Zillow isn't just for price gawkers and house stalkers anymore.
Starting Monday, the company is buying and selling homes in the Twin Cities via Zillow Offers, which enables homeowners to request a free, no-obligation cash offer.
After an assessment of the property by a local agent, if the homeowner and Zillow agree to a price and the deal closes, Zillow will spruce up the house and relist it with a local agent.
The Twin Cities is the 10th market for Zillow Offers and the first in the Midwest for the company. Zillow first announced its plans for an expansion to the Twin Cities in January.
"The Twin Cities checks a lot of boxes for us," said Zillow brand President Jeremy Wacksman. "It's a nice, balanced, healthy market."
Zillow Offers is not the first "instant-buyer" operating in the Twin Cities. Opendoor launched in the Twin Cities in September when it sent thousands of unsolicited offers to homeowners across the Twin Cities. In contrast to most, including Zillow Offers, Opendoor is licensed to buy and sell directly in Minnesota.
Jim Lesinski, general manager for Opendoor's Twin Cities operations, said the brokerage has seen a 40% increase in offer requests in recent months and is now buying homes at a rate of nearly three per day.
"The arrival of a new competitor speaks to that success, our value proposition, and the inherent appeal of frictionless buying and selling," Lesinksi said. "With an additional voice speaking the virtues of ibuying, we expect the popularity of the category to grow even more rapidly."
These companies, which are also known as iBuyers, are essentially tech companies that use software and algorithms to quickly determine the value of a home based on a variety of public records and sale data.
The model is based on the assumption that instant offers and seller-determined closing dates will give homeowners more convenience and control than they get with the traditional buying and seller process. The approach works best in markets where there are enough transactions and comparable sales to accurately — and quickly — determine the value of a house, so the company has established some parameters around the location, value and type of house.
Several online brokerages including Knock, Redfin and Offerpad, and even some traditional brokerages are dabbling in the iBuyer space but have focused their efforts on other metro areas. To attract buyers and sellers, some of those firms offer a variety of financial incentives ranging from reduced sales commissions to helping sellers pay repair costs and settle at closing.
For now, Zillow will focus on single-family houses, townhouses and condominiums, and most of its purchases tend to be valued at around the median sale price. That is likely to change as the company closes more deals and develops a more accurate valuation model.
The accuracy of Zillow's valuation estimates is critical to the success of the model because instant buyers want to offer sellers enough money — and convenience — to persuade them to sell their house without exposing it to the broader market, while preserving enough upside to make a small profit.
Since launching its own iBuyer service in Phoenix more than a year ago, more than 100,000 would-be sellers have requested an offer.
Zillow sold 414 homes in the first three months of 2019, generating revenue of $128.5 million, or nearly $310,400 per home, according to a filing with the Securities and Exchange Commission.
Although the company plans to offer the model in most major metros across the country, executives said they are not trying to replace traditional brokerages and agents. The goal, they said, is to offer sellers another option.
"It's clear sellers are looking for a simpler, less-stressful way to sell their home," Wacksman said. "Zillow Offers gives homeowners an unprecedented level of control and convenience when selling, helping them move more seamlessly onto the next stage of their life."
Todd Urbanski, president of the Minneapolis Area Association of Realtors and an agent and sales coach at Fazendin Realtors, said that more than 20 brokerages and new business models have come into the Twin Cities market over the last few years, all of them promising something new or easier for the consumer and/or the agent.
"I'm confident that some of our customers will use them, and that's OK," he said. "I don't see them as a threat, just another choice."
He said that while more than 100 million sales leads were generated last year through Zillow-type sites, only a fraction resulted in a sale. The dominant referral source remains a friend, co-worker or family member.
"At the end of the day our customers want to work with someone they trust," he said. "Trust is built through a relationship or can be handed off via a referral from a trusted friend."
Because Zillow isn't licensed to operate as a brokerage in Minnesota, the company is partnering with local agents to represent the company when it buys and sells a property. If a homeowner decides not to sell their property to Zillow, the company will offer a referral to a local "premier agent."
Zillow said it will partner with the Kris Lindahl team to represent Zillow in its local transactions when they buy and sell. For sellers who decide not to go with the cash-offer route, Zillow will refer them to the Pemberton Homes Team and the Helgeson Platzke Real Estate Group.
The iBuyer model aims to offer sellers more control of the process by enabling them to sell their house without open houses and traditional showings. The mode also lets sellers determine when the closing will happen.
When the company sells a house, they say buyers can pick the move-in date and can expect to move into "a professionally repaired, refreshed and move-in ready" house, according to a statement.
Though Zillow isn't focused on buying fixer-uppers and doesn't consider its approach "flipping," the upside for Zillow is the potential gain on the resale of the property. The company also stands to benefit by referring buyers and sellers to an affiliate of the company called Zillow Home Loans.
The company said it charges sellers a "service fee" that's competitive with a standard commission and fees, and they will pay local agents and brokers the standard commission when they represent the buyer of a Zillow-owned property.