Shares of Zillow Group (Z 1.87%) (ZG 1.75%) soared 19.1% in September, according to data from S&P Global Market Intelligence.
That move sent the online real estate portal's stock from $85 per share to $102 during the month, on the heels of the stock's 25% surge in August.
Zillow Group shares were up 122% for the year through September, which is a huge turnaround from the 49% year-to-date loss in mid-March.
What happened
The big news about Zillow Group in September was that it plans to begin using its own salaried agents when buying and selling homes in its Zillow Offers iBuying business. This is a major shift from use of third-party agents on both sides of the real estate transactions.
Image source: Getty Images.
The company's press release stated:
Starting in January 2021, customers in Atlanta, Phoenix and Tucson who sell homes through Zillow Offers will work directly with trusted, licensed employees of Zillow Homes, a licensed brokerage entity. Zillow-owned homes in these markets will be listed for sale by licensed Zillow Homes employees. The company expects to expand these services to additional Zillow Offers markets later in 2021.
Errol Samuelson, Zillow's chief industry development officer, justified the change in a video by stating that many of the company's customers "found the handoffs and the back-and-forth between the Zillow employees and the agents to be confusing."
So what
This is a big deal. Zillow has been growing the Zillow Offers business aggressively since it launched in 2018, but the business has still been losing money. Last year, Zillow's Homes segment, which represents the Zillow Offers business, generated almost $1.4 billion of revenue but still lost $312 million before income taxes.
One of the biggest expenses within the Zillow Offers business is selling costs, which are mostly paying commissions to third-party agents upon the sale of Zillow-owned homes. Last year, the company spent over $59 million on selling costs within Zillow Offers. Minimizing those expenses by employing licensed agents instead of paying expensive sales commissions should help minimize these costs as the company continues to expand this business.
Now what
For a long time, the investment community has been fairly skeptical toward Zillow's aggressive plunge into the iBuying business. This move is likely to go a long way toward helping this business reach breakeven and eventually become profitable. Investors should realize the company's future is brighter than many thought.
