The Cost of Zillow Offers vs. a Traditional Sale

By: Errol Samuelson

Zillow launched Zillow Offers in April 2018 to help people who want more control, certainty and convenience when selling their home. By selling to Zillow, homeowners can choose their close date, avoid the stress and cash requirements of preparing their home for sale, and have immediate use of the proceeds from the sale of their home.

Designed as a service to sellers, Zillow’s model is to purchase homes at market rate, quickly prepare them for sale and then resell at market rate. We currently price each home to break even, as Zillow Offers grows quickly to scale nationwide.

Essentially, Zillow Offers acts as a market-maker – a service that connects sellers to eventual buyers. And we do this using real estate agents to represent us while leveraging the MLS to facilitate the transaction.

Does Zillow Offers Make a Fair Offer?

Recently, some analysts have suggested that traditional sales models will deliver far better value to home sellers than our approach. The reality however, is that selling on the open market may not result in a significantly higher price than Zillow’s offer.  We looked at 3,200 homes where a seller declined a Zillow Offer and then went on to sell traditionally within 120 days. We found that these homeowners sell for an average of about 0.22% more than Zillow’s offer.[1] What’s more, a recent study conducted by a third party analyst has come to a similar conclusion, with the results reported in the Wall Street Journal.

Now it is true that a seller who chooses to list on the open market may find a buyer who will pay more than Zillow’s offer. That’s why sellers who want to maximize price might decide the effort and uncertainty of a traditional sale is worth it. In those cases, Zillow works to connect sellers with local real estate agents to represent them. Zillow Offers is designed to help a homeowner no matter how they decide to sell.

What Goes Into The Cost of a Home Sale

Zillow has been estimating home values since 2006, when we began publishing the Zestimate. But ultimately, the value of a home is what a buyer will pay for it, which is why we test our accuracy by comparing the Zestimate to actual sales data. As of November 2019, the Zestimate’s nationwide median error rate for on-market homes is 1.9%.

This commitment to being accurate and transparent is extended to Zillow Offers. For every offer Zillow makes, we give a side-by-side comparison to the homeowner estimating what we think a seller could collect if they choose to sell traditionally. This comparison includes the service fee we charge which averages 7.5%.

Now many analysts have simply compared our service fee to the 6% agent commission costs from a traditional home sale. But this comparison using only commissions ignores that a home seller has to manage, or incur other costs: cleaning the house, staging, HOA fees, or the cost associated with the misalignment of a home sale, such as carrying two mortgages, renting an apartment, etc., when selling traditionally. These are meaningful costs that add up quickly. With Zillow Offers, a home seller doesn’t have to worry about doing any of these themselves. What’s more, because of our scale, the costs associated with repairs when we do them tend to be lower than what an individual homeowner would pay if they contracted out the work themselves as individuals.

We also provide potential sellers with a list of needed repairs to get the home ready for resale. In a Zillow Offers sale, Zillow does this work, and the cost of labor and materials is subtracted from the purchase price. Making repair concessions is a common cost when selling traditionally, but doesn’t often get talked about. It should be. Our research shows that concessions occur 81% of the time in a traditional sale – so it’s a cost that a seller does need to factor in.

Measuring Success

Since we launched Zillow Offers, and through June of 2019, more than 170,000 sellers have requested an offer from Zillow, and the response has been overwhelmingly positive. We are glad to offer choice to home sellers – via either a traditional sale or a cash-offer from Zillow, always facilitated by great agents.

Here is what Sarah Chambers, a Charlotte-area home seller, had to say when deciding between Zillow Offers or selling traditionally: “We’ve been in the house for about 10 years and we have three children. So for us to even think about … you know, having the repairs done, putting it on the market, staging it, putting stuff in storage. … It would have taken a lot of time and a lot of stress. I think that offset the time that I would have lost waiting around stressing out on who’s going to buy our home.”[2]

Finally, when asked about price, Sarah commented that Zillow’s Offer “was very fair.” For us at Zillow, the perception of Sarah and sellers like her is the most important testament to what we do every day.

Errol Samuelson is Chief Industry Development Officer for Zillow Group

 

[1] Based on an analysis of more than 3,200 homes, across all markets where Zillow Offers is currently available, sold traditionally within 120 days after declining their Zillow Offer through end of third quarter 2019.

[2] Source: https://www.wfae.org/post/finding-home-corporate-buyers-let-you-sell-quickly-app#stream/0

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