With over 60 million monthly visitors, Zillow is an invaluable online real estate resource that connects buyers, sellers, renters, and landlords through a platform that is user-friendly, personalized, and free to use.
What’s more, it offers both online and mobile search tools and discovery capabilities for making the perfect match at no cost at all, which ultimately begs the question: how does Zillow make money, and how is it free to use?
One way Zillow makes money is by advertising, but there are other aspects of the company’s business model that help it boost its revenue streams. Read on as we uncover all.
How Does Zillow Work?
Zillow works by allowing users to search for information about homes, properties, and neighborhoods based on their desired criteria or location. The platform then aggregates the data from a variety of sources, including public records, real estate listings, and user-submitted data, to create comprehensive listings of homes for sale or rent.
Zestimate is Zillow’s main feature, a tool that provides an estimated value of a property based on a proprietary algorithm that takes into account factors such as recent sale prices of similar homes in the area, local market conditions, and property features.
Zillow’s database also includes information about a property’s history, including previous sales, tax assessments, and even property descriptions.
In addition to its database of properties, Zillow also hosts a variety of additional features and services, such as virtual tours, 3D home viewing tools, mortgage calculators, and more.
Similar to other marketplaces, Zillow users can create accounts and save their favorite properties or searches, set up alerts for new listings, and receive notifications when properties they are interested in are updated or sold.
Zillow Business Model
The business model of Zillow revolves around providing a comprehensive online platform for all aspects of the real estate industry. It is based primarily on empowering people to use Zillow’s tools and database to make smart decisions when buying, selling, leasing, remodeling, financing, or renting property.
Currently, the Zillow database hosts over 135 million homes in the US and Canada and is responsible for 48.11% of the real estate website traffic. Additionally, a staggering 6.9 million homes are sold via Zillow every year, which proves yet again how much the platform influenced the market as real estate facts state that up until 2019, the annual average sale of homes in the US was 650,000.
Below are segments that participate in the present Zillow business model.
Sales
Homeowners who wish to sell their homes can choose between listing their property directly on Zillow, working with an agent vetted by the company to help them sell, or a combination of both.
Until recently, the company enabled users to sell their houses directly to Zillow through its Offers program. However, the company reported significant losses in 2021, which is when they announced a Zillow business model change resulting in the shutdown of the entire Zillow Offer department.
Purchases
Users interested in buying a property can search on Zillow for homes that are foreclosed, pre-foreclosure homes, and even new constructions. This part of the business model is backed by a search engine and powerful filters to help prospective buyers find their perfect house.
Rent
In an effort to connect renters and landlords, Zillow offers a feature that allows them to search for rental listings in their desired area and submit an application online without ever having to leave the website. This significantly speeds up the credit and background check process.
Home Loans
Zillow acquired Mortgage Lender of America in 2018 and now offers mortgages directly to consumers. It also partners with other lenders to provide loans on its mortgage marketplace.
Agents
If visitors want assistance, they can seek help from a Zillow-approved agent. The portal helps in finding suitable professionals like real estate managers, property managers, home inspectors, home builders, etc.
How Does Zillow Make Money?
Zillow generates revenue through a variety of sources, including buying and reselling homes and receiving a sales commission for it, earning fees for leads, and interest fees on its home loans. The key revenue streams of Zillow are:
1. IMT Segment (Internet, Media, and Technology)
- Premier Agent Program
Zillow’s largest revenue source comes from its Premier Agent Program. Real estate agents can pay a fee to advertise themselves on the Zillow platform in an area and place of their choosing. This allows them to receive leads and connect with potential homebuyers and sellers.
According to available data, the Premier Agent program comprises the biggest chunk of Zillow’s revenue model. In 2020, the company made $1.04 billion from its Premier Agent services which continued to grow throughout 2021 when it showed a 13% year-over-year increase to $354 million in Q4.
In 2022, according to Zillow’s financial statement, Premier Agent revenue exceeded the company’s expectations and decreased by 20% year over year to $283 million for Q4 despite the industry total transaction dollar decline of 31%.
- Rentals and Other
Zillow’s expansive rental network enables users to search for and list rental properties. It includes Trulia, Hot Pads, and New York’s leading real estate app, StreetEasy, all of which are owned by the Zillow Group.
With the rentals segment, Zillow gets paid by landlords and property managers in return, for which they get advertising space and leads. This item is responsible for 7% of Zillow’s revenue. Meanwhile, other services include revenue generated by Zillow’s new construction marketplace and the sale of advertising services and business technology for realtors, including builders, and home improvement professionals.
For the fiscal year 2022, the company posted revenues of $1.83 billion for its IMT segment. This represents a drop of 2% compared to 2021 when Zillow’s IMT segment revenues amounted to $1.88.
2. Mortgages
Zillow also offers a mortgage marketplace where users can search for and compare mortgage rates and lenders. Home Loans is part of it, and as you may guess, Zillow makes money by offering and reselling loans, mortgage refinancing, and mortgage origination services which are mainly used by sellers and homebuyers.
Additionally, Zillow generates revenue from this item by charging mortgage lenders, general contractors, interior designers, and other similar businesses for advertising space. Similar to its Premier services, lenders and businesses who wish to buy ad space on Zillow are charged on a pay-per-click basis.
The mortgage origination division is responsible for 6.01% of Zillow’s revenue. However, as per the latest data, this segment noted a significant drop of 65% in Q4 of 2022 compared to the same period in 2021.
Does Zillow Make Profit?
Zillow makes earnings but is not yet profitable. According to data, Zillow’s net loss in 2022 amounted to $101 million, which is significantly lower compared to the $528 million net loss reported in 2021. Now that Zillow has shut down its Offers program, expectations are that it will become profitable in 2023.
On the revenue side, in 2022, Zillow generated $1.96 billion representing an 8% decrease from the $2.13 billion generated in 2021. As per Zillow’s revenue model, the IMT segment generated the majority or a total of 93.9% the company’s earnings.