Zillow Group Inc. (NASDAQ:ZG), the real estate listing website, intends to boost its profits by moving into the flipping business and buying and selling homes.
Starting in Phoenix and Las Vegas, Zillow is partnering with real estate brokers to resell homes. The way the so-called Zillow instant offer works is that owners of homes in these cities will receive offers from Zillow, which will in turn prepare their homes for a listing, and then sell them with the help of a local real estate broker.
The unexpected shift in Zillow’s business prompted Lloyd Walmsley, a Deutsche Bank research analyst, to say he’s “confused, but intrigued”. The group is making a “big shift” out of "a high-margin, asset light, high return on invested capital business model" to a “risky capital-intensive move into a low-margin business with limited direct competency,” Walmsley said in a note which was obtained by The Fly, the business newsgroup.
Zillow has also revealed its preliminary results for the first quarter of 2018. The group expects a GAAP net loss for the three months ending on March 31, of $18mln to US$20mln and 2018 full-year consolidated revenue of US$1.43bln to US$1.58bln. The outlook also factors in that Zillow will be holding an estimated 300 to 1,000 homes for resale as of December 31, 2018.
Potential home sellers will receive an initial offer from Zillow within two business days of submitting basic information about their home. If Zillow buys a home, it makes the necessary repairs and updates and lists the home as quickly as possible. A local realtor represents Zillow in the purchase and sale of each home, allowing agents to earn commissions.
“Even in today’s hot market, many sellers are stressed and searching for a more seamless way to sell their homes,” said Jeremy Wacksman, Zillow’s chief marketing officer. “They want help, and while most prefer to sell their home on the open market with an agent, some value convenience and time over price.”
In pre-market trade, class A shares in Zillow were down 4.6% at US$51.30.