Zillow, Trulia Combo: How Real Estate Portals Are Transforming Home Buying & Selling

Tim Rood | Posted on August 05, 2014 in Housing | Add Your Voice

(Originally posted to Linkedin.com)

Online real estate research giant, Zillow, acquired its main competitor, Trulia for $3.5 billion. According to a report by Clareity Consulting, the two companies recorded 84.6 million unique visitors in May 2014, twice that of the next three real estate websites combined. There is some talk that this will hurt real estate agents but I suspect they will be minimally impacted due to the structure of the National Association of Realtors (NAR) and other state associations. It’s important to remember that most real estate agents are independent contractors. Their loyalty and commitment is to getting more business above everything else. Due to the Zillow/ Trulia deal, they will now be able to advertise their listings on both sites, and purchase targeted leads of prospective buyers. The associations that collect fees from the agents however, could see a decrease in revenue as under-performing producers get squeezed out of the market.

As Zillow and Trulia promote ranking and rating scales, the top producers will have a distinct and growing advantage over marginal realtors. Traditionally, home sellers found their listing agents largely through referrals. According to a recent study by the National Association of Realtors, 88% of realtors cite referrals as “Very Important” in generating leads while only 24% said the same about personal advertising. However, the Zillow/ Trulia deal indicates the possibility of a drastic shift as more and more home buyers and sellers conduct research online prior to selecting realtors. In fact, the same study found that 90% of home buyers start researching online and then transact offline. As a result, it seems data driven analysis of real estate agents will quickly trump the causal referral from a friend. Sellers are more likely to let the facts found online speak for themselves. For example, a seller can easily find out which realtor sold 10 properties in their neighborhood in the last 3 months with a 4.5 out 5 rating average. By comparison, after researching on Zillow and/or Trulia, a seller could find out that the referral from a friend hasn’t sold a house in 6-7 months. “Take my word for it” will not be as persuasive as it once was, given the data now available.

There are some concerns, however, about the accuracy of the information Zillow and Trulia provide because they do not have access to Multiple Listing Service (MLS) listing and data from the National Association of Realtors (NAR). To date, local MLS and NAR have blocked access to their detailed home listing and sales data – reserving access to brokers/agents that are licensed, pay monthly dues, and use the data strictly for the purpose of selling or buying homes. Both groups promote the fact that real estate portals like Zillow and Trulia do not have as accurate information as a result. However, over time, it is easy to imagine the portals being granted access to MLS data in an effort to replace lost revenue from agent attrition fueled by rating and ranking services provided by Zillow/Trulia.

The merged companies have overcome the biggest challenges for two-sided marketplaces, obtaining critical mass of one side (prospective buyers and renters) to draw in the other revenue producing side (realtors and related companies paying advertising fees and buying targeted leads). Zillow and Trulia have still only scratched the surface of the marketing spend of the real estate industry, which is estimated to be in the area of $28b a year. Lastly, while neither company poses an immediate threat to transaction fees and the realtors who collect an estimated $60 Billion a year in listing and sales commissions, don’t expect profit pools that big to remain unchallenged by creative new entrants. While local expertise is important, it’s not always necessary. There are opportunities to offer buyers and sellers service options that have different economic models and costs aligned with the level of service the customer requires. The current “one size fits all” real estate sales model is ripe for disruption.

 

Tim Rood

Tim Rood is Chairman of The Collingwood Group, which he co-founded in 2009. Rood was co-founder and managing director of the firm’s predecessor company, Capital Financial Solutions. Earlier he was Vice President of First American, where he successfully led the company’s professional services group tasked with creating business solutions for the top ten lenders in the country. Rood served as Director and Principal of Fannie Mae’s eBusiness Division.


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