Zillow is a Broker – So What?

by Victor Lund on June 21, 2017

Zillow Logo“Berkshire Hathaway Home Services, NRT, Redfin – all brokers. Do brokers drop out of IDX because they are selling homes in their market? Brokers share their listings with these large firms everyday. If Zillow joins the list, what’s the diff?” This is the conversation starter that an investment banker had with me today.

I appreciate having conversations with people in the capital markets. Bankers see the world differently. They believe that markets shape themselves and that great companies lead markets. Perhaps Zillow Group has its heart in its current service offerings today. The company protests against becoming a brokerage, but everyone got very upset recently when they launched a pilot for Instant Offers that seemed broker-like: it’s a program whereby Zillow helps investors buy property by submitting offer letters directly to homeowners. Brokers don’t like it. Some agents really like it.

The pilot is in its early months and restricted to a couple of large cities. Inman News reports that it has not translated into any investor purchasing any homes yet. Perhaps the pilot is a bust. On the other hand, the way the pilot was designed has an added component of delivering leads to Premier Agents. Instant Offers gives the consumer a choice – take the offer from the investor, or connect with an agent to get information about listing your home. News reports indicate that agents are getting listing leads, so the pilot is not all lost.

An important thing to keep in mind when companies like Zillow test, is that innovation sometimes goes awry. Innovation sometimes produces different outcomes than expected. Zillow has been masterful at driving consumers to their websites and generating buyer leads. Now they may have stumbled upon a new way to generate seller leads more successfully, and that is their job!

The investment banker made a statement that was crystal clear: “If Zillow Group’s Board of Directors believes that it is in the best interest of stockholders for Zillow to open a brokerage, or a mortgage bank, or a title company or whatever…. that is what the company will do. For now, they are doing great with the track that they are on.” P.S. Zillow surged past an $8.5 billion valuation and closed at $46.76 today (a market cap of $8.6 billion). The company is doing very well.

Will brokers go nuclear if Zillow does become a broker?

The only nuclear option for brokers is to dismiss online advertising as a strategy. If Zillow becomes a broker, they will have access to IDX. So for that matter, brokers seeking to cut off Zillow will need to dismiss IDX. Another option would be for the MLS to change, and that is hard to imagine. The Department of Justice would step in quickly if the MLS tried to create rules that disparage the business model of any brokerage (see VOW rules, read your history about ZipRealty and Redfin).

The truth is that brokers are in a bad position today. The nuclear option is not really an option. It would cause a complete rethink on how brokers display listings online. The construct would be a lot like the automobile industry or existing new home market. BMW would not display Honda listings on BMW.com. But I am not sure that would work either.

Zillow is big. Get used to it. They are in a much better position to shape the future of real estate than any other company or group of companies. Zillow is driven by consumers first, and the feelings of their advertisers second. As long as consumers keep showing up and advertisers continue to drive revenue growth – they will be in good shape.

I posit this:

If Zillow becomes a broker – and refers out the business like a relocation network – would you turn down the referral? Would agents?

{ 6 comments… read them below or add one }

Paul Culley June 21, 2017 at 7:47 am

I thought it was interesting that you said you had a conversation with an Investment Broker and that Zillow is writing letters, offers for purchase, for investors. I see this as a perfect avenue for Banks entering into the real estate marrket. If Zillow becomes a real estate company via brokerage they would be in the perfect position to sell to a bank.


Victor Lund June 21, 2017 at 7:57 am

The investment bankers we talk to are buying, selling, or shorting Zillow Group stock. They are not Mortgage Bankers or consumer banks.


Lisa Piche June 21, 2017 at 9:04 am

The fundamental problem with this is that the way you got the IDX data to begin with was by stating that you were there to help the REALTOR and ultimately the consumer with the advertising at no cost to the Agents because you were going to sell advertising to others within the industry that would also benefit from the data that was proprietary to the Agent.

Of course things in life change, but that doesn’t mean that you compromise what your original word was to those of us that allowed you to gain IDX access to the work we did that ultimately turned you into the large company you have become.

The original contracts all stated that you would not use the data in competition. Fast forward…. you then started selling rights back to Agents.

Now you want to be the on-line company that appears to “help and or care” for the client. This is where the false narrative really lays/lies….because you don’t care about the consumer….you care about your profit from the consumer. You don’t even know the consumer enough to recognize them in the grocery store.

This industry fails in recognizing the importance of the initial contact that happens with the consumer! Consumers don’t understand the process and they shouldn’t be trusting a computer to aid them in the belief that “they can do it all”. There are too many legalities involved. It’s why Agents become licensed. The job of an Agent is to help the consumer. Many of us do that at all hours of the day and night.

You should have been taught that stealing from others to get ahead…. is just not right. Being a person of your word is better than just serving money.

There is a very large industry in this society that benefits from the one-on-one contact that Agents have with their customers every day. Think about it…. MLS, abstractor, closer, title insurance, lender, underwriter, teller, programmers, websites (GALORE!), insurance providers, office admin, lawyers, county recorders, assessors, treasurers, builders, home improvement stores, decorators, etc.

Seriously consider and ask yourself, does my job become affected by the sale of a home? More people benefit from the initial work done by an Agent with their client, which created so many opportunities for others….why would you strive to take that away from the person that you promised you were there to help?

Please keep your focus on what your original promise was…helping those of us that are out there doing the work….we actually care about the customer.

Just because you CAN do something….doesn’t mean you SHOULD!


Norma Jean June 22, 2017 at 5:48 pm

Lisa and Ken are so spot on!! Zillow made promises to the MLSs to ensure our compliance and we drank the cool-aid and opened a Pandora box! They initially presented themselves as an assistance to our industry and we fell for it! They now sell us our own leads by charging a healthy monthly fee. Some say Zillow is smart, which is sadly true, but they are also slippery. And the comments Ken made are so true. We all just need to consider all the consequences before partnering with those that want the IDX. We sold our soul!! Can we get it back? Would love to try. . .


Ken Jenny June 21, 2017 at 9:30 am

The brokerage deal is not the play here. This trend is much, much bigger. I see these moves by Wall Street very differently. Investment banks and private equity firms would be very smart if they backed such new models as OpenDoor, OfferPads and Instant Offer to get into the mortgage business. We all know the margins in the real estate brokerage business suck, but the mortgage business generated as a result of a residential real estate transaction is very different. So an “investor” buys a property and then what? They make money on the “fees”? No way. The fees just serve as a small hedge against market and pricing changes. Then the investor become the Seller? Yes, with one important add. A Seller with built-in financing. The purchased properties become listings that now “come with a mortgage.” The investor is the Seller and the mortgage lender all in one, packaged transaction. Wall Street cash is then converted to securitized mortgages in a few easy steps. That is the game. And as for the retail mortgage companies and banks that are dependent upon competing for random buyers that are somewhere in the purchase process? New game for you folks. Sellers think “your property becomes my property, my listing, and my mortgage.” Seller financing on steroids, backed by billions of Wall Street dollars and a whole new play for very savvy investors. And as for the real estate brokerage fees? Basically, who cares . . . . .


Victor Lund June 21, 2017 at 9:32 am

As always – you nail it Ken.


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