s MLO headcount is up around 40 percent since February ‘23.

 
 

Better Mortgage, which recently went public via a SPAC, presents a very different story of MLO headcount. 

 
 

Zillow Home Loans is still relatively small compared to industry peers, including Redfin’s Bay Equity and Prosperity Home Mortgage (a subsidiary of mega-broker HomeServices of America).

 
 

Zoom out: And as I’ve written in the past, these companies are a drop in the bucket compared to mortgage industry behemoth Rocket Mortgage.

 
 

Remember: Zillow’s recent financial reporting changes have removed an informative layer of transparency from its business.

  • After six years of losses, it’s no longer possible to track the profitability and operating expenses of the mortgage business unit.

The bottom line: The number and growth of MLOs is an important leading indicator of a company's firepower and strategic intent.

  • With continued struggles around profitability and uncertainty around adoption, Zillow Home Loans is far from an unequivocal success story – but the company continues its heavy investment.

  • The depth of investment stands out by going against the grain of other mortgage companies, real estate tech disruptors, and the overall market – which highlights the importance of mortgage for Zillow.

Zillow’s Listing Showcase Opportunity

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As Zillow's Listing Showcase rolls out, it’s becoming clear that it will play a central role on the seller side of the business as it unlocks new premium revenue streams.

Why it matters: Zillow’s goal is to double its revenue and customer transaction share by 2025 – a significant undertaking – and Listing Showcase appears to be a foundational component of that strategy.

 
 

Listing Showcase is sold to agents on a subscription basis, and each geographic “zone” has a limited number of subscriptions available.

  • One subscription includes five new Showcase Listings per month (which include photos, a 3D tour, interactive floorplans, and enhanced visibility).
     

  • Subscription prices vary by thousands of dollars depending on the market, but the average appears to be around $3,000 per month.
     

  • Exclusivity is an important cornerstone of Listing Showcase: It’s possible for one agent or team to purchase all of the available subscriptions in a zone.

The revenue opportunity is significant, measured in hundreds of millions of dollars per year.

  • Assuming six million total listings per year, converting five percent of them to showcase listings at an average subscription of $3,000 per month, the revenue potential is $180 million per year (Zillow’s existing premier agent business is about $1.2 billion).

 
 

And by the way: Listing Showcase doesn't cannibalize Zillow's existing business – listing pages still have tour requests which are routed to paying premier agents. 

 
 

Perhaps most importantly, the launch of Listing Showcase gets Zillow’s paying customers on the premium product flywheel, a concept very familiar to its international portal peers.

  • Once customers start paying for premium placement (listings and exposure), they usually end up paying more and more over time.
     

  • This is ARPL (average revenue per listing), and it keeps going up, driven by consumer demand and agent exclusivity – it’s the growth engine of international real estate portals like REA Group in Australia, Rightmove in the U.K., and Hemnet in Sweden.

 
 

Zillow's goal is to double its customer transaction share – a transaction that Zillow monetizes – from three to six percent of the market.

  • Zillow reported that it had five percent of buyer customer transactions in 2021, and, as outlined above, if it's able to capture five percent of seller listings, the goal of six percent of all buyer and seller transactions is within reach.

 
 

The bottom line: Up until now, the path to Zillow's lofty goals hasn't been entirely clear – but Listing Showcase is providing tangible clarity. 

  • Listing Showcase doubles down on what the business actually is (a high-margin online advertising platform) and not something it isn’t (an unprofitable, low-margin iBuyer or mortgage company).
     

  • In other words, Listing Showcase is strategically aligned to Zillow’s DNA and sustainable competitive advantage; it is competing where it can win.

Zillow’s Most Interesting Product

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In a year dominated by a confusing market, major advances in AI, and disruptors fighting for survival – Zillow has arguably released its most ambitious product since iBuying: Listing Showcase. 

Why it matters: Listing Showcase represents a new business model – from pay-per-lead to pay-per-listing – which is aligned to how Zillow’s very profitable international peers monetize their market-leading positions.

 
 

The Listing Showcase product promotes a specific listing with larger photos, enhanced agent branding, and premium placement in search results.

  • It’s also exclusive in each market, providing participating agents a unique advantage over other agents (“only my listings are enhanced in this market, making your property stand out”).
     

  • The result is a high profile listing with strong agent branding, ideally leading to more seller leads for partner agents.

 
 

Dig deeper: For years, seller leads have been the mythical holy grail of online real estate – incredibly valuable, but very difficult to generate at scale.

  • One surprise of the last five years was iBuying, which despite its challenges, turned out to be a great way to generate high quality, high intent seller leads (read more: Zillow's billion dollar seller lead opportunity).
     

  • Before it was shut down, Zillow Offers was generating tens of thousands of valuable seller leads per month.

 
 

Like its overseas peers, Zillow is using the concept of scarcity to increase the value of Listing Showcase; if it were available to any agent willing to pay, it would confer no unique advantage – but offered on an exclusive basis, the value becomes exponentially higher. 

  • Without an MLS, nearly all international portals charge agents (or home sellers) on a pay-per-listing basis, with multiple tiers of enhanced exposure.
     

  • Australia’s REA Group is masterful in the art of premium listings, which always include larger photos, premium placement in search results, and enhanced agent branding – all of which are features of Zillow’s Listing Showcase.

 
 

Yes, but: By only promoting the listing agent, Listing Showcase will cannibalize Zillow’s existing buyer lead business – but that’s not necessarily a bad thing.

  • Listing Showcase is a hedge against any potential impact from the various lawsuits that may restrict or change buyer agent commissions.
     

  • It also neutralizes the threat of CoStar's "your listing, your lead" product offering.

The bottom line: Listing Showcase is a serious, credible attempt by Zillow to expand its business from selling leads to selling exposure.

  • Modeled on its international peers, Listing Showcase has the hallmarks of a classic pay-to-play premium product, which, on a per listing basis, is a significant endeavor for the company. 
     

  • At its best, it’s a potential premium revenue stream that’s good for agents (the ones that pay), consumers, and Zillow's bottom line.

Zillow 3.0: Is It Working?

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Zillow’s latest earnings reveal growth in its core Premier Agent business after nine months of decline – the longest in the company’s history – a promising result of Zillow’s new strategy.

Why it matters: The next iteration of Zillow revolves around a back to basics strategy of generating more leads and monetizing those leads through an integrated consumer experience (a super app).

  • But a change in financial reporting will make it more difficult to track the various components of the business on its journey to building that super app.

Zillow’s Premier Agent revenue increased during the first quarter of the year, breaking a nine-month losing streak – the longest consistent revenue decline in the company’s recent history.

  • Premier Agent revenue was up 8 percent from Q4 2022 (but still down 16 percent from the heady days of early 2022, when the market was at its peak).

 
 

Comparatively, Zillow had a strong quarter – its Premier Agent business outperformed the market year-over-year and quarter-over-quarter.

  • Compared to the same period last year, overall transactions in the market were down 26 percent, compared to a 16 percent decline in Premier Agent revenue.
     

  • And compared to last quarter, market transactions were down 14 percent while Zillow managed to grow its Premier Agent revenue 8 percent – a noteworthy achievement!

 
 

Zillow’s ability to outperform the market comes down to two activities: capturing a higher percentage of leads in the market, and generating more revenue per lead.

  • Zillow’s stated goal is to double its share of customer transactions from 3 to 6 percent by the end of 2025.
     

  • ShowingTime and Flex are both designed to engage more consumers and increase conversion rates, resulting in more leads and more revenue per lead.

Zillow Home Loans is another source of revenue growth, and the company continues to invest in it.

  • The segment saw an increase in revenue during the latest quarter, but the change in financial reporting means we’ll no longer be able to see profitability for the segment – after six years of losses and two years of me writing about those losses.

 
 

Losses aside, Zillow continues to invest in its mortgage business and is hiring more mortgage loan officers (MLOs) to handle an increase in volume.

 
 

The bottom line: Zillow’s path forward is dependent on its ability to capture more leads, further monetize those leads, and attach ancillary services like mortgage – a super app leading to super revenue.

  • But Zillow’s change in financial reporting will make it more difficult to track, with any degree of granularity, which pieces of the puzzle are working well and which are struggling.
     

  • Still, the numbers (while they last) don’t lie – the company’s recent performance relative to the market underscores the powerful position Zillow occupies at the top of the consumer funnel and its ability to affect change for consumers, agents, and the entire industry.

A Comparative Study of Real Estate Portal Revenue Growth

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With the books closed on 2022, the largest real estate portals around the world have demonstrated another year in a long line of consistent revenue growth.

Why it matters: The varied revenue growth between portals highlights business model differences, market share penetration, and hints at future prospects – all while reinforcing the strong position that leading real estate portals have in their respective markets.

  • The standouts are Rightmove (U.K.), Hemnet (Sweden), and Zillow (U.S.), all for a variety of reasons.

The change in revenue between 2021 (boom market) and 2022 (contracting market) highlights differing market dynamics and varied portal business models.

  • The U.S. housing market experienced higher highs in 2021 and lower lows in 2022 compared to many international markets – leading to revenue declines in 2022.
     

  • In Sweden (Hemnet) and Australia (REA Group and Domain), the homeowner pays the portal listing fee – making it easier for portals to increase prices on a fragmented audience that transacts infrequently.

 
 

Hemnet is the clear standout in terms of revenue growth over the past four years.

  • General Atlantic, a growth equity firm, acquired a majority stake in Hemnet in 2016 – and since then the business has accelerated its growth in a remarkable way.

 
 

Dig deeper: Hemnet’s revenue growth has come from increasing its average revenue per listing, with the major driver being price increases (in addition to new premium products).

  • As the only major portal in Sweden – far above any competitors – Hemnet has incredible pricing power.

 
 

On the opposite end of the spectrum, Rightmove has the slowest growth of its peers.

  • Rightmove is the dominant portal in the U.K. and its competitive position hasn’t changed in years, but the company has a more conservative growth model and tends to “stick to its knitting” more than its peers.
     

  • It’s also reached market saturation and is only able to raise prices so much each year.

 
 

The bottom line: Real estate portals are strong businesses that typically demonstrate consistent revenue growth.

  • But across the world, not all portals are created equal: markets, business models, relative pricing power, and competitive tension all factor into growth potential.
     

  • And with an asset class as financially and as psychologically valuable as real estate, customers – real estate agents and homeowners – are willing to pay more and more each year, fueling the perpetual revenue growth machine.

The Path Forward for Zillow Home Loans

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Zillow has been doubling, tripling, and quadrupling down on its mortgage business – which continues to lose money.

Why it matters: Zillow Homes Loans is a key part of the company's growth strategy, and an analysis of its current traction highlights the opportunities and challenges on a likely path forward.

Zillow’s mortgage business posted a $167 million loss in 2022, for a cumulative loss of $283 million since 2017.

  • Interestingly, while other mortgage businesses have enacted layoffs and race to cut costs, Zillow is keeping its mortgage operating expenses (OpEx) steady.
     

  • While revenue dropped in 2022, OpEx investment remained high – illustrating that Zillow is continuing to invest in mortgage without pressure to turn a profit.

 
 

To succeed, Zillow Home Loans must attach loans to the leads delivered through Zillow’s premier agent and flex programs.

  • Zillow reported that in Raleigh, one of its test markets, customer adoption of Zillow Home Loans increased from 15 to 20 percent.
     

  • This mirrors the progress of Redfin, which reported 21 percent mortgage attach in February compared to 17 percent in Q4.

Yes, but: Attaching mortgage is nothing new for traditional brokerages.

  • HomeServices of America and Prosperity Home Mortgage have achieved 25 percent attach rates at a national scale of over 45,000 funded loans annually – 10x the size of Zillow Home Loans.
     

  • Zillow and Redfin are both below the industry average, and may likely top out at 25 percent, something of a universal constant in the world of attaching mortgage.

 
 

Zillow's next act, announced in early 2022 after Zillow Offers was shuttered, included plans for significant revenue growth through mortgages (adjacent services).

  • A key component of this strategy is integrating Zillow Home Loans into Zillow Flex.

 
 

Behind the numbers: Zillow generated about 75,000 Flex transactions in 2022 – if the company scales Zillow Home Loans to 50 percent of its markets with a reasonable 25 percent attach rate, it would close around 9,300 loans and generate around $84 million in additional revenue.

  • A possible end goal could include doubling Flex transactions and launching in 80 percent of Zillow’s markets, with a stretch 30 percent attach rate – leading to 36,000 loans and $324 million in revenue.
     

  • These are large numbers with equally large assumptions; scaling a national mortgage operation is hard (and expensive and people-intensive). 

 
 

The bottom line: Zillow is experiencing some early wins in its journey to integrate Zillow Home Loans with its Flex program – but the path forward is uncertain, long, and expensive. 

  • Even after years of investment, Zillow Home Loans (and Redfin) is still playing catch up to the tried-and-true mortgage attach methods of the nation’s largest real estate brokerages.
     

  • A multitude of factors need to go right for Zillow to hit its goals: doubling its Flex program, convincing thousands of Flex agents to promote Zillow Home Loans, and standing up a national mortgage operation to handle 10x the volume. 

One Year Later: Zillow Offers & Opendoor

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Last week Opendoor announced that it lost nearly $1 billion during the third quarter of the year — the result of selling too many homes at a loss.

Why it matters: Exactly one year ago Zillow faced a similar situation with its iBuyer business, Zillow Offers — and subsequently shut it down.

  • The cause and effect in each case is similar, with nearly identical financial implications, but the paths forward differ.

Dig deeper: Opendoor’s net loss of $928 million for the quarter is more than double Zillow Offer’s net loss of $422 million in Q3 of last year.

  • It’s a matter of scale: Opendoor sold more than twice as many homes as Zillow (8,520 vs 3,032).

  • The net loss also includes significant inventory write-downs: $573 million for Opendoor and $304 million for Zillow.

 
 

On a per home basis, each company incurred similar losses.

  • The write-down per home in inventory is nearly identical, showing that both companies were guilty of “unintentionally purchasing homes at higher prices than current estimates of future selling prices.”

 
 

Zillow’s decision to shut down Zillow Offers in Q3 2021 likely protected the company from at least a billion dollars of additional loses.

  • It also returned the company to profitability (on an adjusted EBITDA basis) and removed the uncertainty of wild profitability swings.

  • Meanwhile, Opendoor will endure at least six months of unprecedented financial losses.

 
 

(Adjusted EBITDA excludes inventory write-downs, stock-based compensation, and property financing expenses.)

What to watch: Opendoor is making significant changes to reduce its risk in response to the volatile real estate market.

  • It is buying significantly fewer homes, and making lower offers on the homes it does purchase.

  • The company launched a new, asset-light marketplace to connect buyers and sellers, without Opendoor actually purchasing the home (more on this in a future analysis and my upcoming webinar).

  • Opendoor also quietly shut down its entire mortgage operation, Opendoor Home Loans.

Key learnings: It is very challenging for an iBuyer to respond to sudden market volatility, especially changes in home price appreciation.

  • At the desired scale iBuyers want to operate at, the results of downward pricing pressure can be financially catastrophic.

  • Asset-light — not buying the actual house — is taking more prominence in the evolution of the iBuyer business model (and is a key component of the Power Buyer model).

The bottom line: In retrospect, Zillow’s decision to shut down Zillow Offers was the right call: it prevented additional loses, preserved the core business, and positively refocused the company.

  • But while Zillow Offers folded, Opendoor has no choice but to continue on in a challenging and volatile market — making adjustments to its business model as it goes.

The Real Estate Portal + Mortgage Conundrum

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The largest global real estate portals are attempting to diversify and expand their revenue streams by offering mortgage -- with mixed success.

  • Zillow, Redfin, and Australia's REA Group have all made major forays into mortgage with large acquisitions.

  • Despite being technology companies, revenue growth is closely tied to employee count, and profitability (in the U.S.) remains elusive.

Dig deeper: Redfin's mortgage revenues jumped after its recent acquisition of Bay Equity for $138 million, but the overall business remains unprofitable.

 
 

Zillow's mortgage business has been unprofitable for over five years, recently spending $1.85 for every $1 in mortgage revenue.

 
 

Australia's leading portal, REA Group, has managed to grow a profitable financial services business by acquiring two large mortgage broking businesses.

  • Financial services now accounts for six percent of REA Group's total revenue.

 
 

Behind the numbers: Mortgage growth is very much tied to people -- mortgage brokers and mortgage loan originators (MLOs).

 
 

Mortgage business growth is tightly correlated to an increase in mortgage advisors (brokers and MLOs).

  • Redfin's mortgage originations are up 10x while MLO count is up 12x after acquiring Bay Equity.

  • REA's financial services revenue is up 2.8x while its number of mortgage brokers is up 2.7x after acquiring Mortgage Choice.

 
 

Broader context: The number of MLOs is an important bellwether for the ability of other real estate tech disruptors to grow in the mortgage space.

  • Some companies have shed MLOs through recent layoffs (Reali, Tomo, Homie, Knock, and Flyhomes), while others have grown organically and through acquisition (Orchard and Homeward).

The bottom line: Billions of dollars are being invested to disrupt the mortgage process -- which is the path to profitability for many real estate tech companies.

  • Instead of leading to greater profits, mortgage has turned into a money pit for the big U.S. real estate portals.

  • And at the end of the day, the evidence is clear: it's the number of brokers and MLOs that drives meaningful business growth.

Zillow Home Loans Continues Its Unprofitable Run

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Like much of the industry, Zillow's mortgage operation, which includes Zillow Home Loans, has seen a steep decline in revenue and continues to burn cash.

Why it matters: Attaching mortgage is a key component of Zillow's "Housing Super App" and future growth strategy; the longer it falters, the less likely Zillow is to achieve its long-term aspirations.

  • Zillow's 2025 goal includes an additional $800 million in revenue from adjacent services -- primarily mortgage.

 
 

Dig deeper: Zillow's mortgage segment, which includes its mortgage lead gen marketplace and in-house lender Zillow Home Loans, is consistently unprofitable.

  • In the first half of 2022, Zillow spent $1.85 for every $1 in mortgage revenue.

  • That's a $65 million loss in the first half of 2022, and a combined loss of $180 million since 2017.

 
 

Context: The entire mortgage industry is getting hammered this year, with dropping leads, loan volumes, and revenue.

The bottom line: Zillow Home Loans' path to profitability remains long, arduous, expensive, and uncertain.

The Zillow & Opendoor Partnership

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Last week, former rivals Opendoor and Zillow announced a partnership to provide Opendoor's instant cash offers to Zillow's audience.

Why it matters: This is a big move for both companies. It reaffirms the continued relevancy of iBuying, gets Zillow back into the seller lead game, and gets Opendoor access to its largest customer acquisition channel yet.

But, why: It's a match made in lead gen heaven.

 
 

This partnership gives Zillow the ability to generate and monetize high-quality seller leads (consumers that are considering selling their home), something it lost when Zillow Offers was shut down last year.

  • Historically, Zillow was only able to convert 10 percent of sellers who requested an instant offer; the other 90 percent are high-quality seller leads.

  • Those leads are worth their weight in gold and can be monetized through Zillow's premier agent network (yes, I've been talking about this since 2018).

For Opendoor, this partnership represents an incredible -- and perhaps the industry's largest -- source of customer leads.

  • It extends Opendoor's ecosystem partnership strategy, which includes deals with Redfin, realtor.com, and eight of the top ten homebuilders.

  • The potential benefit to Opendoor is economic: lower customer acquisition costs, which were around $5,500 during the most recent quarter.

 
 

Perhaps most important, a Zillow Advisor will be the first point of contact for consumers requesting an instant cash offer.

  • This effectively cements Zillow's powerful position at the top of the funnel with continued, full access to the customer.

  • A Zillow Advisor will be able to discuss an instant cash offer alongside a traditional sale (seller lead), in addition to Zillow Home Loans.

Without the opportunity to upsell adjacencies, Opendoor becomes a fulfillment engine, similar to its other industry partnerships, focused on the core iBuyer transaction (buy, fix, sell).

The bottom line: This deal is both a confirmation of the relevancy of iBuying, and a continuation of that relevancy through Zillow's promotion of instant offers across its massive platform.

  • It puts Zillow back in the potentially-lucrative seller leads business, and gives Opendoor access to millions of potential customers. Win-win.

For more on iBuyers, portals, and the major shifts across the industry, check out my keynote presentation, 2022 WTF, from Inman Connect Las Vegas.

Building a Better Mousetrap: Zillow vs. Opendoor

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Opendoor made over two million offers to curious homeowners in 2021, exponentially more than ever before.

Why it matters: This highlights the growing potential of Opendoor's "top of the funnel" customer appeal -- which is beginning to rival Zillow.

  • Opendoor and Zillow are both in the game of attracting consumers and converting them to monetizable customers.

Dig deeper: Of the 2.1 million offers Opendoor made in 2021, it only purchased 1.8 percent, or around 37,000, of those houses.

  • Based on the company's numbers, of those 2.1M offers, five percent, or 105k, represented unique "real sellers." Of those, 35 percent sold to Opendoor.

  • That purchase rate has decreased over time as Opendoor has ramped up the number of offers it makes while automating the offer process.

 
 

A low purchase rate does raise questions of product/market fit.

  • Based on the total offers sent out, a very small number of consumers are deciding to sell their home to Opendoor.

  • But of "serious sellers," one in three ain't bad.

Yes, but: Hundreds of thousands of consumers are actively deciding to visit Opendoor to request an offer.

  • Even if Opendoor doesn't buy the house, the company still touches a homeowner during their home buying/selling journey, creating an opportunity to cross-sell adjacent services (brokerage, mortgage, leads to agents).

  • And, as we'll see below, overall customer conversion is on par with Zillow.

Zillow's powerful top of the funnel customer acquisition tool is its web site, which generated an estimated 21M leads in 2021.

  • Of those, 1.4M were "real buyers" and 26 percent of them (360k) ended up transacting with a Zillow Premier Agent.

  • That results in an overall conversion rate of 1.7 percent, exceedingly similar to Opendoor's 1.8 percent.

 
 

Zillow's dominance at the top and bottom of the funnel is clear: 10x larger than Opendoor.

  • But surprisingly, Zillow, the decades-old industry heavyweight, is only 10x larger than Opendoor, which has made notable gains.

  • There are variations in conversion rates throughout the funnel, but overall efficacy is nearly identical.

Remember: Zillow is optimized around home buyers, while Opendoor is optimized around home sellers.

The bottom line: With similar conversion rates, neither company has built a better mousetrap, but Zillow's mousetrap is exponentially larger.

  • In terms of customer reach and the sheer quantity of leads generated, Zillow has a huge advantage.

  • But with its ongoing national expansion, heavy advertising investment, and automation of the offer process, Opendoor is making significant gains -- and the growing power of its top of the funnel customer acquisition can't be ignored.

A note on data: The last time Zillow reported the number of leads generated annually was 17M in 2016. My assumption of 21M leads in 2021 is a well-informed estimate.