From the “Zulia Scares Beejesus Out of Us” Files: Listen to the Founder of NextHome
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I like to sit at the heels of smart peeps in the real estate industry, folks who know the industry, the role technology plays, and have a grip on where it’s headed with this tech/transparency marriage. One of my faves is Rob Hahn, who turned me onto James Dwiggins, Chief Executive Officer of NextHome, Inc. NextHome is a San Francisco-based real estate startup, independently owned, with a focus on changing the way consumers interact with local agents and shop for real estate online. When I saw that Rob Hahn had first posted James Dwiggins’ Facebook essay on “Zulia” — a buzzword for the Zillow acquisition of Trulia — I liked so much I just had to share it. Asked James for permission, he said sure. Listen to what James says, and look at the chart above. From 2001 to 2013 the number of people who have used a real estate broker has actually increased, and increased a lot, almost 20%. This while all the online stuff was hatching!
Consumers have been using agents more than ever in the era of the internet!
James says no way will Zulia become an on-line broker, and we should stop worrying about it here and now. He says that is not their model, and if it were, he cannot see how Zillow and Trulia becoming a real estate company “would make any sense whatsoever. So we should stop worrying about this. If we as an industry are scared of this idea, then we should be paying closer attention to Redfin who is trying to make this kind of model work to some degree. They are not the first and they certainly won’t be the last.”
Ah, Redfin!
Will Zillow and Trulia dominate online real estate space and continue to grow? Yes, says James, until a new mousetrap comes along. I want to add two things to his points: one, I think traditional media has failed real estate agents miserably, MISERABLY. You pay through the nose for your branding ads and do they support you with editorial? NO! This is one reason why Zillow and Trulia were smart enough to become media companies themselves. As Kael Goodman of BlankSlate told me, traditional media doesn’t understand media, they don’t understand the potential. Of course, Lockhart Steele did. Maybe that’s why he sold Curbed.com to Voxx Media last year for a rumored $20 million.
Here’s what James says:
I’ve been traveling the past week so I haven’t been able to comment on the Zillow/Trulia buyout and I know many of you have asked for my thoughts. Let’s set the stage first: Trulia was founded May 1st, 2004 and according to CrunchBase, they received 32.8M in venture funding before going public. Zillow was founded in January 2005 and according to CrunchBase, they received 92.5M in venture funding before going public. Both companies set out to change the way consumers search for real estate online and make money off the advertising revenue. According to NAR, in 2001, homebuyers used Realtors 69% of the time when purchasing homes. In 2013, that number is now 88% of the time. While homebuyers continue to search more and more on non-real estate company sites, ironically they are also using Realtors more as well. My take: finding a home online is the easy part and constitutes about 5% of the entire home buying process. The hard part begins once you want to make an offer and actually purchase it, which consumers understand to some degree. If they didn’t, those numbers would not be increasing like they have and lots of alternative models that past several years that tried connecting buyers and sellers online would have succeeded. In fact, almost all of those companies have failed. I’ve attached the actual chart showing the increase in Realtor usage from the 2013 NAR Profile of Home Buyers and Sellers.With regards to everyone worrying about Trulia and Zillow becoming a real estate company or franchise. We all need to understand that this is not their model whatsoever or for their shareholders sake, shouldn’t be. At the end of Q1 2014, Zillow had 52,968 premier agent subscribers. At the end of Q1 2014, Trulia had 66,700 premier agent subscribers. As everyone knows, their business model depends highly on having real-time listing data on their sites which is provided by brokerages and agents who in many cases are paying for premier placement. If they became a real estate company, you could almost guarantee two things: 1.) 52,968 & 66,700 premier agents subscribers would likely stop advertising on these sites, destroying their revenue, and eventually the companies as well… and 2.) If Zillow and Trulia were real estate companies, they wouldn’t want competing agents advertising on their sites either. That would be allowing competitors to take away buyers and sellers from their own agents which makes no sense. It’s exactly why every real estate company and franchise doesn’t allow its competitors to advertise on their sites now. That would be counter productive to making money. In other words, I can’t possibly see how Zillow and Trulia becoming a real estate company would make any sense whatsoever so we should stop worrying about this. If we as an industry are scared of this idea, then we should be paying closer attention to Redfin who is trying to make this kind of model work to some degree. They are not the first and they certainly won’t be the last. Are Zillow and Trulia dominating the online real estate space and will they continue to grow? The short answer is yes… until either “organized real estate” starts listening to consumer needs and builds something they actually want and will use, or another outside entity creates it. Lots of companies create game-changers and then lose the throne. Think AOL, Netscape, Internet Explorer, IBM. It can be done and it will happen again including our space.In closing, this is just two major online portals consolidating their businesses in a market that is fast becoming oversaturated as it is. They have just over 110,000 combined subscribers in an industry that has 200,000 potential subscribers at best. They’ll combine resources, streamline operations – (job consolidation) and hopefully become profitable. Please feel free to chime in if you see something different. Rob, Keith, Imran, Nobu, Aaron, I would love to get your take on this as well.
Posted in Zillow is Taking Over the World!
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Honestly, in my opinion, in the days of online searching for a home, agents can be one of the bigger real estate rip-offs. I found my home online, I navigated the loan process, we ended up having to offer list price so there was no negotiation; basically, I found absolutely zero use for the agent, who then picked up multi-thousands of dollars at the end of my transaction. I do wish I’d gone agent less. I know that’s revolutionary talk on here, since this is a very agent-friendly site, but it does seem like the game is rigged in favor of agents. I think people just don’t realize that they should be able to go it alone, or perhaps negotiate with the selling agent in hopes of a smaller commission that would benefit both parties. Can an agent be useful in tricky situations and for hip pocket listings? Sure. But I’m still fairly annoyed that our agent (or his/her brokerage) got tons of money for not doing very much at all. I don’t think agents should be the norm when buying a house, especially since there are so many other individuals who institute checks and balances on the process, such as the inspector and the title company etc.
What I read in this comment is a willingness to undertake most of the work yourself, which sounds adventurous and rewarding in theory but — speaking from experience — can quickly defeat somebody who doesn’t have hours to spare and a very flexible schedule. (And then there is the ream of paperwork required.) I relish the ability to do online exploration when shopping for a place; I would have been flummoxed in my move back to Dallas from NY had I been without Realtor.com in 2002. However, when I sold and bought within my same neighborhood a few years ago, I would never have made the change without a realtor even though I knew the area and its availabilities from the start. For most people, it’s worth it to have representation in the deal. Remember that wisecrack about how the attorney who represents himself in court has a fool for a client?
LC, this blog IS agent friendly because I have embedded myself into their world to learn how it all operates, ostensibly to give consumers insight into the RE world and help agents keep up with changes. I think consumers should know what successful agents are doing to gauge whether they are getting the best agent value for their money. You are right, many are not. I try to keep agents abreast of the industry changes coming (it seems) 24/7. The great agents I know work really hard for their clients AND commissions. What you are talking about is exactly what many agents fear: being replaced by the internet. You may know that Spencer Rascoff, the founder of Zillow, founded Expedia.com which put travel agents out of business. But real estate is a lot more complicated than travel!
Zillow and Trulia were smart enough to put the consumer first, hence they built an audience. They also understood human’s love for House Porn, something traditional media is clueless on.
I do think that someday very soon, transactions like yours will be done without an agent. Maybe transactions under a certain price point, say $200,000. Or maybe certain circumstances. And yes, consumers can negotiate with a selling agent to whittle down commissions, but then they also might whittle down services. In fact, some agents are offering just that — a ‘here’s what you get’ type smorgasbord of services for the consumer to choose. I even know some agents who reduce the fee but make the seller pay all marketing expenses. Those newspaper ads are quite pricey and, by the way, not worth it. (The money should go into photography, on-line advertising, a great web site and staging.) We will be covering commissions here in future posts.
I think your case is the perfect example of a transaction where your agent was basically a clerk. But in a different market, or if you had zero time or could have negotiated a lower price, you would have valued the agent more. Way more. In Cali, when my son bought his home in a most competitive Bay-area climate, it was the agent who got his foot in the door of the house. She had a relationship with the seller’s agent and got him ahead of the line, and it was a long line. She even whittled down her commission. Real estate is really a “who you know” game, like most professions. For a buyer in today’s tight as Barbie’s butt market, in-the-know agents know about the hip pockets and off-market sales even before Zillow’s “Coming Soon”. Ironically, though most agents fear off-market listings, it may well be the hip pockets that make them valuable and worth their commissions in the long run. If your stock broker picks a great stock and it does well, you don’t mind his fees because he made you money. Similarly, if Realtors provide value to clients they will always be in demand. The day they stop, well, that’s when their troubles begin.
Thanks for your comment. I hope we can have many more discussions on this topic!