THE WOLF IS AT THE DOOR

The real estate world is abuzz with talk of a Zillow-Trulia merger.  Wall Street is pretty fired up about it as well.  Zillow (which traded for $24 per share as recently as November of 2012) closed at $158.86 yesterday, up $13.10 for the day and up over $35 for the week.  Trulia closed at $56.35 yesterday, up $2.61 for the day but up over $17 for the week. 

I could write volumes about this, but it serves no purpose.  The bottom line is that Zillow and Trulia have won the “eyeball war”, and Realtor.com (operated by the National Association of Realtors) has lost, even though it had years of exclusive access to MLS data.

Why did this happen?

In short, it’s because Zillow (and to a lesser extent, Trulia) gave the consumer what they wanted.  Unfettered access to data.  Full property history.  Property valuations.  And yes, a platform for full disclosure about agent sales history and customer reviews. 

The story of Zillow and Trulia vs Realtor.com is really the story of New Guard vs Old Guard, a collision between cutting edge technology and browning MLS books, fresh off the Xerox machine. 

For years, MLS data was proprietary.  It was “owned” by the companies who listed properties for sale, and those companies could decide where it would be shared.  And for years, companies shared data only with the local MLS and with Realtor.com, because Realtor.com was the “house organ” for the National Association of Realtors and it pledged to “Keep agents at the center of the transaction.”

The Realtor.com model was not about consumers.  It was about agents.  For years, visitors were forced to register to get property information (thus generating a “lead” for some dues-paying NAR member).  Agent ratings and production history were closely guarded secrets that were kept from the public (wouldn’t want to upset the under-producing dues-paying members out there). 

The Realtor.com site was designed and built by clunky academics and industry insiders, and accented with heavy doses of nepotism and cronyism (NAR is, after all, based in Chicago).  The end product was junk.

Meantime, Zillow was founded by venture capitalists who actually looked at things from the consumers’ perspective.  What did people really want to see on a real estate website?  What information was important to making educated decisions?  How could that information be presented easily, clearly and with access to all?

If Zillow couldn’t get MLS information, what information could they get?  Tax records?  Check.  Sales history?  From public records.  School ratings?  Lots of sources for that information. 

Armed with this data, Zillow began compiling property valuation estimates, called “Zestimates”.  More eyeballs followed.  Consumers engaged.

Needless to say, over time Zillow grew larger and more prominent.  As its brand value grew, more brokers and MLS systems gave in and struck deals to share their data, mostly because sellers demanded the additional exposure and consumers came to expect it. 

Once the data genie was out of the bottle, it was all over. 

Today, Zillow is the undisputed king, even though its property data is no more than 70% accurate.  Countless listings still do not appear on Zillow (because some brokerages and MLS systems choose to delay or withhold their data feeds as a form of intentional sabotage).  Status changes go unreported for days.  It’s still a very spotty place to go for current data, but because the consumer trusts it as impartial and unbiased, that’s all that matters.

With a pending takeover of Trulia, which has passed the fading Realtor.com for second place in viewership among real estate websites, the shadow Zillow casts over the real estate landscape grows even larger.

So how does Zillow make its money, at the moment? 

Advertising. 

When you search for properties on Zillow, you’ll see three boxes appear in the upper right hand corner of the screen, adorned with faces of smiling agents.  Those individual spaces can cost as much as $1,800 per month, per agent, per ZIP code in the Denver metro area.  And those spaces are increasingly oversold, with rotations of “Premier Agents” cycling through and paying big money for occasional exposure. 

This is not intended to be a dissertation on Zillow’s business model.  The real question is what agents plan to do about it.

The real estate community is about to get crushed, and mediocrity is about to get shown the door.  Soon, as an agent, your only options will be to get big, get good, or get lost.  Sadly, the vast majority of agents don’t have a clue what’s going on.  This is not going to be pretty for the 80% that reside in that fiefdom know as "average".

Telemarketers from Zillow hound me constantly.  I mean daily.  I receive five to 10 calls a week from sales reps in Seattle, where Zillow is based, telling me how my profile (lots of sales, great past client reviews) makes me the ideal candidate to grow my business by spending $1,800… $3,600… $5,400 per month on Zillow advertising. 

They want me to feed the beast.  I’m not ready to do it.

I run a trust-based business that emphasizes high integrity and personal relationships.  Over 90% of my business comes by way of direct referral from past clients and those in my network.  I don’t need or want to spend thousands of dollars a month for massive numbers of random people I don’t know funneled to me through Zillow advertising.  That feels like a trap door.

So I am doubling down on my existing relationships and past clients.  I am fortifying my network.  I am going to commit to those who have committed to me.  I am going to lean into my reputation and my competence to thrive while those around me are starved out of the business. 

I will live or die based on service and reputation, not by my willingness to buy advertising and market to strangers.     

For large numbers of agents, however, the wheels of doom are in motion.  If your past clients aren’t loyal, for whatever reason, soon it will be Zillow or die. 

Your options are to be great at what you do, or break out your checkbook and buy leads from Zillow.