As Zillow moves forward on its agreement to acquire archrival Trulia for $3.5 billion in stock, speculation about what changes the merger might bring grows.
The most pressing questions include:
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- Will Zillow and Trulia remain content to continue providing leads and lead management tools to agents, or are they out to “disrupt” MLSs, franchisors and brokerages?
- Will “Zulia” use its market power to raise prices?
- Will large franchise brands and brokerages use their clout to negotiate volume-based discounts with the new giant that independents can’t match?
- What does the combination of the two biggest real estate portals portend for the No. 3 listings website, realtor.com?
Despite its clear leadership among national real estate search portals in capturing consumer traffic, Zillow is still beholden to brokers for listings, said Howard “Hoby” Hanna, president of the Midwest region of brokerage giant Howard Hanna Real Estate Services. “Without our listings, they can’t make money.”
That leverage will likely put the brakes on Zillow raising prices too high, Hanna said — a topic of considerable interest since last fall, when Zillow CEO Spencer Rascoff talked about the possibility that agents will someday be willing to pay as much for highly qualified leads as they do for referrals.
“We think that agents will view online impression-based advertising in the same way they have traditionally viewed lead referral economics, which is to say that they’re willing to pay up to 40 percent of their commission to the channel that provides them with a customer,” Rascoff said at the time.
Howard Hanna advertises its listings on both Zillow and realtor.com to place its listing agents exclusively on their listings. Trulia would not remove advertising for services that competed with Howard Hanna’s, so the brokerage opted not to advertise on the portal, Hanna said.
“We can’t allow this consolidation pricing model to increase pricing for brokers and agents,” Hanna said.
“The portals have to remember it’s our listing, it’s our data,” Hanna said. “They’ll have to be careful about how they communicate changes,” he said.
“I think that the potential for increased pricing is there,” said Art Carter, CEO of the California Regional MLS. “Looking at the financial performance of Zillow and Trulia, if they are truly intent on keeping both brands, they’re not cutting much in the way of costs” and therefore seem to be going after “a greater amount of the commission pot.”
You do that by “either increasing pricing or the market share of the advertising dollar out there,” Carter said. “I think that’s got to be the motivating factor. This isn’t an expense-driven merger — this is a revenue-driven merger. This is a smart move if you’re sitting in the Zillow CEO chair.”
Could a merged Zillow and Trulia go further, and disrupt the traditional real estate model?
“If we don’t provide the vision and related tools for our real estate professionals, Zillow will,” said Pacific Union International CEO Mark McLaughlin in an Inman News guest post. McLaughlin noted that Zillow “is holding the equivalent of a franchise-style convention” in Las Vegas this fall for agents who pay to advertise themselves on the site.
Even though technology is changing every day, Hanna said brokers and agents live at the heart of traditional real estate’s value proposition — building relationships, negotiating deals and marketing properties. That’s not going to change.
A spokeswoman for the National Association of Realtors offered a similar assessment. NAR’s consumer website, realtor.com, is operated by Move Inc. and ranks third behind Zillow and Trulia in terms of popularity.
“Realtors are still integral to the process of buying and selling a home,” NAR spokeswoman Sara Wiskerchen said in an emailed statement. “This proposed merger doesn’t change anything about the Realtor value proposition, and NAR remains committed to promoting and supporting the Realtor brand and Realtor value proposition to consumers.”
Joseph Rand, a managing partner of Better Homes and Gardens Rand Realty in New York and New Jersey, thinks of Zillow as an advertising channel.
“A really great one, to be sure. But it’s just an advertising channel,” Rand said in an Inman News guest column. “And unlike newsprint advertising, where you had only one major paper in town, the Internet is lousy right now with startups that are trying to become the Zillow alternative. And all of them are about to move up one slot in the rankings” with the merger of Zillow and Trulia.
Although they make most of their money providing leads to agents and have also gotten into the business of providing tools to manage those leads, Zillow and Trulia have long denied any ambition to “disintermediate” real estate agents. Both companies have been building ties to MLSs, franchisors or brokerages in order to obtain more listing data — “feeds” — directly from the source, rather than relying on third-party companies that syndicate listings data.
This month NAR launched a $35 million “Real People” marketing campaign emphasizing the accuracy and freshness of realtor.com listings and the role of Realtors in buying and selling homes. Realtor.com’s latest ads also trumpet that “Accuracy Matters,” a message that’s intended to make consumers aware that the NAR-endorsed website gets listing feeds directly from most of the nation’s more than 800 MLSs.
In an email to real estate brokerages today, Rascoff acknowledged that the news would “lead to a number of questions. The most important thing I can stress is that this combination of companies sets the stage for us to offer even more real estate tools and services to empower consumers, and thus has the ability to drive even more business to local brokerages and their agents.”
For now, Rascoff said, “It’s business as usual for both companies. Our daily focus and strong commitment to local agents and professionals in the real estate industry remain unchanged and of the utmost importance to our entire team.”
An email to MLSs promised that the merger will make Zillow “a better-resourced collaborator when it comes to meeting your needs and providing innovative partnership opportunities,” and that the company will “work hard to make sure the great partnerships we have with MLSs nationwide continue to prosper.”
Even if the portals have no greater ambition than to sell leads and lead management tools to agent, the merger could have implications for small, independent brokerages, and their ability to compete with bigger companies — particularly those affiliated with big-name franchisors like Coldwell Banker, Century 21, Re/Max and Berkshire Hathaway HomeServices.
Some worry that bigger brokerages and franchisors will redouble their efforts to negotiate advertising perks and volume discounts on “enhanced” listings for their agents that smaller firms can’t compete with. Listing enhancements give brokers and agents greater visibility on search portals, and typically prevent ads for agents at competing firms from showing up alongside listings that they represent.
Century 21 has been subsidizing realtor.com listing enhancements for its brokers and agents since 2009, adding Zillow the following year and Trulia, Homes.com and Homefinder.com by 2011, providing discounts of up to 85 percent.
In June 2011, Realogy subsidiary NRT LLC announced it had signed agreements to add advertising enhancements to 100,000 property listings on Trulia, Zillow, realtor.com and Yahoo Real Estate (now Yahoo Homes).
When Realogy went public in 2012, an investor prospectus noted the company’s “attractive financial arrangements with third-party websites such as Google, Yahoo, Trulia, Zillow and others” that provide “significant” advantages for the companies’ agents and franchisees.
On Saturday, Citron Research published a rate table detailing large discounts NRT agents received from several big portals this spring, thanks to subsidies by NRT. Inman News verified that the information was posted in a report on a Coldwell Banker brokerage website that has since been taken down. NRT’s parent company, Realogy, had no comment on the Zillow-Trulia merger.
In its report, Citron concludes that the discounts demonstrate that Zillow and Trulia have a limited capacity to raise prices. But its unclear how much franchisors and brokerages pay to obtain such discounts for their agents.
(In reports that it began publishing in 2012, Citron Research has relentlessly maintained that shares in Zillow are overvalued. Investors who relied on Citron’s reports to short-sell Zillow at $40 per share when the first report was issued in 2012 or $90 when another report came out last September would be looking at paying $160 per share if they still needed to cover those short positions today.)
Re/Max CEO Margaret Kelly said the franchisor has marketing agreements with both Zillow and Trulia, and views both portals as great marketing partners, not unlike newspapers were before the Internet age.
Consumers will always need high-quality agents and brokers, Kelly said. That’s where Re/Max comes in.
Despite the enormous growth of Zillow’s brand with consumers, Re/Max is not concerned about the firm as a competitor, Kelly said. But the 40-year-old global franchisor is wary of the firm’s possible expansion into the brokerage space. “We’re watching,” she said.
Right now, though, she says she’s excited for Re/Max and the industry to take advantage of Zillow and Trulia’s complementary strengths.
Jim Klinge, who runs a 12-agent independent brokerage in San Diego, says he’s not worried about the special treatment larger firms can negotiate with the large portals.
“It’s not a problem for me and agents like me,” who are experienced and are good at what they do, Klinge said.
Klinge, who said he advertises in a small capacity on Zillow, Trulia and realtor.com, says he uses blogging and YouTube videos to keep his brand and expertise in the forefront of his local market.
“So far I can hang with the big dogs,” he said.
Bulk pricing discounts that the big companies can negotiate are a reality, Klinge said. “It might look unfair, but this is America.”
But Klinge can envision a trend where agents flock to larger firms, attracted by such discounts.
Even so, Klinge would like to see portal consolidation to go a step further. One portal would be better for both the industry and consumers, Klinge said.
“It would be awesome if everyone just laid down their guns and realtor.com joined Zillow, too,” he said. “We’re fighting them and we’re losing.”