Zillow puts its first home under contract as a seller — but reduces price by 1.6%
Zillow has put its first home under contract as a seller, with an expected closing in mid-July, George Laughton, the company’s listing agent confirmed to Inman. The Seattle-based real estate tech giant now has five homes still on the market and has just reduced the price on the first home that hit the market when it started its Instant Offers program.
Zillow purchased the home at 8760 West Tuckey Lane in Glendale, Arizona, on May 31 for $220,000 and the four-bedroom will have the distinction of being Zillow’s first sale, if the closing goes smoothly.
“Things are going great, we’re learning a lot in these early days and our partner Premier Agents and brokers are really thrilled with the progress,” a spokesperson for Zillow told Inman.
The first home listed by Zillow earlier this month, meanwhile, has hit a bump in the road. The company reduced the price of its four-bedroom, two-bathroom home in Chandler, after listing it, more than three weeks ago.
The home, Zillow’s first foray into the iBuyer business, was purchased by the company for $410,000 on May 18 and initially listed for $425,000. On June 14, the company lowered the asking price to $418,000.
“We’re getting good traffic,” Laughton told Inman. “I think we’re at the point now that it’s going to get an offer.”
Laughton said the decision to reduce was based on feedback he and Zillow have gotten on the home. He added that the market for homes is a little tougher over $400,000 in the Phoenix area, but in general it’s a hot market.
“The over $400,000 [homes] take a little bit more time than lower price points,” he said.
Price reductions can often drum up more interest, according to Laughton.
The footprint of Instant Offers is rapidly expanding, outgrowing its Phoenix co-working office space and announcing two weeks ago that it would be expanding to Las Vegas, its second market.
Zillow still has a handful of homes on the market now. There’s this five-bedroom in Sun City West, this two-bedroom in Phoenix, this five-bedroom in Peoria and this two bedroom in Mesa. All of those homes have been on the market for less than a week, however, and the company has four open houses scheduled for this weekend.
The company also currently has dozens of additional homes under contract.
Despite the early growth, many agents are wondering just how Zillow stands to make a profit off of Instant Offers. Most of the homes are priced at less than $10,000 for what they were purchased. After factoring in agent commission and the slight cosmetic renovation work done to the home, the room for profit is slim.
In an investor call last month, Zillow CEO Spencer Rascoff addressed that small profit margin. Even if Zillow were to, say, make $3,500 on average off of each home, with a large number of transaction it would turn a big profit.
“It’s too early to estimate how many sellers might choose to sell in this way or what our typical net profit per transaction might be, but, as an example, if 5 percent of sellers select this method, that is 275,000 transactions,” he said. “For illustrative purposes at scale, using $250,000 as the typical home value, a $3,500 net profit per transaction would result in a nearly $1 billion profit opportunity annually.”
“In addition, Instant Offers strengthens our Premier Agent business by delivering validated seller leads on the homes we don’t buy, paying Premier Agent commissions on the homes we do buy, generating potential mortgage revenue on the homes we sell, and creating an amazing experience for consumers who sell to us and buy from us,” he added.