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But that doesn’t mean Florance doesn’t have a lot of thoughts on Zillow’s business — and its shift to IDX and plans to use its own agents in its iBuyer transaction — and how he wants his company’s forthcoming residential search platform to be different.
“I’ve read analyst estimates that [Zillow] could eliminate about 30 percent of Realtor positions, about 30 percent of the need for Realtors and it could shift more business to fewer Realtors,” Florance said. “And analysts have said that ultimately about 60 percent of the remaining agents might work for Zillow.”
“The residential agent is Zillow’s competitor,” Florance later added.
Zillow’s dominance at the top of the funnel of the real estate transaction — where he estimated the company controls 85 percent of homebuyers — is part of what he calls “the Uber-ization of residential real estate.”
“If one company controls all the rides — or the buyers — then they determine the price and the fee and the role of the agent,” Florance said, before noting that Uber drivers only make about $24,000 a year.
Florance pointed specifically to one of Zillow CEO and co-founder Rich Barton’s past companies, Expedia, which all but rendered the travel agent obsolete.
“If you want to understand what someone’s playbook is, you can look at what playbook they’ve used in the past,” Florance said.
Florance wasn’t trying to play up a David versus Goliath story by highlighting Zillow’s impressive market share — his company has so much market dominance in the multifamily rental space and the commercial real estate space that the Federal Trade Commission stepped in to prevent a CoStar Group acquisition recently.
But rather, Florance was attempting to draw a stark contrast between what his company is trying to build for the residential real estate industry, compared to what exists currently.
Existing portals, Florance explained, are all focused on capturing revenue from the residential agent’s commission base. Agents pay a fee to get a lead, or pay a fee to have the portal refer a customer.
What CoStar is focusing on, in as simple terms as Florance could explain it is, “helping the selling agent sell the homeowner’s home effectively, leveraging the internet and all of the marketing tools that are available there.”
The company makes its money through fees, and some corners of the industry have criticized CoStar for raising fees after it gets market share. Inman questioned Florance directly about the charge that CoStar takes over a market place and then hikes fees on its customers.
Florance said the company hasn’t “materially” raised any fees and all of its price increases have been “in-line with inflation for 20 years.”
What CoStar wants to achieve in the real estate industry, is the idea of a real estate agent directly marketing a specific listing, rather than just hoping to have a client referred to them. And for buying clients, he wants both the real estate agent and the client to be in sync throughout the entire search process.
The company’s first signal that it was entering the residential real estate space came when the company announced in November that it was acquiring Homesnap for $250 million. While Homesnap has a consumer-facing component, Florance explained that they really acquired Homesnap for its agent-facing tools.
“Homesnap is for the agent, it’s a power tool for the agent, to manage their listings, to connect with other agents,” Florence said.
CoStar’s search portal is actually going to be two-pronged, with tools for both the agent and the consumer. That’s where the acquisition of houses.com comes in, which could potentially be the future home of CoStar’s residential search portal.
“I’d like to see that the experience on houses.com where the end-user is, is connected to the experience the agent has so that the agent and the homebuyer stay together in the digital world through the homebuying process and that we’re strengthening the relationship between the agent and the homebuyer, strengthening the relationship between the agent and the homeseller, rather than trying to fracture it and re-sell that relationship,” Florance said.
“We’re not trying to own and monetize that relationship, we’re going to strengthen it and we’re doing that for a profit motive,” Florance added. “We’re doing that because I think 1 million Realtors would like that better than the current situation.”
As a publicly-traded company, Florance couldn’t give too much insight into the CoStar’s overall strategy in how it will build the consumer-facing website. But he did say that to build the company’s commercial presence, it’s been about 70 percent organic growth, but the company still closed about 20 acquisitions, especially as it reached new market.
For Apartments.com, the company has spent billions on seven acquisitions, Florance explained.
“I can’t imagine that residential real estate will be any different,” Florance said “I would imagine that we would strategically acquire companies that will help us grow the business. But most of the growth will be organic.”
The companies CoStar targets may even currently be on what Florance considers to be the “other side of the equation,” and have portal models similar to Zillow or Realtor.com, but that CoStar would then move the company it acquired over to the “simple concept of supporting the homeowner and the Realtor’s mission of selling that house and reaching that potential buyer.”
He also hinted that the night prior he was up working on an acquisition in the residential real estate space, but could offer no further details.
There’s no concrete timeframe for the rollout of CoStar’s residential real estate platform, but Florance did preview what he hopes it looks like in January 2022.
“A year from now, you will see something that is an excellent search experience that allows the residential agent to be with their homebuyer on the journey as they look for a home and communicate effectively with the homebuyer and a clear delineation between a model that is supporting the existing relationships and a model that seems to ‘uberize’ the relationships,” Florance said.