The startup says it was blindsided by Zillow’s decision to begin buying and selling homes directly and has ended their business partnership
Privately-held real estate startup OfferPad has officially ended its partnership with Zillow in response to Zillow’s announcement earlier this month that it will begin buying homes directly from consumers and re-selling them — a move that puts Zillow in direct competition with OfferPad.
OfferPad launched in 2015 with the aim of making homeselling faster and easier by giving prospective sellers a cash offer on their home online within 24 hours — whether they have an agent or not. If a seller accepts the offer, OfferPad then purchases the home, makes improvements and re-lists it for sale.
The startup won 2017 award for Most Innovative Technology and partnered with Zillow almost a year ago through Zillow’s then-new Instant Offers program, which lets prospective sellers visit Zillow’s website and receive all-cash offers on their homes from various investors, alongside a competitive market analysis (CMA) from a traditional real estate agent. OfferPad was one of two named investors that Zillow revealed publicly back when it first debuted Zillow Instant Offers in May 2017. At that time, Zillow was not making its own cash offers on homes through Instant Offers.
Flash forward to now: why are the companies parting ways after less than a year together? Zillow’s entry as a competitor in the rapidly-growing space of “iBuyers” — companies that use technology such as automated valuation models (AVMs) to buy and resell homes — would seem to challenge OfferPad’s core business directly.
OfferPad first said it was not given any advance warning from Zillow ahead of Zillow’s move to expand Instant Offers by becoming an investor/homebuyer and seller in its own right. OfferPad then said Zillow informed the company of the change “a few hours before the news was announced.” OfferPad confirmed that it ended its business relationship with Zillow on April 12, 2018, the day Zillow made its announcement.
“In May 2017, OfferPad officially announced their partnership with Zillow. OfferPad powered Zillow’s Instant Offer pilot program,” OfferPad said in a statement. “As of April 12, 2018, OfferPad has elected to no longer participate or partner with Zillow. OfferPad anticipates little to no impact on the business since ending the partnership — less than 1 percent of OfferPad’s overall volume came directly from Zillow.”
“The end of the pilot program with Zillow will not have any impact on OfferPad’s growth – currently on a trajectory of a $2 billion annual run rate in real estate transactions. Zillow, in the weeks and months prior to April 12, did not notify OfferPad of the change to their business model. Zillow did in fact notify our leadership team, via phone, a few hours before the news was announced,” OfferPad Co-CEO Jerry Coleman added in a second statement.
A Zillow spokesperson said that Zillow did, in fact, warn OfferPad several times in the weeks and months ahead of the announcement. Zillow declined to answer further questions about the status of its relationship with OfferPad. The company emailed a statement about its program that reads as follows:
“We value our investor partners and continue to work with the vast majority. We also have a waiting list of investors who are excited about participating in the program in the near future.”
“We think there is plenty of room for a competitive market and believe we’ll succeed in this space because we keep agents at the center of the transaction. We know that the vast majority of sellers who get an Instant Offer will go on to sell with an agent, making our Instant Offers program a great way for agents to connect with those consumers,” the statement continued. “Our model is great for sellers, but it’s also an amazing opportunity for the agents and brokerages involved to connect to serious sellers. We believe Zillow will differentiate itself to sellers by providing more accurate pricing, superior customer service and the knowledge they’re working with a trusted, consumer-first company, something we’ve built over the last 12 years.”
OfferPad operates in Atlanta, Charlotte, Las Vegas, Los Angeles, Orlando, Phoenix, Salt Lake City and Tampa with plans to expand to Nashville and Houston. The iBuyer tries to distinguish itself from its competition, traditional real estate transactions and fellow iBuyers Opendoor and Knock, through a feature that lets sellers pinpoint and choose their closing date. The company claims an average closing period of 22 days, much shorter than the industry average.
Zillow’s Instant Offers pilot program has been operating in Las Vegas and Orlando and is soon expanding to Phoenix. Consumers who use the platform can accept an offer on their homes from Zillow directly, one of its remaining investors (Zillow said it had 15 investors at the program’s debut), or instead choose to complete the transaction with a traditional real estate agent who is part of Zillow’s Premier Agent program.
OfferPad wasn’t the only iBuyer unhappy with Zillow’s move into the market: Founders and executives at rival Opendoor spent much of the day of Zillow’s announcement making snide remarks about Zillow’s plans on Twitter.
Real estate professionals agree that Zillow faces a challenge entering this space. Although Zillow is incredibly well-known, that brand recognition applies to the company as a real estate listings portal, not as a buyer and seller of homes. It will be hard for the company to get consumers to see it as a place they can sell their home, not just look for a new one.
Article by Emma Hinchliffe