Sumary of Why Did Zillow (Really) Pull the Plug on iBuying?:
- Zillow Group’s (NASDAQ:ZG)(NASDAQ:Z) surprising decision to exit its Zillow Offers iBuying business left investors with more questions than answers.
- com contributors Matt Frankel and Jason Hall share their takes on what went wrong and why Zillow was so quick to pull the plug on the business they’ve referred to as a major future growth driver.
- You mentioned it’s a low-margin business, and that’s true to some extent.
- Zillow also takes, I think, a 7% sales fee on every home they buy.
- On each transaction and with everything else Zillow offers, mortgages, whatever, there’s so much room to cross-sell things.
- That’s the idea that Opendoor (NASDAQ:OPEN) and Offerpad (NYSE:OPAD) are trying to sell is that it’s not just the house, it’s the sales charges, the mortgage, and selling them title insurance, it’s selling them all these other incremental, high-margin businesses on top of it.
- It doesn’t have to be a low-margin business, but the margins aren’t consistent.
- Zillow said their unit economics, essentially the margin on each house, went from positive 12% in the second-quarter when prices were going up and up and up, to negative 5%-7% in the third quarter.