On Zillow, it’s free to list a home for sale by owner or agent and to list a property for rent. Zillow’s online and mobile search tools, including its smartphone app, let users search for property and view estimated property values for free, too.

On February 21, 2019, Zillow reported Q4 and full year 2018 earnings, including annual revenue of $1.3 billion, up 24% year-over-year.

Shares of Zillow Group (ZZG) split in August 2015, acting on its promise made in July to create new classes of shares to provide access to new revenues while also establishing a method for further investment.

How is Zillow Group, Inc., Zillow's parent company, able to offer all these services for free and still make money? Let’s find out. (Note: Zillow is a wholly-owned subsidiary of Zillow Group, which also owns Trulia, StreetEasy and RealEstate.com, among others.)

Ad Sales to Property Management Companies

One way Zillow makes money is by charging property management companies to advertise their listings on the Zillow Rental Network, which includes websites from Zillow, Trulia, Hotpads, MyNewPlace, AOL Real Estate, and MSN Real Estate.

Zillow sends qualified leads – prospective renters – to these advertisers to help them maximize the return on investment on their advertising dollars. The company has identified rentals as a large market opportunity. Renters move more often than homeowners, and property owners have to spend money on advertising and lease concessions to fill units. 

iBuying

In early 2019, Zillow revealed that it is doubling down on its house flipping or Offers business, which launched in April 2018. Central to this service, which will be available in at least 14 markets by the end of the year, is a real estate technology trend known as iBuying. The transaction is streamlined and made quicker and easier for sellers thanks to automation. Customers can use the online platform to send Zillow details of their home, and the company responds with a cash offer within days. The customer can either accept Zillow's offer, list their home with a local agent Zillow connects them to or choose not to sell at all. If Zillow buys the home, it fixes it up, relists it and hopes to resell it within 90 days. The company expects the business to add $20 billion in annual revenue over the next three to five years. It has said the business also provides seller leads for users of it Premier Agent program and brokerage partners.

Premier Services for Real Estate Agents

Zillow offers Premier Agent Websites, which include free premium designs, an integrated multiple listing service search and a domain name. Real estate agents can also purchase advertising with Zillow. Ads targeted at users in agents’ local markets help them get new clients who are buying or selling homes. The ads also provide agents with increased visibility for their listings to help them find buyers. The Premier Agent program also provides agents with a customer relationship management system that helps them track Zillow users who have expressed interest in working with an agent. Costs for services vary by zip code.

Premier Agents also work with the company on its house flipping business by either representing Zillow to earn a commission, requesting offers from Zillow to present to their sellers or assisting clients who reject Zillow's offer with a traditional sale.

For the year ending December 31, 2018, Premier Agent revenue increased year-over-year to $898,332, an increase of 18% year-over-year.

Real estate agents mainly pay Zillow based on the number of ad impressions delivered to users in specified zip codes. Premier Agent services remain Zillow’s main source of revenue.

Ad Sales to Mortgage Lenders and Other Businesses

Zillow also sells advertising space on its site to mortgage lenders and other businesses that want to reach Zillow consumers. These other businesses include interior designers, home organization retailers, general contractors. Most of these advertisers are in the real estate industry, but some sell telecommunications services, automotive products and services, insurance and consumer products. Display revenue depends largely on the number of monthly unique visitors Zillow receives.

Mortgage lenders mainly pay Zillow based on cost per click (CPC) or cost per thousand impressions (CPM). A click means that after searching for mortgage rates, the user requests more information from a local lender, whereas an impression means that the ad appears on Zillow’s online or mobile site. Zillow also earns money from the subscription-based mortgage software company Mortech, which is owned and operated by Zillow Group, Inc. It also offers lending services through the Mortgage Lenders of America.

Threats to Zillow’s Revenue

Most of Zillow’s advertising relationships are short-term, so it can’t take them for granted. Zillow’s advertising revenue, on which the company’s financial success relies, could suffer if existing advertisers ended their relationship and Zillow were unable to replace them. If Zillow’s user base dwindles or its competitors become more attractive advertisers for mortgage lenders, property management companies and real estate agents, ad revenue could decline. Also, as the company relies heavily on ad revenue from its Premier Agent program, revenue could seriously suffer if agents stop seeing value from advertising on Zillow. Finally, a hit to the real estate market or a drop in consumer interest in home buying and mortgages, both of which are beyond Zillow’s control, would likely reduce traffic to the site and lead to a drop in ad revenue.

The Bottom Line

Zillow makes money by selling advertising on Zillow.com and the Zillow mobile app to property management companies with vacancies, real estate agents looking for buyers and sellers and mortgage lenders looking for borrowers. And it also sells to general advertisers, especially ones in the real estate industry.