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.
The only realtors with a viable brand is Redfin. I am very curious how they will respond. So far they are just too slow, too laid back, and too focused on buyers instead of sellers. Where is their ad campaign?
But if Zillow has the most relevant listings it’s game over for everybody else.
Combined they are nearly 80% share or so and yet neither has any meaningful revenue sources other than Realtor/Mortgage leads.
Zillow started their business on a gimmick, the “Zestimate”, which is colossally inaccurate. It’s a fun little hook but that’s about the limit of their unique IP. The rest of their mash-up site is relatively easy to replicate at a very small cost in engineering and IT resources.
They get a ton of traffic, no doubt. However, they seem to be the only Internet Company that still talks “eyeballs”. I thought that metric went away a decade ago.
It’s a telling commentary that the biggest name in Real Estate is using a 15+ year old internet business model, generating a relatively small revenue stream from it. As far as industry disruption, I think they’ve gone about 3-5% of the distance in their 9 year life (They raised the bulk of their money in 2005 & 2006)
If they COULD be generating more revenue they would be. Usually, industry consolidation is the signal that management has run out of ideas for growth. I’m not the only one with that view either : http://www.citronresearch.com/wp-content/uploads/2013/09/zillow-final.pdf
Discount Brokerage is similar to Discount eye surgery or Discount Tattoos. People are wise to not trust lowest bidder or simple ratings on a rare transaction with high failure costs.
Methinks the disruptive force will be along the lines of “full fees (same price) but 3X the relief/peace of mind” and be able to match buyers/sellers with professionals that will deliver on that.
Zillow might be big enough that they can control the outcome, whatever they want it to be.
They are convincing realtors to pay big money for leads, and with sales volumes down (half of peak) it feels easier to write a check than to go to work.
If there were any realtors or real estate companies that offer 3X the relief for full fees, they would have surfaced by now. Redfin is the only real estate brokerage that attempts to reach out to the consumer – the other big companies depend on the individual agents to do their own personal marketing.
Zillow doesn’t have to fight the realtor community – there’s no there there. They can just create something shiny, and realtors will follow.
Anybody who steps up to the microphone could take over the business right now. Zillow is the only one doing it. I don’t think they need the most relevant listings or even accurate listings – they just have to keep advertising to bring consumers to their site.
More from others:
http://www.inman.com/2014/07/24/real-estate-industry-grappling-with-prospect-of-zulia/
http://www.inman.com/2014/07/25/zillows-trulia-move-is-checkmate/
Agree with Inman. This is a checkmate move.
Agents: you now have a new master.
Might be good – agents didn’t have a master before.
There will be a undercurrent of desperate activity as agents exit the business.
Another take here – Zillow stock up 13 today to close at 158, it was in the 70s in December:
http://www.bloomberg.com/news/2014-07-25/zillow-taking-page-from-grubhub-speeds-profit-real-m-a.html
It’s Redfin’s move now. Rumor has it that they will IPO soon, possibly this year even.
So far they are not showing Zillow’s killer instinct.
Agreed and them spreading themselves around (too thin) on the VC isn’t going to create profits.
I think they are still losing money but trying to make it up on volume?
They have 42 agents in San Diego, a 1.3% market share the last 12 months, and 83% of the sales were buyer sides.
I think part of their problem in trying to gain market share on the seller’s side is that their ‘discounted’ commission must not be that much different than what others are offering.
We also know that sellers would rather hire someone they don’t know and take their chances, then hire someone who is somewhat known. It’s a big problem for me because sellers will find something in the blog here they don’t like, and then go hire someone else they think can do what I do.
I really can’t understand the real estate multiple listing people. They had all the data and were online 15 years ago.
In the Seattle area I used to look at the NW Multiple listing circa 1999/2000. You had use the “notify realtor” button to look at a property. No problem with this. Then one day, “boom” realtor access only to see the listings. Stupid.
You could get access through realty company web sites, but they were pretty badly designed and hard to use. I did find one that allowed access to database style quiries that was great and satisfied my real estate viewing urges. Crappy looking web site, but it worked and was fast. Then it took away the query access and only allowed basic search.
So no sympathies to established real estate companies.
Yes, and in the beginning it was terrible so they gave the listing feeds directly to the realtors (IDX) to use on their own site. Great – every agent has their own real estate portal.
But they are all different, and none better than Zillow – and big surprise, everyone gravitates towards the best product.
Boom – Zillow simply displays the listings surrounded with supporting features and links to realtors. Nice package deal.
MOVE, Inc and realtor.com got caught holding the bag. They didn’t adjust fast enough, and fall further behind each month.
Realtor.com can tout the better-quality data, and they could still spend $100 million on advertising this year and catch up.
But when you are behind, who are you?
Do we pour it on, or give up?
It’s not really a contest though – I don’t think NAR or Move, Inc know how bad they are getting beat. It would take at least $100 million to get close to catching up, and spent in the next couple of months.
This is a great summary:
http://www.bloombergview.com/articles/2014-07-25/homebuying-gets-a-housecleaning
Zillow being the big boss doesn’t necessarily mean it will make realtors’ life any worse. We pay dues to NAR, CAR and local boards and they haven’t done much to help the industry.
Except this scenario:
Will Zillow ever get into the brokerage business directly? Like setting up (or buying) something like Redfin? It’s like Amazon. It lets other merchants sell the same things Amazon itself is selling. Of course they charge you for the privilege. Zillow agents won’t need to pay to advertise on Zillow, and they will have all the data about customers.
Warren Buffett is buying brokerages left and right. So money must be good there. Will Zillow butt in? That would be an earth shaking move.
When Spencer was here for the seminar last summer he said he’s not interested in regulating realtors or handling ethics violations, etc.
If they did do it, they would be smart to buy existing brokerages like Buffett, not create a new one.
The good agents demand the bulk of the fee, so the corporate margins are thin.
There are other reasons not to do it too – you need a lot of agents to be profitable, adequate supervision means layers of management, and the IRS wants to convert us to W-2 employees, which means providing benefits, etc.
But if Zillow has the killer instinct and want total domination, it would be the way to go. I think they are just in it for max money, which won’t require having agents.
More from the WSJ:
http://online.wsj.com/articles/in-possible-merger-of-zillow-and-trulia-an-online-giant-looms-large-1406328851
Some brokers also fear Zillow and Trulia could decide to expand by having their own real-estate agents. Zillow raised eyebrows among multiple listing services recently when it started a “Coming Soon” feature, where agents could advertise properties that haven’t yet been officially listed. Both companies in the past have said that they don’t intend to become real-estate brokerages.
Both Zillow and Trulia rely largely on multiple listing services and other data sources to feed them listings.
The National Association of Realtors declined to comment on the potential combination.
The sites’ current services are unlikely to completely replace traditional brokerages, because most buyers and sellers will want someone to guide them through the oft-complicated process of buying and selling homes, said Mr. Boero. Unlike with travel and with stock purchases, most people will only buy and sell a home a few times in their lives, he said.
Agree with Guy S. & I’ll extend his well stated point. If Zillow takes over, “zestimate” is likely to become another of agent’s clubs to beat sellers into accepting lower prices or to entice Buyers into paying more for what he assesses as fair value. The absurdity is, Zillow says it has no axe, but it refuses to share how it guesstimates its “zestimates”. Hmmm, I wonder why that is?
How does the math work on the brokerage side? Buffett is actively buying up brokerages so I just assume money is good there. What kind of margin are we talking about?
The combined revenue of Zillow and Trulia is a bit over 100M. How much headroom is there? Do you see them reaching 1B revenue doing advertising alone?
Watch who’s in and who’s out at the exec level. I work in tech and have seen this many times before. Here’s what’s going to happen Realtor.com execs are going to get ousted because of perceived lack of tech performance. Tech execs will be brought in and will see that they can make big bucks quickly by partnering or licensing with zillow. At first this will work but within a year those tech execs will be replaced and zillow will have control.
Over 10,000 views at BI – thanks Rob!
http://www.businessinsider.com/consequences-of-a-zillow-trulia-merger-2014-7
How does the math work on the brokerage side? Buffett is actively buying up brokerages so I just assume money is good there.
The spreadsheets must have looked attractive to Buffett, because the future is questionable.
His firm is full of the old-school agents who work out of the brick-and-mortar big offices (read: high overhead). The top producers get the vast majority of their commissions, so Buffett is dependent on bad producers and new agents where the splits are 50/50. Those are the ones who could get eaten up in the Zillow squishdown.
The combined revenue of Zillow and Trulia is a bit over 100M. How much headroom is there? Do you see them reaching 1B revenue doing advertising alone?
They have to be close to the max they can make off individual agents. The leads are primarily buyer leads, and the top producers want seller leads so there is a mis-match there.
The best zip codes are sold out at Zillow, so either they create more capacity due to more people viewing (they sell advertising based on ‘impressions’, or how many times your face gets seen), or raise the fee when annual contract expire.
The reason I pay their vig is because I detest their policy of putting other agents on my listings, and it’s the only way to be the only face seen on your own listings. If you aren’t paying to be a Premier agent, they put three other agents on your listings – no bueno.
The next phase is for Zillow to do more partnerships with big firms, which has already begun. But what’s the benefit? The big-company listings get only their agents on their listings, instead of the 3 extras?
That would lower the number of impressions for the existing agents.
But what Zillow is selling, and how they are selling it could be their unraveling.
They are working a big call center – you can hear the other operatiors talking – and they are selling impressions. I’ll blow the $550 per month just to be a Premier agent, but the big shots are spending $2,000 to $3,000 per month so they are seen by virtually every viewer. But how do I know how many impressions I’m on? They don’t verify or send an advertising report, so they is no accounting.
Agents spending $2,000 to $3,000 per month for buyer leads may start to question the expense after a while, especially if it occurs to them that there is no way to know if you are getting your impressions.
Zillow trotted out three agents at their last meeting to tout the great success they were having. One was a known short-sale fraudster, and the other two I had never heard of. The first thing I did when I got back was to check their sales history over the previous 12 months. I beat them all, which didn’t make me want to spend more money on Zillow advertising.
Jim, it looks there isn’t much headroom in Zillow’s traditional advertising business?
The whole pie is 5% of all RE transactions. In 2013 existing home sales is around 5M, and avg price is 197K. So total dollar vol is almost 1T, 5% of that is 50B.
If Zillow + Trulia captures only 100M of that money, and there isn’t much more they can do on the ad side, I am pretty certain they will branch into something else. And most of that money still goes to the agent+brokerage side. I can see why Buffett is placing bets on brokerages. Even if brokerages only get 20% of that in aggregate, that’s still 10B a year.