Zillow announced that it plans to buy Trulia today for $3.5 billion, positioning the combined company as the unquestioned leader in the online real estate space.

What does this deal mean for the real estate industry? And, more specifically, what does it mean for the real estate brokerages and agents who are their paying customers like myself? 

Zillow for Pros

Consumers vote with their clicks

Consumer web traffic on real estate portals like Zillow and Trulia have been on a meteoric rise. If you wonder why Wall Street likes these companies, it is because they are cementing themselves in the psyche of the American consumer as the destination to search for homes for sale and other real estate information. Zillow has been unabashed about their primary goal of delighting the consumer, and have been rewarded richly with an online audience of more than 80 million monthly visitors.

Zillow - Mobile platformsThese sites are taking traffic away from the myriad of agent and brokerage websites. There are tens of thousands of these sites, maybe more, all surfacing real estate listings on behalf of real estate agents. Many real estate agents bemoan this trend, but ignore the simple fact that 99 percnt of real estate search sites simply suck. They are hard to use, ugly and archaic by any modern web standards. Many also love to hide their best data behind logins designed to generate leads and resulting in annoying follow-up calls. While aggressive lead generation like this may result in short-term business, the fact is that consumers are flocking away from these sites to well-designed, freely-available alternatives.

Sites like Zillow and Trulia have also created real estate web traffic where it didn’t previously exist. Ten years ago, it was nearly impossible to peruse public records about home sales and home prices without visiting your county recorders office. Now it is just a click away for virtually every property in the US.

Brand consolidation

Economies of scale aside, I believe that the primary motivation for this acquisition is to win the race for real estate brand dominance in the US.

A scene from Zillow's ad campaign
A scene from Zillow’s ad campaign

Zillow CEO Spencer Rascoff has often stated that there is “brand white space” in real estate for the taking, which is why they are advertising nationally on TV. This brand white space exists because of the fractured, highly-localized brokerage model throughout the country. If you live in Seattle, you associate real estate with Windermere, while a Wisconsin resident might associate with First Weber.

The largest national brands like a RE/MAX or Century 21 have varying presence in different markets, and many remain quiet on promoting their brands, letting their agents individual names and brands lead the way. There is no Nike or Coca-Cola of the real estate world. Zillow wants to be the real estate brand mentioned first by consumers and obviously acquiring Trulia makes it an easier task.

If you look at online real estate in countries outside of the US, there are many examples in places like Australia and Europe where there are very dominant national real estate portals. Those portals gain a foothold with data for the consumer and cement that foothold with brand awareness. Once consumer web habits and brand associations are formed, it leads to a very defensible and highly-valued business. This is exactly the bet that some of the largest institutional investors made in Zillow and Trulia when they invested heavily in both of them.

Cutting down the SEO nonsense

With tens of thousands of real estate sites hosted by hundreds of thousands of real estate agents, when you Google a property address or MLS number, the search engine results are littered with hundreds of property listings from all over the place. Click through to those listings, and you realize that everyone is showing the same information. This is hardly beneficial to consumers and most aren’t going to click beyond the top links. Zillow and Trulia already independently rank in the top 5 for most home searches on Google, so the combination of the two leads to a virtually unshakable search engine advantage.

Real estate brokerages and individual agents are hard-pressed to win this SEO battle in the search engines on individual property listings.

The opportunity for local real estate practitioners is not to fight this SEO battle, rather it is to be the provider of hyper-local information on the web. What’s it like to live in the neighborhood? What’s going on in the neighborhood? What new construction developments are happening? Providing hyper-local insight and data is a role that local agents can continue to fill.

Where is the industry in all of this?

realtorThere is probably a lot of hand-wringing going on at the National Association of Realtors (NAR) and Realtor.com today. How could an industry with one of the largest, most powerful national associations get outplayed by a couple of Internet startups?

NAR’s website, Realtor.com, had the opportunity to be the preeminent real estate portal in the US.

Zillow and Trulia did not exist ten years ago, and Realtor.com had a virtual lock on real estate listing data. By catering too heavily on the desires of real estate brokerages and the legacy of “how business had always been done,” they missed the opportunity to create the real innovation on the web that consumers demanded. Even a quick glance at Realtor.com today shows that it is an inferior search experience to sites like Zillow and Trulia.

While NAR influence on government and legislation remains important, to believe that they are going to out-innovate these more nimble startups is just hubris at this point. The decision making ability at NAR is too slow and cumbersome and too steeped in legacy and restrictions to win this game.

Being a valued industry partner

While it has declined from a few years back, fear of Zillow and Trulia remains for many real estate agents and brokerages. The most common fear is that these internet companies are striving to replace industry institutions like the MLS or will somehow reduce the role of the real estate agent in a transaction.

zillowI think much of this fear is unfounded.

The revenue of a Zillow or Trulia relies 100 percent on the success of agents and brokerages who participate on their platform. Like newspapers before them, there will continue to be a tension between the cost of advertising and the results that it delivers. If they deliver the consumer to real estate agents at reasonable advertising rates and deliver measurable results and ROI, they will continue to be successful. If not, they will fail.

What is most striking to me is that Zillow and Trulia are increasingly providing helpful and practical information for the real estate practitioner, often where many real estate franchises and brokerages remain quiet. I get lots of useful tips and tricks in my inbox, nicely-formatted market statistics, online webinars, marketing templates and even an upcoming national convention in Las Vegas for Zillow Agents to learn and share best practices.

A combined Zillow and Trulia needs to keep doing more of this by prioritizing success of their agents, not the demands of Wall Street investors.

Protectionism is not the answer

Many real estate agents still say “Let’s take back our listings. The data is ours, and if we take away the listings from Zillow, then consumers will come to our sites instead.”

Spencer Rascoff
Spencer Rascoff

The first flaw in this argument goes back to my earlier point. Consumers like good websites and apps and are not going to magically change to suckier alternatives, even if the data isn’t perfect.

The bigger problem with this argument is that I think it fails to address an agent’s legal and ethical duty to their seller to market the property. In Washington, that duty reads “to make a good faith and continuous effort to find a buyer for the property.” With combined traffic of over 100 million consumers visiting Zillow and Trulia today, it is hard to find a compelling reason why sellers would not want their properties marketed on these sites.

Real estate brokers will also complain that these sites have inaccurate listing data. That is a problem of the industry’s own making. Real estate listings exist on these sites because brokerages send them feeds and agents post listings manually.

When listing data is out of date, it is the fault of the brokerages and agents who posted the data. The constant bickering on whether the industry should share data with these sites has lead to a hodgepodge of manual data entry. The technology exists to easily fix this problem, yet entrenched players continue to fight it in hopes of hurting these sites to benefit their own. The industry owes it to consumers to present accurate and up-to-date information no matter where it is presented.

Real estate agents and brokerages are going to have to live with these sites for the foreseeable future. Their consumer traction is too great to ignore, and successful agents will find ways to leverage these sites to their advantage, not fight them with reactionary tactics.

Pros & cons of the merger

Consumers will certainly benefit from the combined entity. By pooling development resources and knowledge, it is not hard to see the combined site being even more compelling for the real estate consumer.

As an agent and brokerage owner, it does simplify things. Consolidating our marketing channels makes it easier to budget for marketing and advertising. I will no longer have to spend time debating which one to support with my marketing dollars.

The downside of the merger is a lessening of competition for our advertising dollars, potentially leading to higher rates and lower ROI.

To be successful, the combined company is going to have to continue its efforts to delight the customer and make their agents successful, even if that means not catering to the short-term wishes of Wall Street.

Comments

  • http://www.cruising2013.com/Silversea Tom Brady

    A brilliant marriage and I have been a user of both Zillow and Trulia for years. Yes you have outsmarted Realtor.com and the prize goes to innovation and figuring out what consumers and brokers need in an efficient manner. Well done!! Tom Brady CEO, web development team. The Destination Group http://www.dgrp.com Serving the Commercial Real Estate industry and managing 10 billion in portfolios since 1995.

  • http://walawrealty.com marc_h

    I wonder if Barton and Frink will have to give up their control to do this deal. As I recall between the two of them they hold majority control through class B shares.

  • http://www.moneyblog.com/ Paul Rubillo

    Kevin, do you see Zillow making a move into competing directly with realtors?

    • http://blog.findwell.com Kevin Lisota

      I can’t see that happening. Realtors are the source of almost all of their income, and they are invested heavily in their success. They have done many things in the past few years to be more and more friendly and helpful to real estate agents.

      As someone who runs a brokerage, the process of home buying/selling remains complicated and has large offline components to it that technology cannot change. Prepping a home for sale, accurately pricing a home, touring homes, picking a home to buy, inspecting homes, negotiating with another party and all of the due diligence that goes into one of these transactions don’t lend themselves to automation. That’s why only the online search part of real estate has been disrupted.

      • http://www.moneyblog.com/ Paul Rubillo

        Those are all excellent points when it comes to the human aspect of getting a deal done. There is plenty of money in “Lead Gen” so we’ll have to see how that plays out. At current valuations, Zillow’s shares may need time to grow into those numbers. Possibly Zillow’s next area to target could be on the commercial side – bringing the likes of a Costar Group into the picture. Time will tell!

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