Dismantling the Cabal, Part 3

Zillow and Trulia went and got married over the weekend.

The idea of them becoming a brokerage is another topic, and they would be swinging for the fences there – it’s probably not going to happen, at least not in the short-term.

But their marriage does set up the Big Showdown:

Consumers, Top Producers, and Transparency

                     vs.

NAR, Big RE Corporations, Low-Producing Realtors and the Status Quo

The Big Showdown has been brewing for years, and Zillow/Trulia will have to pick a lane.  They are trying to sell the marriage as a mutual benefit for all, but it’s not.  One side wins, and one side loses.

The fight centers around educating the consumer.

The Status Quo (the cabal) likes to keep consumers in the dark.  Zillow/Trulia slipped in when no one was looking and grabbed our listings, produced a better website with more information, and went on a spending spree of TV advertising over the last couple of years.  They provided better transparency of our listings then realtors were willing to provide themselves, and based on results, the consumers dig it.

But having the listings out in the open isn’t enough to dismantle the cabal.

The RE Cabal, defined: The group of entities that thrives on low-producing realtors.  The National Association of Realtors and local associations collect the same dues whether an agent sells a house or not.  The big corporate franchisors enjoy more-favorable commission splits from new, inexperienced, and lower-producing agents, and if they hire them by the thousands, they can make a good living.  The top producers demand 80% or 90% (or more) of their commissions, and even though their volume is higher, the small percentages and lack of control doesn’t sit well with the corporate bosses.

What happens now?

Zillow has already been forming partnerships with the bigger brokerages; here is an example from last month:

http://investors.zillow.com/releasedetail.cfm?ReleaseID=856350

SEATTLE, June 24, 2014 /PRNewswire/ — Zillow, Inc. (NASDAQ: Z), the leading real estate and home-related marketplace, and Douglas Elliman Real Estate, one of the largest real estate brokerages in the nation and New York City’s largest residential brokerage, today announced they have entered into a new strategic marketing partnership.

Other big corporate franchisors will likely plead with Zillow for a similar ‘strategic partnership’.

If Zillow takes their money, won’t they be indebted to the Status Quo?  The Status Quo hopes so, because it will slow down or stop Zillow from continuing to expose the transparency needed to break the cabal.

If Zillow takes the high road, and is beholden to no one, then they would be free to educate the consumer on the intimate details of buying and selling homes.  The Status Quo doesn’t want that – they prefer it to be mysterious so consumers end up with the agents on bad commission splits.  Literally, the Status Quo prefers you to be served by those who are least qualified to help you.

More transparency would include agent-ranking and demonstrations on why consumers should work with a top-producing agent.  You pay the same or similar commission rate, you deserve to get the best help available.

Dismantling the Cabal, Part Two

If the Zillow purchase of Trulia comes together, and Zillow wants to further their dominance without creating a standard brokerage, how could they do it?

There are 17,488 dues-paying agents who are members of the MLS in San Diego County.  There are at least another 5,000 assistants, admin people, supervisors, managers, escrow and title people, inspectors, appraisers, etc.

Let’s round it off and say there are 23,000 real estate people in San Diego.

Last month there were 3,111 closed sales of all residential types in the MLS.

Do we need 23,000 people to close 3,111 sales?

No, and the inefficiencies in the real estate selling business are everywhere you look, and most are related to inexperience – realtors don’t sell enough to be really efficient at it.

This is where Zillow could politely commandeer the industry.

In Part One we saw how the agent-rating feature would help to weed out those who don’t sell much.  Zillow would partner with the higher-producing agents and sell them advertising.  It will work great for all, and if that’s as far as it goes then it’ll be better than it is today.

Kill Shot 2

But what if Zillow wants total dominance?  Here’s how to do it.

Hire the best 100-200 of the 23,000 people involved with selling SD real estate every day, and set up the Zillow Sales Desk.

Those on the front lines would be experienced realtors who have closed hundreds of sales in the last few years.  They would be taking inquiries from 7am to 11pm, and the rest of the staff will do ‘transaction coordinating’; which gets the sales to the finish line.

The Zillow Sales Desk could be positioned as a help desk for realtors and consumers alike – a place to get answers, and put deals together.  A non-threatening place to fill in the holes skipped over by the high-producing agents (the do-it-yourselfers, and low-cost properties).

Today’s realtors accept that you don’t need a realtor to buy or sell.  We offer convenience, and we’re the only place you can get good help.

The Zillow Sales Desk would provide an alternative place to get good help.  If the Sales Desk charges flat-fees and/or fee+small percentage, it would be even more attractive.

After a couple of years of providing great help, the Zillow Sales Desk could grow into the best alternative for the money.

In Australia, there are no buyer agents, and the transactional brokers get around 2%.  If the market here goes the same way, then the agents could just hand over the buyer and seller to the Zillow Sales Desk for completion.

The general public doesn’t realize the difficulties of closing sales – it’s part of the mysterious cabal.  But once there is a competent solution to the back end, all buyers have to do is find the right house, and they will have somewhere to go to get it done.

Having great agents handling the initial inquiries is the key.  When the buyer finds the right house, they want to get quality help to clinch the deal.

It would bring a predictable solution to the equation, which is also part of the existing cabal – consumers don’t know what to expect from the other parties involved, and are hesitant about how to proceed.

Call the Zillow Sales Desk to get good help!

It’s a long shot, and I don’t think they will do it because the profit vs. hassle is questionable.  But if Zillow’s goal is domination, then this idea gets them on the path without being a regular brokerage.

Dismantling the Cabal

If Zillow and Trulia join forces, could they take over the industry?

The real estate-selling industry will need to concede, either formally or informally.  Informally, we have already given up.

We are not a union, and there is no real leadership among realtors.  We are independent contractors spread all over the map, literally and figuratively, so trying to get us to rally for the cause will be met with indifference.

Many of us already think Zillow could be a big improvement for the business!

Let them spend the big money of advertising, and we’ll contribute our share in exchange for specialized leads – consumers drawn to our own listings, or those looking for a local expert in our target areas.

How will it evolve?

The Next Phase:

1. Realtor.com/Move Inc. makes a wimpy attempt to compete by spending half of the advertising money being spent by Zillow-Trulia to attack their inaccuracies (campaign currently underway).  If you want a chuckle, here’s an example:

2. Corporate real estate companies join forces with Zillow (also underway).

3. Local MLS companies do nothing.

Zillow and Trulia will continue to dominate the headlines for the next few months, and realtor.com will be forgotten by consumers.

The local MLS systems don’t have to die – they just need to be irrelevant and/or a duplicate.  Our local Sandicor MLS is faster and more accurate than the listings on Zillow, but does the consumer really NEED listings updated every 10-15 minutes?  Realtors might, but not the consumers – they are on auto-notifications and will get the new listings soon enough (the frenzy is over, reducing the need for speed).

Can we all co-exist?  Yes, but Zillow has shown a killer instinct, and has loads of VC money behind them.  I think they will pursue all angles – and here’s the one that will divide and conquer the realtor community.

The Kill Shot:

Previous attempts by Realtor.com and Redfin to produce an agent-rating or agent-ranking site was met with vigorous opposition from realtors.  Why?  Because most realtors don’t want their sales history out in the open.

But the successful and powerful agents stand to benefit greatly – the same ones who can and will pay Zillow the big money for advertising.

It is a natural fit for Zillow to buddy up to the top producers, and get them to help promote their new agent-ranking site.

The cabal will be shattered.

The local associations of realtors and the MLS companies who have feasted on having realtors paying dues regardless of production will suffer – and should die off completely if 20% of the realtors are doing 80% of the business.  They can’t survive an 80% reduction in dues.

When consumers see that their agent-friend down the street hasn’t sold a house in six months – they will hesitate.  The Zillow advertising will encourage you to select one of their top producers instead (the ones paying for advertising).

It should clear out the realtor population within a year or two, and turn upside down the local associations, MLS companies, and the top-heavy big corporations who own real estate franchises.

Realtors won’t really need a brand – Zillow will be the brand.

With Zillow-Trulia getting all the eyeballs, and realtors have to do is be on the receiving end of those leads – and Z-T would be smart to cater to the top producers.  The momentum would shift rapidly as success stories appear on Zillow ads too.

I’ve been paying around $500 per month to each of the three portals:

Realtor.com – no calls or leads.

Trulia.com – unqualified leads

Zillow.com – listings get high traffic early, and I get calls looking for an agent in the area.  It’s the kind of results that realtors want, and I’m already convinced that I can reach the consumers and sell homes using Zillow only.

The future is here, but I’m not sure it will get cheaper.

Yesterday a Zillow rep called to offer me some exposure in another local zip code that was about the same as I already have.  I pay $550 per month now, and the new but similar package offered was priced at $850 per month.

Zillow might keep the cost of commissions right where they are.