Review of all things Real Estate: What does the partnership of Open Door and Zillow mean for the consumer?
Last updated 10/27/2022 at 2:38pm
In previous articles, we discussed what i-buyers are (investment buyers) and that Open Door is the largest i-buyer with the deepest pockets. It was identified that Zillow had previously been in the business of direct purchasing of residential properties, but they ceased that operation ostensibly due to the difficulty in forecasting future pricing.
I suspect there were concerns that, because there are no real estate agents involved in direct purchases, that sellers wouldn’t know to provide required disclosures and there could be resulting significant lawsuits.
Lastly, the FTC and Open Door came to an agreement in the form of $63m in fines to Open Door for deceptive marketing and quoting inaccurate proceeds to the seller when consumers used Open Door’s services (which resulted in sellers getting less proceeds from the direct sale than traditional sales methods). True, there is a savings of 5-6% commission (since no agents were involved), but there is a convenience/ administrative fee of 7.5-13% and, as there is no agent involved, there is no protection for the consumer.
With the above as a stage setter, now consider this. Recently, former rivals Open Door and Zillow announced a partnership for direct purchases, which drives the question; what are the implications for the consumer?
Several articles I’ve read from Inman News, a respected source of information in the real estate world, indicated that the Zillow function would be marketing as Zillow has quite a popular following with their free Zestimates of value and offering free listings published from Multiple Listing Services.
Zillow moved into the real estate sales business when they offered agents the opportunity to be Zillow Premier agents (which meant agents could pay a fee to Zillow for certain zip codes in return for being featured on Zillow’s website so the searching public could just click on an agent).
This practice is not limited to Zillow; Redfin, Realtor.com and most of the 1000+ public access sites have similar arrangements. While it is expensive to be a Zillow, Redfin and/or Realtor.com agent, the good news for the consumer is there would be buyer agents involved which would mean protection for the consumer since the agents know about the legally required disclosures that sellers owe buyers.
Zillow and others still offer these programs to agents and the public. The difference is that when the i-buyers started the direct buyer programs and eliminated agents and their commissions, there were no agents in the transaction, so there was no knowledge of disclosures or protections for the consumer. Why is that significant? Because lack of disclosures ranks as the number one reason for real estate lawsuits.Bottom of Form
What’s in it for Zillow and Open Door? It reaffirms the continued relevancy of i-buying, it gets Zillow back into the seller lead business, and it gets Open Door access to its largest customer platform; it’s lead generation utopia.
This partnership gives Zillow the ability to generate and capitalize on high-quality seller leads (consumers that are considering selling their home), something it lost when Zillow Offers was shut down last year. Historically, Zillow was only able to convert 10% of sellers who requested an instant offer; the other 90% are high-quality seller leads which are worth big bucks when able to be capitalized through Zillow’s Premier Agent program.
For Open Door, this partnership represents access to the industry’s largest source of customer leads: more i-buyer leads through Zillow’s expansive marketing platform which results in lower customer acquisition costs.
And, by the way, a Zillow Advisor will be the first point of contact for consumers requesting an instant cash offer. The Zillow Advisor will discuss an instant cash offer alongside a traditional sale (though I am skeptical how objective that conversation will be in-light-of the FTC recent fine for deceptive advertising and misrepresenting seller proceeds that Open Door recently received).
The partnership of Open Door with their $2.5 billion deep Venture Capital lined pockets and Zillow’s massively successful marketing platform makes it appear they are ready to control the i-buyer market. It puts Zillow back in the lucrative seller leads business and it gives Open Door access to millions of potential customers.
It’s a win-win for Zillow and Open Door… but how about for the consumer? What will be interesting to find out is what changes will be made internally to protect the consumer? But, likely of greater importance to Zillow and Open Door, how to avoid fines, penalties and law suits in the future?
If you are sensing a theme, you are correct; real estate professionals represent protections for the consumer and when accurately compared to i-buyer programs, seller’s will net more proceeds with traditional sales methods.