Zillow’s Slow Roll To A Real Estate Ecosystem

Not so long ago, shopping for a new home was a very boot-on-the-ground type of process.

If one wanted to idly peruse local real estate listings, there was always the local paper — where one could look at a single, grainy black-and-white photograph with some basic price information. If one wanted a full color, multi-room view of a desired real estate, that pretty much required the help of a real estate agent — and the will to march through a variety of open houses and property showings until one’s dream house was located.

However, that changed with the launch of real-estate-themed websites — and eventually mobile apps like Zillow, Trulia, Redfin and StreetEasy. It became possible to do some intense house hunting — all from the comfort of one’s couch. Not only possible, Slate‘s Willa Paskin noted, but also kind of fun. With Zillow’s launch in 2006, people learned that looking a real estate on the internet was, in fact, a highly engaging way to spend an evening.

There is something about seeing the inside of a house, no matter what it looks like, that is so satisfying it must be hardwired into our lizard brains. Houses aren’t a metaphor; they are manifest. When you see inside of one, you are seeing not only the owner’s income, but her sophistication, her ambition, her taste — and comparing all of that with your own, an irresistible mix of solipsism and curiosity,” Paskin noted about Zillow’s appeal.

Though one might quibble with the description as a tad on the dramatic side, one can’t argue with the numbers. The latest estimate for Zillow’s monthly active user (MAU) base — Zillow does not disclose it — is 175.5 million. That is a formidable number on its own (with a lot of eyeballs to command), and one that is clearly more of a starting point than an ending one for Zillow.

After 12 years of showing people homes, recent months’ activity indicates that Zillow also wants to help customers put in an offer, secure financing, pay their rent and — in some cases — even sell them the house directly. In short, Zillow doesn’t just want to be a customer’s entrance into the real estate market anymore; it wants to be the real estate ecosystem that consumers can grow up and out with.

Receiving The Rent

Though Zillow is mostly associated with home buying, as of two weeks ago, the firm announced in a press release that it was involving itself much more directly in the rental market with the release of a new set of tools. Those tools are designed to make it easier for Zillow patrons to grab a competitive edge in the rental process, and to help landlords avoid the time and hassle it takes to screen potential tenants. In addition, the tools allow renters to apply for multiple listings on the site with a single application, background check and credit report. The platform upgrade gives renters the options to pay their rent directly via Zillow.

Renters are a large part of Zillow’s audience, according to the firm’s 35 million renters that visit the site per month. Based on the results of an in-house survey, the expansion of services is in direct response to a reported need among renters: 59 percent reported wanting to be able to send applications online, while 57 percent wanted to pay their rent over the internet.

“Renters tell us they want the entire rental process to happen online, from search to application to payment,” said Zillow President Jeremy Wacksman in the press release. “However, most landlords don’t have the resources to offer these services. We’re excited to provide the technology to help renters and landlords have a better experience.”

A better experience, according to Zillow, because it’s a time-sensitive and economical experience. In a standard renting process within a crowded majority market (where searchers can look forward to filling out three applications, often at an average cost of $40 a whack), finding a place to live is an expensive and friction-filled process.

The alternative Zillow is offering is a flat rate of $29 to submit one application an unlimited number of times during a 30-day time frame. The online application includes a credit report provided by Experian, an eviction history and a background check. The service also offers online payments, with renters able to pay their monthly rent with either debit or credit, or they can set up automatic payments.

The streamlining, is designed for both sides of a rental transaction. Landlords — using the same Zillow Rental Manager they currently use to manage their listings — find it easier to screen potential renters and process payments digitally.

It was big enough news that even Zillow’s competitors were able to offer cautious applause. Talking with PYMNTS recently, Ryan Coon, co-founder and CEO of rent payment platform Avail (now officially a competitor of Zillow), noted that, in some ways, he was pleased to see Zillow enter his market.

“The U.S. rental market is massive, and we’ve seen a number of billion-dollar companies operate in real estate listings. There’s room in the market for multiple successes,” Coons said, noting that, for any successes to really take off, what has to happen first is a final death for the ever-persistent paper check, which currently dominates rent payments.

It raises the level of the game, and puts Avail and every other rent payment firm on alert that there is a new pace car in the race with which they will all have to keep up. However, it also puts a very big and known name behind digital payments in rent, which speeds up the race as a whole.

And when those renters are ready to become buyers? Zillow might soon be able to help underwrite that mortgage — and maybe even sell them the house.

A New Move On Mortgages

About a week after Zillow announced it was moving in on rental payments, it followed up with the news that it would be acquiring Mortgage Lenders of America (a national mortgage lender headquartered in Overland Park, Kansas), subject to final approval of the deal terms and a greenlight from regulators. The deal, by Zillow’s familiar-sounding description, will make it easier — and possibly less expensive — for potential homebuyers to purchase a home via Zillow Offers, the online platform Zillow is currently testing for buying and selling houses.

That expansion was first announced in April — and is, at present, limited to Las Vegas and Phoenix. The service allows consumers to get a home estimate and cash offer from Zillow and other investors. If consumers accept Zillow’s offer, the firm would then repair and update the home as necessary, then list it as soon as possible. A local agent would represent Zillow in the transaction, enabling the agent to earn a commission.

As of the acquisition announcement, Zillow confirmed that Mortgage Lenders of America will continue to operate its current mortgage business, as well as offer mortgages to customers of Zillow’s mortgage marketplace. Mortgage Lenders of America originated about 4,400 mortgage loans in 2017 and, though Zillow didn’t go into specifics as to its future in the mortgage underwriting business, the firm noted that owning the lending company would allow it to both create new tools for buyers and expand its offerings.

“Getting a mortgage can be the toughest, most painstaking and time-consuming part of the home-buying process,” said Greg Schwartz, president of media and marketplaces at Zillow Group, in a statement. “Now that we are buying and selling homes through Zillow Offers, we believe that having our own mortgage origination service as an option for consumers will allow us to streamline the process for people who buy a Zillow-owned home. Over time, we expect the work we do, in conjunction with this new line of business, will help us expand our offerings to our partners — including real estate brokers with existing in-house mortgage operations and third-party lenders who co-market with Premier Agents.”

What’s Next

At present, Zillow is proceeding slowly into its development as a marketplace for all things real estate, but it seems clear that the current expansion is in its early stages and that the Zillow plans are broader. That’s because, as Zillow’s CEO Spencer Rascoff noted in his last call with investors, over the last 12 years, Zillow has gathered a massive trove of data on consumer real estate habits, and it is now ready to put that data to work in building a bigger ecosystem around real estate.

Rascoff said, “The lowest hanging fruit is to try to bring down that days-on-market by marketing and pre-marketing homes that we own and will own, and also using the demand signal to make us a much smarter bidder on the front end, because we know what homes are likely to sell, because we know what buyer demand looks like, because we operate the largest marketplaces on the buy side. So, that demand signal is very important, a very important input to us on the bidding side.”

If Zillow becomes a big player in rental payments, it will soon be an even more knowledgeable player — as it will not only know what types of real estate its customers are interested in, but how much money they make, what their credit score is, how long they’ve been at their current job and, perhaps most critically, how well they pay their rent on time. All very helpful bits information to know if one happens to be a real estate platform that might like to sell their home — or underwrite them for a mortgage with which to buy a home.

There are a lot of players, of course, that would also like to build the Amazon of real estate marketplaces, and the crowding in the space is not just limited to other tech players that might like to build real estate ecosystem. There is the matter of the large physical network of real estate agents that Zillow has to work with nationwide. No matter how digital the process, most consumers are still going to want to lay eyes on a house before they buy it, which means a realtor is likely to always play a part. Zillow has improved relationships with realtors over the years, but it is still often named as a thorn in local real estate agents’ sides, particularly when the word “Zestimate” is mentioned.

Layering over all that complexity is the fact that real estate, as an industry, becomes a highly regulated place, once one gets into things like screening tenants for landlords, loan underwriting and selling houses directly to consumers. Those activities all fall under the auspices of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA), among other regulations. Zillow has lots of data on its customers, but both the ECOA and the FHA are very specific about what kinds of data can be looked at when considering a loan, tenant or potential buyer — and what has to stay behind a Chinese wall, far away from consideration.

There is a lot Zillow has to do — and get right — if it wants to build as ecosystem, and getting those details right is usually the make-or-break between interesting and ambitious ideas for an ecosystem and a truly functioning ecosystem. And if Zillow can get it right, and build a relationship of trust with a consumer that starts when they are renting and continues into future home purchases and sales?

That could be an interesting ecosystem to watch.