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Despite all the talk of alternative revenue streams, Zillow’s latest money-making strategy is raising the price of its agent-based lead-gen offering.
This article was shared here with the permission of Mike DelPrete for Inman Intel, a data and research arm of Inman offering deep insights and market intelligence on the business of residential real estate and proptech. Subscribe today.
Zillow recently raised the success fees on its Flex program — from 35 percent to 40 percent — for the completion of a successful transaction in six markets.
Why it matters: Zillow, like every other leading real estate portal around the world, has tremendous pricing power and is able to flex that power to squeeze more revenue from agents and the multi-billion dollar commission pool.
Dig deeper: In early 2022, Zillow set itself lofty revenue goals, including generating an additional $1.5 billion per year from its Premier Agent program.
- This revenue stream, paid for by agents, taps directly into the $70+ billion annual commission pool.
A key component of Zillow’s strategy is growing its Flex program — next gen lead gen that monetizes transactions on a success fee model.
- That success fee has been 35 percent for years but has recently risen to 40 percent in a half-dozen markets.
- Zillow Flex accounts for around 25 percent of Zillow’s entire Premier Agent revenue, a percentage that has yet to materially change in 18 months.
The pricing change quietly occurred in September (there was no press release, for obvious reasons) in six markets: Denver, New Haven, Cape Coral, Reno, Oklahoma City and Greenville.
There is a graduated referral fee band, but in all but two markets the average home value (as computed by Zillow) falls within the highest, 40 percent fee band.
The bottom line: Zillow’s market dominance, coupled with the exclusive nature of its Premier Agent and Flex programs, gives it unprecedented pricing power.
- As outlined in my Real Estate Portal Strategy Handbook, most revenue growth at real estate portals around the world comes from raising prices.
- Despite talk of new revenue streams and super apps, the easiest way for Zillow to increase revenue may be to simply raise prices on a captive audience.
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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