Zillow is testing a “homegrown closing services” platform in a handful of markets — including title and escrow services — in what the company says is an attempt to bring the company closer to offering a one-stop platform to wrap around its homebuying and selling platform, Zillow Offers.
The move is also an effort to improve the unit economics, the money that’s made or lost, of buying and selling homes.
Zillow Offers expanded rapidly in the third quarter of 2019, adding eight markets, with plans to launch in Los Angeles, perhaps its most ambitious market in 2019. In the third quarter, Zillow lost, after interest expenses, an average of $4,826 on each home, after losing, on average, $2,916 per home post-interest expense in the second quarter.
Overall, the segment posted a net loss of $67.8 million before interest, tax, depreciation and amortization.
“We remain comfortable with this range for the time being, as our business is in the early stages of development,” Zillow CEO Rich Barton said in a letter to shareholders.
Goal Is National Footprint
The first phase of Zillow Offers has been, according to Barton, a lot about planting flags. The goal was to gain a national footprint to drive national marketing efficiency, according to Barton.
“Phase two is about getting depth in these markets and figuring out how to roll out software and systems and process such that we can get gain leverage on the unit economic costs,” Barton said on an investor call.
“The goal longterm in this business is not to lose money on Zillow Offers and just make money on all these adjacent products,” Barton added. “We are aiming to have the core Zillow Offers business make money in and of itself and do very well and also give us all kinds of fantastic optionality on the myriad of verticals that surround the house transaction.”
Those adjacent services that Zillow expects to help the unit economics longterm are mortgage, title and escrow services. On the earnings call, Barton revealed for the first time that Zillow is testing closing services in an undisclosed number of markets.
“These are very early days and small numbers, but we are encouraged by the early consumer signals we’ve received that reinforce the value of bundling multiple services around each transaction,” Barton said.
A Year in the Making
Zillow made the move to start a home loan segment after the acquisition of Mortgage Lenders of America last year. Revenue for that segment was reported at $25.3 million in revenue, and it posted a net loss of $12.3 million before taxes.
But the company also made moves to start scaling Zillow Home Loans. In the third quarter, it named two new executives to run the segment, with a focus developing and testing proprietary lending software to make Zillow Home Loans the mortgage platform for its homebuying and selling platform Zillow Offers.