Written by:
Tommy Wolf
California Licensed Realtor
tommyw@realestatebackops.com
DRE # 02044169

As anyone who has a pulse on the stock market or real estate industry is already aware, Zillow is making a bold move. To date, Zillow has generated nearly all their revenue through advertising and lead generation. Now, Zillow is expanding beyond the media business into the house flipping business. On April 12, Zillow CEO Spencer Rascoff announced the decision predicated on their own research and data. For brokerages and agents alike, the move raises a lot of concerns. Perched at the forefront of these concerns like a neurotic field mouse scanning the skies for hawks is the question, what are the implications as they relate to me and my business? While Zillow has largely held their cards close to their chests, there are two likely scenarios, each complemented with unique consequences. Whichever avenue Zillow decides to take to carry out their new venture, they are going to make enemies in the industry, but who will these enemies be, brokers, agents, or both? That depends on which potential scheme they decide to execute.

Scenario 1: Zillow declares war on Agents and Brokers.

Since Zillow plans to buy and sell houses through their own faculties, they will need to get a broker’s license in each state they plan to do so. Already they have declared that local agents will be used for these purposes. In traditional full-service brokerages, agents provide research, investment advice, and financial planning services to their clients. Alternatively, discount brokerages don’t offer any additional services in the sale of a home and charge the seller a lower commission rate than traditional brokerages as a result. Since Zillow’s purchases will undoubtedly be determined by research, investment advice, and financial planning birthed from their own vast database of market information, they may elect to forego the option of becoming a full-service brokerage and declare themselves a discount brokerage instead.

Since agents provide fewer services in discount brokerages, they receive less commission on their sales as well.

The obvious ramifications of this to agents’ business is the reduction of the number of higher commission sales, as Zillow will consume their share of the market. Additionally, the prevalence of a behemoth discount brokerage could also affect the commissions of sales agents still manage to get. In many buyer-agent contracts, the agent agrees that the buyer will not pay commission on properties listed in the MLS. Instead, the agent agrees to accept what the seller has agreed to pay, as stated in the MLS. This makes doing business with a seller represented by a discount brokerage far less appealing to a buyer’s agent.

This means brokers and agents alike that work with Zillow’s agents will receive lower commission rates.

The consequence of such a hit to the production of traditional agents could be rebellion. Agents may boycott the real estate giant, diminishing the amount of business Zillow could otherwise stir up. This would likely be manifested in a refusal to advertise with Zillow, electing to adhere only to complementary sites that don’t diminish commissions, and a refusal, (or at least reluctance), to work with Zillow agents. A large and livid enough agent uprising could seriously hinder Zillow’s ability to move their product, as well as put a dent in their ad revenue. It is possible though that Zillow recognizes this impending revolt and will elect to be a full-service brokerage instead as a means of maintaining current agent commissions and avoiding such a conflict. This of course would not be without consequences either.

Scenario 2: Zillow declares war only on Brokers.

Whether Zillow becomes a discount brokerage or a full-service brokerage, they will be a threat to any brokers in markets they enter. And while they’ll make some enemies out of brokers and agents alike if they become a discount brokerage, if Zillow does decide to become a full-service brokerage, the negative ramifications of their new venture will shift almost entirely from agents to brokers. Up to now, Zillow has held their status as a media company, primarily generating revenue from advertising. Because a new full-service brokerage entering the market place is a direct threat to all other brokerages in that market, those brokerages would cease to provide any advertising perks on Zillow they offered to their agents and might even go as far as forbidding their agents from advertising with Zillow.

So, will Zillow be going to war with agents and brokers, or just brokers? It depends on the results of a simple cost analysis that can be extrapolated through Zillow’s own data:

Is the money saved on paying commissions by becoming a discount brokerage greater, or less than the money lost in ad revenue and business from disgruntled agents as a result?

Time will tell.

 

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