Zillow Home Loans Seeks A Way Forward


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This post has been republished with permission from Mike DelPrete.

Zillow has been doubling, tripling and quadrupling down on its mortgage business — which continues to lose money.

Why it matters: Zillow Homes Loans is a key part of the company’s growth strategy, and an analysis of its current traction highlights the opportunities and challenges on a likely path forward.

Zillow’s mortgage business posted a $167 million loss in 2022, for a cumulative loss of $283 million since 2017.

  • Interestingly, while other mortgage businesses have enacted layoffs and race to cut costs, Zillow is keeping its mortgage operating expenses (OpEx) steady.
  • While revenue dropped in 2022, OpEx investment remained high — illustrating that Zillow is continuing to invest in mortgage without pressure to turn a profit.

To succeed, Zillow Home Loans must attach loans to the leads delivered through Zillow’s premier agent and flex programs.

  • Zillow reported that in Raleigh, one of its test markets, customer adoption of Zillow Home Loans increased from 15 percent to 20 percent.
  • This mirrors the progress of Redfin, which reported 21 percent mortgage attach in February compared to 17 percent in Q4.

Yes, but: Attaching mortgage is nothing new for traditional brokerages.

  • HomeServices of America and Prosperity Home Mortgage have achieved 25 percent attach rates at a national scale of over 45,000 funded loans annually — 10x the size of Zillow Home Loans.
  • Zillow and Redfin are both below the industry average, and may likely top out at 25 percent, something of a universal constant in the world of attaching mortgage.

Zillow’s next actannounced in early 2022 after Zillow Offers was shuttered, included plans for significant revenue growth through mortgages (adjacent services).

  • A key component of this strategy is integrating Zillow Home Loans into Zillow Flex.

Behind the numbers: Zillow generated about 75,000 Flex transactions in 2022. If the company scales Zillow Home Loans to 50 percent of its markets with a reasonable 25 percent attach rate, it would close around 9,300 loans and generate around $84 million in additional revenue.

  • A possible end goal could include doubling Flex transactions and launching in 80 percent of Zillow’s markets, with a stretch 30 percent attach rate — leading to 36,000 loans and $324 million in revenue.
  • These are large numbers with equally large assumptions; scaling a national mortgage operation is hard (and expensive and people-intensive).

The bottom line: Zillow is experiencing some early wins in its journey to integrate Zillow Home Loans with its Flex program — but the path forward is uncertain, long, and expensive.

  • Even after years of investment, Zillow Home Loans (and Redfin) is still playing catch up to the tried-and-true mortgage attach methods of the nation’s largest real estate brokerages.
  • A multitude of factors need to go right for Zillow to hit its goals: doubling its Flex program, convincing thousands of Flex agents to promote Zillow Home Loans, and standing up a national mortgage operation to handle 10x the volume.

Mike DelPrete is a strategic adviser and global expert in real estate tech, including Zavvie, an iBuyer offer aggregator. Connect with him on LinkedIn.

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