Zillow – the U.S. equivalent of a Rightmove, has insisted for years that it had no plans to emply its own agents. But this week the giant, Seattle-based, portal did just that – opening its own real estate brokerage.
The scope of the new operation is, for the time being, limited. Zillow Homes will be acquiring and listing properties for the company’s home purchasing division, Zillow Offers – which cash-purchases properties directly from owners without them hitting the open market.
Competing with venture capital-backed Opendoor, the online listing portals of Zillow and Redfin are betting the future on this digitally brokered ‘home flipping’ or ‘ibuying’ as it’s called in the States. Apparently Keller Williams and Realogics, two of the country’s traditional residential property giants, are also getting into the sector.
So far, ibuying accounts for around just 0.5% of U.S. home sales, but that small percentage apparently amounts to £8bn in capital values.
Errol Samuleson, Zillow’s chief industry development officer circulated a video to real estate brokerages explaining the move as being in part to streamline Zillow Offers. He said that sellers using Zillow Offers have found the company’s current system of relying on third-party estate agents to facilitate the transaction ‘confusing’ in some instances.
Given that the home flipping division currently loses $6,939 on each home sold (according to Zillow’s quarterly financial report) it is easy to see the attraction for the company if it can ditch paying other agents to handle the sales.
Zillow is denying that its real estate customers would lose out as a result of the portal becoming a direct sale operation for the Zillow Offers properties but, given that, just as over here, it is the real estate customers (i.e. estate agents) who provide the bulk of the portal’s revenue and inventory, it’s no surprise that the news has not been greeted with total enthusiasm in some quarters. It is inevitable that some will think the move is the thin end of a very big wedge. How long before the owned brokerage expands into general real estate transactions, leveraging the huge reach and reputation that Zillow has with the public?
Online reactions included:
“You built a business off the backs and pockets of Realtors. Now you turn your backs on us and do everything you can to replace us. Thank God for the Houston Association of Realtors which allows us in Houston to not need to feed the beast we funded, now trying to replace us.”
“Interesting that this guy talks about other brokerages and agents as ‘partners’. Out of the several hundred agents and brokers I know, pretty much all of them despise Zillow. I wonder if their agents will be as tone-deaf when they try to represent buyers and sellers. Should be swell to watch the chemistry between that client and broker, like a turd in a punch bowl.”
“The Gates were opened and the Trojan Horse just rolled in.”
“A lovely presentation, but Zillow knows that so many agents dont need them anymore. There are 20 different CRM operations that can help us target sellers to find business. The days of extorting us are over, hopefully.”
Watch the Samuelson video – and think about how Zillow’s move will be watched by the likes of Rightmove, Zoopla, OnTheMarket, and all the impending U.K. challenger portal operations…
Comments (9)
Rightmove could do this and still estate agents wouldn’t leave.
I have worked on a few transactions with Opendoor in the past so know this business model well, they aren’t actually competing with traditional agents, they are playing developer. They source distressed sales (death, taxes, divorce etc), purchase at a discount then refurbish and sell on at open market value for profit. That is the definition of a flip.
Whether its Zillow or Opendoor, or one of the many other players in the market the real money to be made here is from owning the real estate, the saving in fees is marginal in many cases as 9 times out of 10 there will be another independent Broker somewhere in the transaction. Its definitely a *Throw as much sh%t at the wall as possible and fingers crossed, some of it will stick* operation, having said that in a massive market like the States the profits can be huge.
Of the big three, Zoopla are most likely and most able to move down in to agency. They already have a suite of consumer facing products and own far more of the property transaction than Rightmove and OTM.
Zillows’ goal of course, is to own the entire transaction from enquiry to completion, monetizing every opportunity. They started with adjacent spaces (financial services and insurance) just as Zoopla do and then, at a time where the market opportunity is too good to pass up, extend their offering to a full service brokerage operation.
It’s not an inspired move, but rather one that was in the wings for a few years now. What Zillow do is watched by many in other parts of the world. REA Group and Rightmove, whom I would consider are second-tier players in the portal space globally will be pouring over this strategy.
My gut feel is that Zoopla, backed of course by Silver Lake and therefore on a relentless journey of growth and new revenue discovery, will adopt this strategy once their technology is aligned. Their calculation is a simple one; is the risk of losing you as a paying customer outweighed by their upside of eating your lunch – knowing that those that fall in line will simply contribute to their transaction domination.
This market is moving, what happens in the US generally follows here in 2-3 years in some shape or form. Did I mention Silver Lake are a US business?
2-3 years ?
Boomin’ will do it in one.
They need footprint for that – and it will take longer than 12 months.
Aah but agent fees are 6% in usa, and bordering on 1% here, why not let the slaves continue feeding their coffers without any effort….
Any agent who believes the major portals would not eventually ‘cut their grass’ and directly compete is a fool. The portals have sat back like a Roman emperor at the gladiator games whilst our industry has stabbed itself in the back by driving down fees, sowing division and standards and thus weakening us all. Given the push by some to say no, it’s too little too late IMHO. I give it 2 years before RM or other go ‘agency’ on us.
For anyone who has not joined Onthemarket yet, take heed of this story. I would stake my 44 years in the business on the same route being followed in time by RM and ZPG.
Join Onthemarket now and make them a super tanker rather than them being your lifeboat in time to come, because when our giant portals follow in the footsteps of Zillow, which they absolutely will, boy will the industry need a lifeboat.
My money is thar onthemarket will do it.. they’ve already cost the industry millions by hurting zoopla and giving rightmove a higher market share.
#ownGoal