Zillow is investing in what works: exceptional customer experiences and tech innovations

It’s been an exciting few years at Zillow, and we’re pleased with the progress we’re making on our strategy to transform the way people buy, sell, rent, and finance homes.  We continue to upgrade and scale our housing super app, and we’ve seen further proof points in our Enhanced Markets that support a continued push on both breadth of market coverage and depth of penetration within those markets, for our integrated, digital moving solutions for consumers, their agents, and their loan officers.  

So, in a hostile housing market and noisy industry environment, why is Zillow outperforming?  The simple answer is that Zillow is wholly focused on solving real consumer problems with software in a giant industry that has historically had very little R&D investment.  Digitally re-platforming and integrating a huge, disparate, local industry where transactions are relatively infrequent is an audacious undertaking.  No other company is really even attempting it.  We are advantaged primarily because we are a product and technology company first and are able to attract and retain the especially talented people who know how to build, market, and support great software products.  This enables us to focus completely on delighting consumers and their valued partners in pursuit of the dream of using technology to make moving simple and joyful.  

Our product prowess over the years has put Zillow in the enviable position of having a large, engaged audience who came to us organically — an audience who love, trust, and rely on our brand.  This product-led, organic marketing growth story is rare, but it is common for the products and brands we admire most.

Attracting a large, organic audience has also given Zillow the space to experiment with business models.  Those who have followed us for a long time know how aggressive and innovative we have been in methodically converting our sticky audience into revenue.  We have built a substantial, growing, and diverse business, yet we still monetize only a small share of our audience.  We believe our massive unconverted audience will drive years of growth ahead for Zillow, as we grow into our rightful transaction share, continue to adjust our business models, and add and integrate new business lines.  We have been pro-consumer, practical, and nimble, and we will continue to be.

The first era of Zillow involved amassing a large, organic, engaged consumer audience for whom we were providing valuable information via great sites and apps.  Several years ago we realized that our dream of digitizing the move (and accessing the really big total addressable market in the category) would involve getting much more directly involved in the transaction itself.  That has meant applying software to every step of the workflow, refreshing our partner network to those who are higher performing and interested in automation and scale, and building out or acquiring key components of the move process all the way from listing photography and creation through tour booking, agent workflow, pre-approval, mortgage origination, document routing, and closing.  End to end.  

To serve as an aspirational and consumer-focused north star, we created a product strategy that we call the housing super app — an experience that would integrate the whole of the complex, scary, expensive moving process.  

The housing super app experience is working well and we see very good progress on each growth pillar:  touring, financing, seller solutions, enhancing our partner network, integration, and rentals.  Amid all of the fear, speculation, and noise, what’s working for us is a steady focus on execution:  delivering for our customers and partners.

In terms of the noise, though, let me give some color commentary on what has transpired since our last quarterly call.  The long-running class action suit against NAR and select brokerages arrived at a proposed settlement in mid-March, and the judge granted preliminary approval of that settlement just last week.  The substance of the settlement is what we’ve characterized as a very reasonable “middle path” forward for the industry, where commissions are negotiated and communicated between sellers and buyers, and both parties are better educated.  We view this as  a positive evolutionary step for the industry.  It is not a revolution, as some who believe they might profit from chaos and disruption are proclaiming.  Clear and negotiable compensation fits quite well with our published consumer advocacy marketplace principles of free access to listings, independent representation, and negotiable compensation as outlined at advocacy.zillowgroup.com.  There will continue to be sensational-seeming news surrounding this settlement, no doubt, given there remain several steps in having NAR and the industry put the settlement requirements into practice — and of course, real estate is generally a hot topic for hot takes, given it is a $2 trillion–$3 trillion industry(1) employing millions of people in all 50 states and is most Americans’ most valuable and most cherished asset.

However, we believe Zillow is well positioned to assist with, and benefit from, this evolution.  

Why do we expect to benefit?  For three reasons.

First, we have the most and highest-intent customers in residential real estate.  Zillow is the most trusted brand, with the largest, most engaged audience.  This is a hard-earned position that we built over the past 18 years.  And our top-of-funnel advantage today has never been stronger.  Zillow is searched more on Google than the category term "real estate" and three times more than the next brand in the category.(2)  Eighty percent of our traffic is organic, and our app usage is more than three times that of anyone else in the category.(3)  We have more than 217 million average monthly unique users across the Zillow ecosystem of apps and sites and 109 million total unique visitors according to Comscore, a third-party data tracker that allows for comparison across sites.  We’ve built and maintained such a strong brand position because of our relentless focus on delivering exceptional tech innovations and customer experiences — which we believe are our most important investments.  Regardless of how the industry evolves, we expect our brand and audience will thrive.   

Second, we work with the most productive agents in real estate.  Many of the approximately 1.5 million real estate license holders handle only one or two transactions a year — but these are not our Premier Agent partners.  The top 20% of agents or teams handle 80% of U.S. residential real estate transactions, and nearly four in five Zillow Premier Agent partners currently fall into that top tier.  Since 2015, we have shrunk our active partner base by roughly 60%, while our Premier Agent revenue has grown by more than 2.5x.  Orienting our business around the best agent teams (those who provide superior customer experiences, have a proven ability to scale, and make the most money to invest alongside us) positions us well for potential shifts within the profession.  If and as more “hobbyist” agents drop out of the industry, the outsize beneficiaries of this shift to professionalism would be our Premier Agent partners.

Third, Zillow provides exceptional technology to make agents more efficient at their jobs and do more transactions.  Zillow is the leading product innovator with features like Real Time Touring, Listing Showcase, and a digital pre-approval pilot launching within the next couple of weeks that will further delight customers and create high-intent, real buyer connections for our Premier Agent partners.  Additionally, we have invested heavily in broad-adoption, foundational industry software solutions like our Follow Up Boss CRM, ShowingTime touring software, our Showcase 3D Home Technology, Aryeo real estate photographer SAAS, and Dotloop document signing and routing.  Over the past 10 years, between our own technology and development budget and the acquisition capital we’ve deployed for industry software, we’ve spent approximately $4.3 billion investing in technology for the real estate industry.  We believe agents who work with our high-intent customers and use our industry software tools are best positioned to accelerate their share in every version of an industry evolution from here.

GROWTH STRATEGY 

Since 2022, we’ve been building the integrated transaction experience and testing it in Enhanced Markets.  Now, we are pressing on the accelerator as we drive toward sustainable profitable growth.     

Zillow’s housing super app is the container into which we’re continually adding updates and improvements, guided by our growth pillars, which I’ll update you on below.  Our for-sale growth pillars mark the pathway to meeting our goals to grow customer transaction share from 3% to 6% by the end of 2025 and grow our revenue alongside that transaction share growth.   

TOURING

Touring is a critical focus area for us for two reasons.  First, the process of booking a home tour has historically been burdensome.  Second, when a customer raises their hand to tour a home they’ve been looking at on Zillow, it’s a strong signal of a serious intent to transact. 

Our touring products, powered by ShowingTime, are meaningfully improving our ability to connect high-intent customers to our Premier Agent partners.  As you may recall, our data shows that touring connections convert at three times the rate of other actions on Zillow.  We’re pleased to share that Real Time Touring is rolling out to an additional 34 markets by the end of May, which will bring us to a total of 124 markets.  As we outlined in February, as we expand Real Time Touring, we expect it will account for approximately 20% of connections by the end of 2024, and we are on track to deliver.   

One key provision of the proposed NAR settlement calls for more prominence of buyer agent agreements, introduced at the time of the physical tour.  Such agreements can help educate buyers about what services they’re paying for, which is a good thing — and they have the added benefit of helping identify high-intent buyers.  In fact, we have been advocating for these agreements in our home state of Washington and across the country.  By facilitating the use of consumer-friendly agreements earlier in the funnel, we see an opportunity to improve conversion rates.  As an example, in Connecticut, where buyer agreements are required before taking a buyer on a tour, we’ve observed 20% higher conversion rates compared with our national average.  We are testing buyer agreement product flows now within Zillow, and just this week we launched a pilot of a consumer-friendly buyer agreement in our touring experience with a few hundred Premier Agent partners.  Offering solutions digitally on Zillow is a natural and logical addition to the end-to-end experience we’re providing customers and agents.  Meanwhile, we are also enabling nearly limitless virtual touring that will continually get closer and closer to reality, with our proprietary technology powering 3D home tours and Showcase listings.  Leveling up physical touring, alongside our investment in virtual touring, is a great combination for the industry, benefitting all participants. 

FINANCING

Financing is another critical focus area for us because serving more high-intent customers with financing drives conversion and increases our addressable market.  By integrating Zillow Home Loans with our Premier Agent partner network, we’re providing a more seamless experience for customers, agents, and loan officers.  

Our efforts to integrate financing throughout the customer journey have accelerated purchase mortgage growth, with a more than 130% year-over-year increase in purchase loan origination volume in Q1 despite a persistently challenging mortgage-rate environment.  We expect continued purchase mortgage growth as we expand integration with Premier Agent partners and roll out more Enhanced Markets.  Across the combined 13 Enhanced Markets we had at the end of Q1, Zillow Home Loans continues to see double-digit adoption rates, which contributes to growing revenue per transaction year over year.  These signals reinforce our confidence that our strategy is working.  I’m pleased to share that this month we are expanding to a total of 19 Enhanced Markets, and are on track to reach our target of 40 by the end of 2024.  

SELLER SOLUTIONS

On the sell side of the transaction, we continue to ramp up solutions that not only make selling a home easier but also create real value for sellers and their agents.  

Listing Showcase is our AI-powered product that elevates agents’ brand presence on Zillow and provides a better shopper experience through our homegrown rich media and floor plan technology.  It’s unlike anything else available today.  We continue to be excited about Listing Showcase and the progress we are making across the country.  

Our data suggests that Showcase listings drive higher engagement on Zillow — more views, shares, and saves — compared with similar non-Showcase listings.  Even more importantly, homes that list with Showcase are selling faster and for more money.  Showcase listings typically sell for 2% more than similar non-Showcase listings on Zillow, a bonus of $9,000 on the average home.  Homes listed with Showcase are also 20% more likely to secure an accepted offer within 14 days.  What’s more, we’ve observed that agents who use Listing Showcase are winning 20% more listings, making it an attractive offering for real estate professionals.  

Listing Showcase is currently available to agents in every market and we are actively working to reach 5%–10% listing coverage, which represents a $150–$300 million annual revenue opportunity.  And we believe there is potential for future growth beyond that. 

ENHANCING OUR PARTNER NETWORK

We are working to increase engagement with the best agents on both sides of the transaction — which leads me to our next growth pillar, enhancing our partner network.  As I highlighted above, Premier Agent partners represent the best of the industry, and we help them provide even better service to our shared customers to grow both their businesses and ours.  We’re excited that we continue to see customer transaction share gains across our 13 Enhanced Markets on a revenue-per-total-transaction-dollar basis.  And, now, a couple of quarters after we closed our acquisition of Follow Up Boss, we’re even more excited about the opportunity for further conversion gains from here.

RENTALS

In addition to our five for-sale growth pillars, I want to turn a spotlight onto Rentals.  Rentals is a fast-growing business that represents nearly one-fifth of our total revenue, with a lot of opportunity in front of it.  To bring our great progress in Rentals out of the shadow of our for-sale efforts, we’ve released a standalone investor presentation that provides a better understanding of what we’ve built, where we are headed, and why we are so well-positioned to build a comprehensive two-sided marketplace that is unlike anything else in the industry today. 

Like we do with all parts of Zillow, we start our Rentals journey from the perspective of the consumer — in this case, the 17 million annual renters in the U.S., which is three times more movers than on the for-sale side.(4)  Renters want their search process to be enjoyable, trustworthy, and easy but instead it’s fragmented and frustrating.  That’s because no single platform provides a comprehensive marketplace with anywhere near complete coverage of available rental inventory.  There is no MLS for rentals.  This forces renters to shop across different platforms — each with varying levels of accuracy, transparency, and selection — and encounter dead ends when searching for inventory.  

That fragmentation is the big problem and the big opportunity.  Renters and property managers want and need one centralized place where they can see all the rental listings available.  This is an incredibly simple and obvious concept but an incredibly hard challenge.  

It’s a challenge Zillow is best-positioned to solve because of our success over many years of building great products for our massive audience of movers on the for-sale side.  The early years of Zillow Rentals made clear that our customers wanted to come to us to shop for rentals, so in 2018 we turned our focus and ramped up investment to build it out and create the richest, most complete rentals marketplace.  We started with “longtail” rentals — which we define as less than 25 units, but which primarily comprises single-family homes — because data and interest in single-family homes was a core strength of Zillow.  Because these properties were hard to find, this offered an opportunity for us to build a unique inventory asset.  And it may come as a surprise to you, but longtail rentals are actually the majority of inventory in the rentals market.  

Longtail rentals are a classic go-to-market problem: small, fragmented, and local.  You simply cannot efficiently deploy a sales force to go out and find all the supply.  Because Zillow was already the most trusted name in residential real estate, many of these longtail property managers were familiar with us and asking for these solutions.  Many of them may own only one or two homes, so they’re looking for a product that gets their listings in front of the most potential tenants and makes renting out their properties easier.   Today, our longtail product experience is unmatched: On Zillow, renters can search, book tours, apply for properties, sign a lease and pay their rent securely, and apply for renter’s insurance on eligible listings.  Similarly, longtail property managers on Zillow can list, book tours, screen applicants, create leases and sign them electronically, and collect rent payments.  It’s a true end-to-end solution that’s highly useful to renters and property managers alike.  

These investments in great products starting in 2018 powered Zillow to the top traffic ranking in rentals and made us the preferred brand for renters.  Today, Zillow is the most searched rentals marketplace according to Google Trends, searched nearly 1.5 times more than the next company in the category.(5)  And we have the leading rentals traffic, with very limited rentals marketing spend.(6)

After our success in longtail, in 2022 we turned our attention to the more commodity-supply sub-segment of rentals, multifamily — big apartment buildings with 25 or more units.  This is the easier-to-reach segment that investors have historically thought of as the “rentals category,” with professional property managers who have marketing and software budgets to help them acquire renters and manage buildings.  Since we turned our focus to the multifamily space, we have driven a 30% compounded annual growth rate in our multifamily properties — from 27,000 to 40,000 at the end of Q1 — all with a total Zillow Rentals marketing spend of just $15 million.  Combining unique longtail listings with more commodity multifamily listings allows consumers a more seamless experience, where they can see all types of available rental listings in one place, and it gives Zillow a highly differentiated rentals marketplace experience, in which we are now ramping up our investment.   In addition, many movers are dual-track shopping — shopping for a home to buy while also considering their rental options.  Zillow's integrated shopping experience and singular brand excel here.

As it stands today, we estimate that Zillow has more than 50% of all rental listings in the country — more than any other site — and many of them are unique to Zillow.  But that still accounts for only 60% of all longtail listings and 35% of multifamily listings across the country.  So we are investing in our rentals products, services, and sales to drive further growth.  For example, in March, we entered into a strategic partnership with Realtor.com to provide all of the multifamily listings on their site, and we recently launched our first national marketing campaign after a successful pilot last year in a few markets that tested well to grow our audience.   

As with other parts of our business, 2024 is a year to scale up our breadth and depth in Rentals to drive continued growth in listings — both longtail and, importantly, multifamily.  With the largest audience of renters on the market and a billion-dollar-plus revenue opportunity in front of us, we believe Zillow Rentals is digitally organizing a large, fragmented, local marketplace highly valued by all participants.

To close, let me reiterate:  I’m impressed with the results we are achieving in our focused and relentless innovation for customers and partners in pursuit of a seamless, digital, and joyful moving experience for all.  We are all in a really tough housing market and a distracting industry environment, yet our hands are steady on the wheel as we drive Zillow’s business and the industry forward.  

This LinkedIn article is adapted from my and Jeremy Wacksman’s remarks to Zillow shareholders on May 1, 2024.  For more details regarding Zillow Group’s results for Q1 2024, visit Zillow Group’s Investor Relations site and shareholder letter.

Footnotes:

1. Calculated as annual existing homes sold multiplied by the average existing home sales price during the same period published by the National Association of REALTORS®.
2. Google Trends (2010–2023) for search terms “Zillow,” “real estate,” “Realtor.com,” and “Redfin.” 
3. data.ai data for January 2023 – December 2023 and Zillow Group internal data. 
4. Zillow Group internal data and estimates for 2023.
5. Google Trends (2014–2023) for search terms “Zillow rentals,” “apartments.com,” “Rent.com,” “apartmentlist,” “zumper.”
6. Comscore data as of March 31, 2024. 

Forward-Looking Statements: 

This post contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, including, without limitation, statements regarding our 2025 targets, the future performance and operation of our business, the current and future health and stability of the residential housing market and economy, volatility of mortgage interest rates, and our expectations regarding future shifts in behavior by consumers and employees. Differences in Zillow Group’s actual results from those described in these forward-looking statements may result from actions taken by Zillow Group as well as from risks and uncertainties beyond Zillow Group’s control. For more information about potential factors that could affect Zillow Group’s business and financial results, please review the “Risk Factors” described in Zillow Group’s other filings with the Securities and Exchange Commission.