Did Zillow® Open the Door to Their Own Demise?

by Victor Lund on June 14, 2017

Zillow LogoOne of the greatest philosophers of all time was Georg Wilhelm Friedrich Hegel (1770-1831). For brevity, let’s call him Hegel and be thankful to the University of Berlin where he lectured. I will suspend with the deep philosophy I learned in college and summarize Hegel as the author of a triad of historical development referred to thesis, antithesis, and synthesis.

In our observation, the MLS is the thesis, Zillow® is the antithesis, and what happens next will be the synthesis. Moreover, I will argue that Zillow may have opened the door to their demise with the Instant Offers™ test.

Thesis

Real estate brokers have controlled the market over decades by virtue of their knowledge of a listing. This entire era evolved when the MLS evolved and knowledge of massive numbers of listings became the shared knowledge of large numbers of brokers and their sales associates. As research has confirmed, homes sell for more money when they are introduced to the widest number of real buyers that are working off the MLS.

The thesis is that the MLS marketplace is an orderly environment that is founded upon the constitution that there is cooperation among buyer brokers and seller brokers and that compensation will be offered during cooperation. Hegel calls a beginning state of affairs a “thesis.” So for our philosophy lesson today, let’s just call the MLS before Zillow® the thesis.

Antithesis

For those of you who have education in Latin or root words, the term “anti” means the opposite or contrast to the thesis. In Zillow®, we certainly find a contrast to the MLS. Zillow is agent focused, and believes in the opposite of the MLS. Zillow wants to provide open access to the knowledge of a listing. Most of all, Zillow does not have any construct for offers of cooperation or compensation for brokers. In fact, they invite For Sale By Owner listings and invite offers to be made on properties without any broker involvement (sidebar: it is interesting that a consumer with no demonstration of experience is given the opportunity to put a listing on Zillow, but a licensed real estate agent with a contract to represent the consumer does not).

Zillow represents the antithesis of the MLS because of the invitation to FSBOs, no offers of compensation or cooperation, and the invitation for buyers to make offers without a broker. Zillow is an open market trading environment that the MLS is not.

Synthesis

Perhaps Hegel’s biggest contribution to philosophy is that there is a cycle of thesis, antithesis, and synthesis that continues again and again. Hegel would often refer to history to prove his point. For example, the original rule of government was monarchy (thesis), followed by revolutionary rule (antithesis), follow by democratic rule (synthesis). In Hegel’s model, the synthesis becomes the new thesis and the cycle continues to create a pattern of ever-improving evolution. We really do not know what the synthesis will be to Zillow’s newly founded MLS construct, but the marketplace will synthesize it if Hegel is right.

Synthesis 1 – Two divergent markets

One possibility of a new synthesis is a dual nation system. Brokers who love the MLS will stick with the system that offers cooperation and compensation. Consumers who love no fees will stick with the Zillow® system.

Synthesis 2 – Zillow® Overruns the MLS

Another possibility is for Zillow® to overrun the MLS. Heck, nearly every MLS market in the nation is data sharing with Zillow® the same way that they might data share with another MLS. Now that Zillow® has onboarded the data, they can demonstrate to consumers how good they can be. Eventually, Zillow® can go 100 percent consumer and run the MLS and its compensation-cooperating club of brokers out of town.

Synthesis 3 – Instant Offers™ Kills Zillow®

Zillow® is a great company because they test and explore change every day. One inch at a time, they evolve and improve. Instant Offers™ is a great concept that brings investor liquidity into the real estate business. Instant Offers™ cuts out the mortgage company as much as it cuts out the broker’s commission. It is a double threat to two large industries that Zillow® calls its partners today. Zillow® was able to get organized real estate to continue advertising despite offering FSBOs a marketplace to operate without a broker. Now they are giving the investment community an opportunity to purchase properties without buying paper from a mortgage company in the secondary market and paying service fees.

Synthesis 4 – Anti-synthesis

Hegel was a master thinker, but I was a pain to my philosophy professors. My paper on Hegel was titled anti-synthesis, where I argued that any synthesis could create an anti-thesis whereby evolution does not occur. Rather, the antithesis spawns something that is regressive. Anti-synthesis is the type of argument that lights up a classroom of students. Everyone wants to jump in on critiquing new thinking. In some strange way, perhaps that is what is happening to Zillow today as the marketplace reacts to Instant Offers™.

This process of scribing future synthesis in real estate can go on forever. If you have one, please share it as a comment or email us. We would love to know what you are thinking. One thing is for sure – change happens.

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