Amazon has seemingly taken over the world retail market, infiltrating nearly every industry from books, kitchen supplies, entertainment to food. One area left uncharted by Amazon however, is real estate. Today there is a race to the top to see who will become the ‘Amazon of real estate.’ Two of the leading players in this race are Zillow, and Amazon itself. Traditionally, home sales were managed by realtors who, representing the seller, handle all the paperwork, the listing, and negotiate with the buyers. Upon sale, the seller pays the realtor a commission fee. Now however, Zillow is looking to fundamentally change the way homes are sold.
How Zillow Offers Works
With the launch of Zillow Offers, with just a few clicks, homeowners can sell their home directly to Zillow. Through this, sellers receive an offer on their property within two days. The idea behind this is that sellers can simply work directly with Zillow and be done with it rather than going down the traditional route which can take several months before a sale is finalized.
Zillow plans to use this service to buy and sell homes to generate revenues. With this, owners sell directly to Zillow for a service fee. That fee will vary based on the property. The appeal of this service is the simplicity. Zillow Offers gives you an immediate offer and will buy your home without delay or hassle. Sellers will not have to pay to stage their home, conduct open houses or spend time finding a listing agent. The site also offers a side by side comparison of estimates if sellers sold their home the traditional way.
Thus far, Zillow has purchased 2,300 homes through this service and has sold 1,200. While the company has largely lost money up to this point, the potential revenue is in the billions if they can work out some of the kinks. As it stands right now, the National Association of Realtors estimates that 5.4 million homes will be sold this year. At an average price of $270,000, managing to capture even 1% of those would yield over $14B in revenue.
Currently, Zillow is not making money off Zillow Offers as start-up costs are eating all their profits, but it expects to make 4-5% per property before interest going forward once the activity rises to expected levels.
Implications for the real estate market
How would this change the current real estate market? Ask traditional book sellers how Amazon disrupted their market. Right now there is a sizeable share of the market to gain. Home sales rack up over one trillion in value in a given year. That potential is similar to what online retailers saw in the 90’s that enabled Amazon to takeover the eternity to the retail shopping market.
Perfecting this service would revolutionize the real estate market by taking the entire process of buying and selling a home online. Similar half-steps have already begun. Quicken Loans transformed the buying process by taking the daunting task of getting a mortgage loan online. Hence the phrase, “Push button. Get mortgage.” This would have huge ramifications for the real estate industry all the way down to displacing real estate agents.What would become of real estate agents? How would brokerages compete with this service?
Amazon and Realogy partnership rivaling Zillow
Speaking of being the ‘Amazon of real estate,’ Amazon itself is making moves in this direction. This summer revealed that Amazon and Realogy are teaming up to take on Zillow. Realogy is the largest U.S. residential brokerage that matches homebuyers with real estate agents through a service called Turnkey. Once Turnkey matches buyers with Realogy’s agents, upon closing on said home, The Amazon Move-In benefits offers up to $5,000 worth of Amazon Home Service, courtesy of Realogy.
According to the Realogy CEO Ryan M. Schneider, “Realogy’s great affiliated agents serve their clients during one of the most important moments in their lives, and Amazon’s services and products can transform that moment to make it rewarding in a way no one ever has before.”
Services offered by Amazon Move-In include; deep cleaning, furniture assembly, picture hanging, shelving installation, TV mounting and more. Turnkey is currently available in 15 major US cities. By contrast, Zillow Offers is available in 21 markets.
While both Zillow Offers and Turnkey seek to greatly simplify the process of buying homes, the two are different in many ways. As it stands,Turnkey is solely about pairing buyers with agents, helping them purchase their home, and then helping them move in. Zillow Offers is strictly about buying and selling homes online. Though they have similar goals, their approach is different. However, it’s not beyond possibility that Amazon would venture into the buying and selling market eventually. For those are looking to sell their homes quickly and without hassle, Zillow Offers is likely the best fit. However, for those seeking to have the best home buying experience and get the most out of it with full move-in assistance, Turnkey is the place to go.
The digitization of the real estate industry has been slowly gaining momentum ever since Quicken Loans made getting a loan online possible. Now other names like Zillow and Amazon are diving into the housing market to become the new ‘Amazon of real estate.’