By now, you have probably heard the news that Zillow launched a “residential brokerage”, will join the MLS, and use the MLS IDX feed to power its dominant website. Just at random, here’s one news story from The Real Deal covering the announcement:
For years, Zillow denied it had plans to become a brokerage. But the listings giant is doing just that, in a move it says will streamline its iBuying operation.
Starting in January 2021, the company said salaried agents will work with sellers who want cash offers for their homes through Zillow Offers. In those transactions, Zillow Homes will be the broker of record, the company said. To start, Zillow agents will work with homeowners in Atlanta, Phoenix and Tucson, with plans to expand the service to other markets later next year.
Predictably, the industry is starting to erupt… exactly as I have predicted.
[DISCLOSURE: Zillow retained me 10 days ago to get some advice on the PR angle, because of my blog and my knowledge of the industry, to their announcement today. I advised them on what I thought the industry’s reaction to the news would be. Any confidentiality resulting from that terminated today, with the release of the news. This post is limited to my thoughts on what they have publicly announced.]
I write now to urge for calm, because my fear is that the industry will react in ways that force Zillow’s hand in a variety of ways that won’t be good for any of us.
Let’s get into it.
Zillow Is Our Competition!
By far the biggest outcry is from those who claim that now, Zillow is a direct competitor to brokers and agents. Most of them have been saying that for years when Zillow wasn’t a direct competitor, but sure, let’s go with the idea that now, as of today, Zillow is a direct competitor.
As of this writing, Zillow has made it very clear that they are doing the in-house brokerage only for Zillow Offers, its market making business. Here’s Zillow’s Chief Industry Development Officer Errol Samuelson in a video announcing the change:
And from The Real Deal above, since I have that tab open:
A Zillow spokesperson said the company’s agents will only represent it on iBuying deals and will not be allowed to moonlight as agents in the traditional sense. “We are only bringing in-house the back-end work to represent ourselves whenever we directly buy or sell a home,” spokesman Viet Shelton said. “In no way are we signing clients traditionally.”
According to Shelton, Zillow will continue to refer sellers to local broker partners (i.e., Premier Agents) if they choose to sell their home traditionally. Zillow will also refer clients to local agents if they need help finding and buying their next home.
Most people have said Zillow has now become Redfin. I think this is imprecise. Zillow has become what Opendoor was (prior to its opening a full-blown “list with Opendoor” brokerage, which I imagine has a very short shelf-life given Opendoor’s recent merger with Social Capital): a market maker who uses its own licensed agents to do its own FSBO/direct purchase business.
Here’s the thing: unless you also have a couple of billion dollars in capital, from investors who don’t much care that you will lose money for a good long time, you are not a competitor to Zillow and Opendoor. They are not your competition. Even if your brokerage has launched an “iBuyer program” using local hard money lenders, flippers, investors and the like, you are not actually a competitor to either of those market makers. (The distinction is easy: do you pay market price? If yes, you’re a competitor; if no, you’re not a competitor.)
A fair rejoinder would be, “Yeah, but who’s to say that Zillow won’t change in the future and start taking listings?” That’s entirely fair, since Zillow has long said it won’t become a brokerage, and now, in a limited way at least, it has.
I think my take on that is that Zillow won’t change in the future, unless it has to. Only two things would make Zillow have to change: the market itself has changed, or the industry forces them to change.
Let’s explore that.
If the market itself changes, and consumer behavior changes, whether because of COVID or the economy as a whole or global war or whatever, then yeah, Zillow will have to change. So will everyone else.
I mean, only morons look at the world changing around them and go, “I ain’t never gonna change!” Those people and companies soon go extinct. Facts don’t care about your feelings, and the world changes daily.
So leave that to the side. It’s just an inevitable and inexorable part of life.
It’s the second type of forcing change that concerns me. But we’ll get to that after….
Zillow is Joining the MLS, and Changing to MLS IDX Feeds
The second big news that dropped was that concurrently with bringing its market making business in-house, Zillow will fully join the MLS as a Participant, and utilize the MLS IDX feed to power its dominant website. And yes, this means that Zillow will also be joining NAR and its licensees will become REALTORS, because many MLSs require REALTOR membership to join.
This is actually a far bigger change than the first one, but you can see how it goes hand in hand.
In a real way, we have to think that this decision was forced on Zillow. For years, the industry has played all kinds of games with syndication data feeds. Here’s an example from 2014:
In a bid to drive more traffic to listing brokerage websites, consumers will soon see only limited listing data when they earch for Mid-South homes on Zillow, Trulia, realtor.com and other third-party public portals.
In May, Inman News published a guest piece by Redfin CEO Glenn Kelman in which he said that when real estate brokers and MLSs provide information about their listings to big portals like Zillow, Trulia and realtor.com, they should be more like advertisements — with just basic details, a price and a few photos — and a linkback to the full listing on the listing broker’s website.
Now, at least one MLS has taken that advice. By the end of the month, Brentwood, Tennessee-based RealTracs Solutions says it will limit the information included in direct data feeds it sends to public portals. RealTracs, which has nearly 10,000 members, is also in negotiations with listing syndicator ListHub to limit third-party ortals’ display of listing data.
And then there was the kerfuffle about delays in syndication by CLAW, which I wrote about on these pages.
Look, the people running Zillow are not idiots. They’re very, very smart. They know what the consequences of them bringing brokerage in-house are likely to be: immediate cutoff of all data to them, because that’s exactly what 99% of the Zaterade crowd is screeching for today.
So the natural reaction has to be, “So, they’re all gonna cutoff the syndication feed to our $1 billion a year business; what can we do about that?” The answer is to join the MLS, and get a guaranteed, non-discriminatory data feed.
This is the core nugget of my point: Zillow is a $22 billion company as of this writing. It’s not going away. They’re not going to roll over and decide to file for bankruptcy because the industry does something to “counter” them. They’re going to react and respond, and do so in a rational way.
Which is why…
It Does Not Help to Push Zillow Into a Corner
In fact, it is downright dangerous and likely results in exactly the opposite of whatever you imagine will happen.
Let’s play through a few hypothetical scenarios to see how this could play out.
Screw With MLS Data
The first and most obvious “counter” to Zillow joining the MLS would be to make a variety of changes to screw around with member access to MLS data. I don’t know what that might be, but let’s just say that the MLSs do a variety of things to make it harder or impossible for Zillow to continue operating with the MLS IDX feed.
What do you imagine happens next?
Does Rich Barton just announce, “Hey, so we’re gonna close up shop, because the MLS makes it hard for us to get data”? Really? That’s what you believe?
Zillow is worth $22 billion. It has over $2 billion in cash, as of the last earnings call. They quite literally own the online real estate space; no one is even close to their 218 million monthly visitors.
Within boardrooms of various MLSs, there has long been this notion that Zillow will start a national MLS and take out every MLS in the country. This despite the repeated insistence by Zillow that they have less than zero desire to get involved in the hard work, the heavy lifting, the thankless compliance work, and the low margins of the MLS business.
You wanna know how to get Zillow to start a national MLS? By screwing around with MLS data to make it impossible for them to keep their $22 billion business running.
Cut Off Their Money!
The other caw-caw from the industry is a bunch of agents and brokers saying, “You need to stop spending money on Zillow!!!!OMG!!!BBQ!11!!!” My stream is filled with agents saying, “You morons who gave Zillow money just funded your competition” and so on.
Meanwhile, Zillow for years has been saying, “If you’re not the very best, we don’t want your money.” They’ve taken actions like Best of Zillow to show that they’re serious. Most of the agents saying the above wouldn’t be allowed to buy Zillow leads today. The game has changed a long time ago, under Spencer Rascoff.
Furthermore, do people really spend money on advertising because they love the advertiser? Really? I can’t imagine agents sit around saying, “I know this ad with MSNBC hasn’t yielded a single goddamn deal, but I really like MSNBC so I’m gonna keep spending money with them.” Conversely, do people often stop advertising — despite getting a healthy ROI — because they hate the channel? I suppose some super dedicated people don’t mind cutting off their noses to spite their faces, but really?
I’ve long said that Michael Corleone in The Godfather II summarized loyalty in real estate: “Our people are businessmen. They’re loyal, but their loyalty is based on business.”
Either spending money with Zillow gets you a ROI, or it doesn’t. If it does, you keep spending money with Zillow. If it does not, you stop spending money with Zillow. Love or hate got nothing to do with that decision, does it?
So Zillow will rightfully ignore that noise.
But there is a way this turns dangerous. I found this comment on RISMedia this morning:
If the industry gets involved in this nonsense… then Zillow has no choice but to act, does it?
Again, Rich Barton is not closing up shop because a bunch of brokers and agents decide to start blacklisting Zillow Premier Agents and the mortgage companies, title reps, and contractors who do business with them. No, he’s going to do something about that.
Let your imagination go wild on what that something might be. But ask yourself, if that something does come to pass, will that be good for us or bad for us?
For starters, you know how Errol Samuelson in his video said, “We are not recruiting agents?” How Viet Shelton said they have zero interest in doing traditional real estate business? You wanna know how to get Zillow change that? Start some blacklisting campaign targeting Zillow Featured Agents and vendors who work with them.
Stop the Madness
What I am hoping for is for cooler heads to prevail, and for leaders of major companies, of MLSs, and Associations to be rational about things. You don’t have to be happy with the change, nor do you have to stop watching out for what is in your best interests. Everyone expects people to work in their own best interests.
What I am suggesting is that leaders think through the next couple of steps. Because Zillow ain’t going away, and this won’t be the last change that any of us make. Like the saying goes, the only constant is change.
Zillow acts, industry reacts, Zillow reacts to that reaction, industry reacts in turn, and so on. That’s perfectly natural.
The question is how the industry reacts, and what it does in reaction. Because Zillow isn’t going anywhere.
If you force Zillow to become a competitor, it will. If you force Zillow to become a national MLS, it will. If you force Zillow to become the Evil Empire, it will.
Fair competition is perfectly normal and natural — I personally am looking forward to the competition that the new Opendoor will bring to Zillow. Realtor.com and Redfin have been competing against Zillow for years; they’ll come up with something.
Asking questions, seeking clarification, understanding things — all are wonderful things to do when a big change like this happens. Hell, criticizing Zillow for one thing or another is perfectly normal and good to do when warranted.
But for all of our sakes, please don’t force Zillow into a corner. Because all that will do is make Zillow lose their mind up in here, up in here. All that does is force Zillow go all out and act a fool and lose their cool.
How any of that chaos adds a single dollar to anybody’s pocket is beyond me.
Let’s not go there.