Real Estate Marketing & Beyond
Zillow is replacing its Chief Executive Officer Spencer Rascoff with its cofounder and former CEO Rich Barton, who takes over the top job with immediate effect, the company said last week.
Rascoff, who is also a cofounder, had served as Zillow’s CEO for almost a decade. He helped the company grow to become the most recognizable home search portal in the US, and in recent times expanded its business to include buying and selling homes, and providing mortgage lending services.
Zillow said that Rascoff will remain on its board of directors, but will no longer be involved in the day-to-day running of the company.
Barton (pictured, above), who quit the CEO role in 2010, never actually left the company and had instead served as its executive chairman during the intervening years.
Zillow’s leadership reshuffle took some industry watchers by surprise, as many had viewed the company as going from strength to strength as it began buying and selling homes in multiple US markets, and entered the mortgage industry with its acquisition of Mortgage Lenders of America last year.
However, Zillow’s most recent fourth quarter earnings report showed that the company is facing headwinds as it struggles to turn a profit with its nascent home selling business, which is basically a home flipping model on steroids.
While Zillow is first and foremost a homes for sale listings portal, it’s recently been trying to branch out into other parts of the real estate market. In April 2018 it launched a new service called Zillow Offers, in which homeowners can request a bid from Zillow on their home, and sell it immediately if they accept that offer. Zillow then takes those properties, renovates them, and tries to sell them on for a profit, all within 90 days. Zillow Offers is currently available in seven U.S. markets, and will expand to include 7 more by the end of the year.
But a look at Zillow’s fourth quarter numbers suggests that the new business model isn’t going so well. Through December, Zillow purchased a total of 686 homes and sold just 177 of them, which suggests it may be struggling to find willing buyers. Even worse, the earnings call highlighted the razor-thin margins Zillow has been dealing with. Of the 141 homes Zillow managed to sell in the fourth quarter, it made a profit of just $1,723 per home after buying, renovation, selling and interest costs.
The company spent an average of $264,134 on its home purchases in the last quarter, before spending just north of $20,000 on each home for renovation. Once interest and holding costs were taken into account, Zillow’s cost per home was $291,518 per home, meaning the $293,241 in revenue it generated per sale amounted to a 0.5% profit margin.
Earlier in the year however, when housing activity was stronger, Zillow appeared to have generated more than twice that margin, which suggests there is still some merit to the new business model. Indeed, Zillow still insists that the new business will achieve an annual revenue of $20 billion by 2024.
“In the past year, Zillow Group has become a very different company. We’re making strategic investments to broaden the Zillow Group portfolio to move further down the home-shopping funnel, giving today’s ‘uberized,’ on-demand consumers a full spectrum of options to buy, sell, borrow and rent on their terms,” Barton said in a statement. “Adding real estate transactions and eventually seamless mortgages to the Zillow Group portfolio positions us well for the next generation of online real estate and dramatically increases our addressable market.”
