Republished with permission from Mike DelPrete.
When Zillow launched in 2006, its Zestimate was its claim to fame.
The Zestimate was a lead generation tool that attracted consumers by giving them a starting point for determining what their home — or any home — is worth. It was online, it was fast, and it was easy.
Flash forward more than a decade later: Online valuation tools are a commodity. There are dozens of websites that will determine a home’s estimated value. Zillow’s unique advantage has diminished.
Zillow’s strategic necessity
I believe Zillow’s guiding strategic principle is that it must be consumers’ first destination in the homebuying and selling process. Zillow’s sustainable competitive advantage lies in its massive audience and strong position at the start of the consumer journey.
In the past, other listing portal competitors were relatively undifferentiated. Zillow has been the clear market leader, and there was no credible threat that could unseat it from its powerful position.
However, the entry of iBuyers with a service that made instant offers on a home — online — was novel and compelling, just like the Zestimate in 2006.
Suddenly, more and more consumers were beginning their homeselling process not on Zillow, but on other websites like Opendoor and Offerpad. This was a key existential threat for Zillow.
The iBuyer business model is Zestimate 2.0 — the natural starting point for determining your home’s value. What’s more accurate than an actual offer on your home?
Mass-market appeal
Opendoor’s long-term vision is that every homeowner will request an instant offer before selling their home. It’s a natural starting point: It’s easy, it provides value, and there’s no commitment. What better way to value your home than an actual offer?
While Zillow only purchases around 3 percent of the offer requests it receives (that number is higher for the other iBuyers), a very large number of consumers are requesting offers each month.
In established markets like Phoenix, anywhere from 25 percent to 35 percent of active homesellers request an instant offer before selling their home. The numbers are big.
Given the growing mass market appeal of an instant offer (tens of thousands of requests each month) and the simplicity of the process, it’s no surprise that Zillow launched its own iBuyer service, Zillow Offers.
Strategic implications
If you’re in the business of providing consumers an estimate of the value of their home, the bar has just been set higher.
The inherit power and appeal of the iBuyer model is quite clear:
- Instant offers are simple, easy and quick — all online.
- Instant offers are at the start of the funnel — they attract consumers at the start of the homebuying or selling journey.
- It’s a novel concept that satisfies a consumer need, hence the high proportion of consumers requesting offers.
In other words, iBuying is the new Zestimate.
Mike DelPrete is a strategic adviser and global expert in real estate tech. Connect with him on LinkedIn.