Earlier this month, when Zillow announced a record high quarter, projecting to surpass a billion dollars in revenue by the end of this year, many wondered whether the company, with its 75 percent online real estate audience market share and 171 million monthly users, can “Uber-ize” real estate agents, cutting out traditional brick-and-mortar brokerage middlemen in the same way Uber bypassed taxi dispatchers.
The answer is perhaps yes, but it’s not quite that straightforward.
Zillow essentially makes its money from selling leads to agents who usually work for brokers — like Coldwell Banker or Re/Max — that provide them with marketing, insurance, sales and transaction support in exchange for a “desk fee” or a cut of their commission income.
So-called “super agents,” who spend over $60,000 a year buying leads from Zillow and driving the company’s growth, are already spending more with Zillow than with Re/Max in desk fees, prompting accusations that Zillow is effectively collecting a “brokerage fee” without legally being a broker.
Between marketing support, lead generation, and lead management technology, real estate search portal Zillow now delivers more value to agents than most brokerages do. Given this position, Zillow has a golden opportunity to commoditize the brokerage value to the agents.
Traditionally, brokerages have flaunted their trusted brands as a key value to agents. But even as brokerages spend billions in marketing, with the Internet today providing most of the vital information brokers once did, as many as 97 percent of homebuyers and sellers now consider their branding to be irrelevant in hiring an agent.
Given that 3 out of 4 home shoppers now start their search with Zillow, the company sees a well-timed opportunity to close the “search-to-transaction” loop. If Zillow is able to assume all the roles of a broker without legally being a broker, then brokers could find their role increasingly limited until, like notaries, they exist only to fulfil a simple legal function: an agent must be affiliated with a broker to be paid.
Zillow’s acquisition of real estate transaction platform DotLoop for $108 million in 2015 may have been the first step in creating such an end-to-end home transaction platform. The next step would be to offer digitally the functions of a traditional brokerage such as hiring agents, scheduling showings, etc., to fully close the lead-to-transaction loop, significantly reducing the time agents waste chasing fruitless…