Zillow Group CEO Spencer Rascoff isn’t worried about the threat of newly-public Redfin — but he thinks the rest of the real estate industry should be. He made that clear during a conference call associated with Zillow’s second-quarter earnings Tuesday in which he went so far as to say that Redfin is a “threat” to the traditional real estate industry.
“Undoubtedly, one of Redfin’s goals is to obviate the buyer’s agent,” Rascoff said on the call. “I think they have stated, quite publicly, that they aim to acquire more listings inventory in given markets, and then have no buyers’ agents on the other side of those listings. And that is a threat to organized real estate, and that’s one of the many reasons why brokerages are so concerned about Redfin.”
It was interesting to hear Rascoff rise up as the defender of traditional real estate agents, since Zillow at one time was perceived as the villain in many real estate circles. It was also noteworthy that Rascoff took such direct aim at Redfin, which raised $138 million in its IPO last week.
Near the end of the remarks, Rascoff pointed out the differences between the rivals, pointing out that Zillow operates as a media company and Redfin operates as a brokerage.
Related: Trulia co-founder calls Redfin IPO ‘more important moment’ for real estate than Zillow or Trulia public offerings
“We are not beholden to employee agents, and we are not beholden to any specific brokerage,” he said. “We are brokerage agnostic, but I have said too much.”
Close followers of Redfin and Zillow know that there’s no love lost between the two Seattle companies, which were founded just a few years apart but have taken different paths to transforming the real estate industry.
Since Zillow is in the business of selling ads to real estate professionals and Redfin is in the business of selling homes, Rascoff noted that traditional brokerages should watch Redfin’s rise with concern.
“Redfin’s ascent, Redfin’s war chest has brokerages like Keller Williams…and others very concerned as they should be because Redfin now has the resources to compete in their markets against other brokerages,” said Rascoff.
UPDATE: Redfin issued the below statement to GeekWire in response to Rascoff’s remarks:
Redfin is a broker, with roughly a thousand real estate agents. We are sure there will always be buyers’ agents in real estate. Redfin tried to automate the whole homebuying process in our earliest days; it was a colossal failure. Our customers want our agents’ local, expert advice. We employ hundreds of buyer’s agents, and you can see from our recruiting website that we’re recruiting as many as we can.
Most of our revenue comes from our buyers’ agents, so we’ve always tried to use software to make those agents more efficient, in meeting customers, in scheduling tours, in pricing homes, in preparing offers, in communicating about the escrow process. The gross-margin gains described in our prospectus document the effect this software has already had on our business for years.
As we list more homes for sale, we can one day invest in making our buyers’ agents even more efficient on the purchase of our own listings, because the tours are easier to coordinate when we have a direct connection with the owner, and because the offers are easier to handle when we can convey them electronically to our own listing agents.
The sentence in the prospectus that Zillow has cited as a “threat to organized real estate” describes the software we may one day build for buyers of our own listings as actually improving our service, not replacing it. We’ve used software to deliver better service to our customers for more than twelve years. We’ll do it for another twelve. This is what every modern business does. There’s nothing more to it than that.
Rascoff, who addressed Redfin twice during the Q&A portion of the earnings call, stressed the importance of a two-sided marketplace in real estate.
“It’s my view that is valuable for buyers to have their own representation for the same reason why in an M&A transaction the buyer and the seller seek their own investment banking counsel, and in a commercial transaction both parties seek their own legal counsel,” Rascoff said. “And, nonetheless, Redfin is trying to get rid of buyer’s agents, and we will see how that goes.”
During the call, Rascoff claimed that real estate agents who advertise on Zillow stand to make far more money than those who are employed by brokerages. Of Redfin’s 2,427 employees, 935 are real estate agents.
“What Zillow Group is trying to do though is different,” Rascoff said. “We’re trying to attract a huge audience and connect that audience with the best agents in their market regardless of brokerage.”
Despite their fundamental differences, the two companies do share some notable similarities. They’re both Seattle-based, public companies intent on using technology to disrupt traditional real estate. They also started testing semi-competing products earlier this year. Redfin Now lets the online real estate brokerage buy homes directly from customers and Zillow’s Instant Offers connects homeowners to offers from investors on its platform.
“The way we’ve constructed Instant Offers today, it seems to be a really successful potential way to generate listing leads which we know are always much more valuable than buyer leads,” said Rascoff, whose company is testing Instant offers in two markets.
He added: “It’s important to understand that we’re the only ones who are experimenting in this field in a way that keeps the agent in the center of the transaction apart from disintermediating anyone, we’re actually putting the agent right front and center on the listing side, trying to generate listing leads which is really important to premiere agents.”
Rascoff said that Zillow’s partnership with Facebook is strong, and that agents view Zillow as an effective way to buy Facebook advertising.
He then went on to say that Facebook and Amazon would have trouble competing more directly with Zillow.
I do think it is very difficult for horizontal players to compete with vertical companies that are focused on the vertical, and that have as big a brand as our family of brands have. And I do think it is important to understand how this ad product that we have differs from other ad products.
We sell an ad product that connects the consumer with a real estate professional at the time and place that they are shopping for a specific home. That is very different from Amazon’s rumored directory of real estate agents, or Facebook’s ad product that tries to drive traffic back to a brokerage web site. A lead generation product that’s tied to a home search is quite different, and I think will always be more attractive to an advertiser than a branding ad product or a product that tries to drive traffic to their web site.
Here are Rascoff’s full remarks when asked a question about Redfin’s agents and what they earn in comparison to those who use Zillow’s Premier Agent advertising product:
A good Premier Agent should earn a order of magnitude more in compensation than a salaried employee at a discount brokerage. Top Premier Agents earn hundreds of thousands, in some cases millions, of dollars a year. Some top Premiere team leads earn millions of dollars a year. Some more than that.
More generally, and more strategically, it’s very important to understand how different what Zillow Group is doing from what Redfin or any brokerage is doing. The Redfin IPO serves as a reminder of the massive opportunity in U.S. residential real estate, a huge addressable market here but Redfin is a brokerage and Zillow Group is a media company. Brokerages should be and are concerned Redfin. Redfin’s ascent, Redfin’s war chest has brokerages like Keller Williams…and others very concerned as they should be because Redfin now has the resources to compete in their markets against other brokerages.
What Zillow Group is trying to do, though, is different. We’re trying to attract a huge audience and connect that audience with the best agents in their market regardless of brokerage and most brokers realize that partnering with Zillow Group and, in particular, buying Premier Broker, which is our advertising product is a great way for them to compete and stay relevant to their buyers agents and compete with other brokerages in their market.