Real Estate Marketing & Beyond
There is no doubt that both Zillow and Redfin are seeking to be the leader defining the high tech evolution of the online residential real estate market. With Redfin’s recent IPO, the philosophic line in the sand became a little clearer. Still, comparing the two is like comparing apples and oranges. Zillow’s business model is providing information to consumers and real estate professionals. Redfin’s business model is as an internet based brokerage competing head to head with traditional brick and mortar brokerages. The clearer line in the sand was drawn when Zillow CEO Spencer Rascoff implied that Redfin is a direct threat to the traditional real estate market.
Redfin’s threat is based on cutting the time-honored 6 percent brokers’ commission to 4.5 percent. Further breaking the mold, Redfin’s brokers are paid employees earning a salary and benefits rather than being strictly commissioned independent agents.
Differentiating it from Redfin, Zillow does not employ local real estate agents. Instead, it looks upon real estate agents, mortgage brokers, and contractors as customers who will advertise on its various branded sites. By working with the industry as a leader exploiting internet technology, Zillow’s revenue growth potentially has much more upside than Redfin.
Redfin’s advantage is the ability to scale brokerage operations to the national level almost at the speed of light. It’s currently located in over 80 different markets around the country and employs almost 1,000 lead agents. Redfin’s and Zillow’s strategies are both technology based. Redfin uses technology to help agents be more productive by spending less time finding buyers/sellers and technology enables customers to monitor the transaction process online.
Zillow’s upside or Redfin’s downside is that while consumers gravitate towards lower costs resulting from lower commissions, traditional brokers will compete against Redfin by also lowering commissions. This becomes very significant if Zillow’s services enable traditional brokers to also lower costs through technology.
Currently, this rivalry is little noticed by most casual consumers because both websites offer primarily the same information by displaying housing data, such as home value, home appreciation, square footage, year built, and other data points homebuyers want to know. What is important to note abut this is the large difference in site visits. For 2016, Zillow had a monthly average of over 140 million users. Redfin averaged 16 million monthly users. An almost ten-fold difference. Still, neither has a clear advantage at this point. Zillow needs more eyes on its computer screen to drive advertising dollars. While Redfin pulls in more dollars from fewer viewers based on commissions from home sales.
However, none of this may matter in the long run. The drive for online supremacy in the real estate industry is far from mature. While Zillow and Redfin are popular real estate sites today, there are many other online real estate and home valuation websites that are excellent alternatives. It’s way too soon to count out Realtor.com, which is the online real estate website run by the powerful National Association of Realtors. There are many others still looking for the winning approach that will revolutionize the online home buying and selling process. Zillow and Redfin may ultimately become internet footnotes the same way Netscape and MS Internet Explorer came to be footnotes to Google in the search engine battle.
Certainly, you have thoughts about how the online real estate market will evolve. Please leave comments about your insights and thoughts.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for seven years. He also draws upon 35 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. In the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.
Good article.
Check out the Zillow CEO's statements as reported at:
http://nationalmortgageprofessional.com/news/64015/zillow-chief-redfinthreat-real-estate-agents
Excerpt=================================
“Undoubtedly, one of Redfin’s goals is to obviate the buyer’s agent,” Rascoff said. “I think they have stated, quite publicly, that they aim to acquire more listings inventory in given markets, and then have no buyers’ agents on the other side of those listings. And that is a threat to organized real estate, and that’s one of the many reasons why brokerages are so concerned about Redfin.”
Rascoff added that his company was “not beholden to any specific brokerage,” but claimed Redfin was set to steamroll the real estate broker industry. “Redfin’s ascent, Redfin’s war chest has brokerages like Keller Williams…and others very concerned as they should be because Redfin now has the resources to compete in their markets against other brokerages,” said Rascoff.
After word of Rascoff’s comments emerged, Redfin issued a statement defending its business operations. “Redfin is a broker, with roughly a thousand real estate agents,” the company said. “We are sure there will always be buyers’ agents in real estate … Our customers want our agents’ local, expert advice. We employ hundreds of buyer’s agents, and you can see from our recruiting website that we’re recruiting as many as we can.”
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Here is what I believe is happening. Redfin already won and the market doesn't realize it.
Zillow's money is the most vulnerable in the whole real estate tree. Zillow is fueled by agent advertising and that is exactly what Redfin is rebating back to clients; the fluff in the transaction. Redfin is getting buyers and sellers more comfortable with real estate transactions on their platform and consumers will come to expect to have control over how the buyer procurement commission is distributed. Paying $x to Redfin to access the real estate trading platform as a direct access buyer is better than giving up the whole commission to an agent.
I think Redfin will launch an online real estate academy where it will train consumers to engage the real estate brokerage dashboard directly while overseen by Redfin Client Managers who were formerly employed as Redfin's conventional agents. Educated consumers will eschew handholding agents who take the commission and opt for direct access to the transaction dashboard and control over the selling agent commission.
Redfin is establishing itself as a PUBLIC UTILITY platform for trading real estate, like the NYSE except for homes.
Buyers who don't use the Redfin Direct platform will be considered rubes for leaving money on the table when a little dedication to real estate training through the Redfin Academy could have earned them thousands by obviating the need for a sales agent, just like Rascoff said.
Zillow needs fat real estate commissions to survive. Redfin and the Redfin Academy are going to put the flame to that fat and Zillow will melt away along with the NAR firms like C-21 that can't switch to a salaried platform. Their business model will starve to death. Redfin will rule the roost.
Remember, conventional real estate agents are not held in high regard by society for honesty and ethics as shown repeatedly in the decades long Gallup poll. People don't trust real estate agents but think they are a necessary evil. Redfin is showing them another path to the market and compensating them for acting as their own real estate agent.
I think the game is already over. Redfin's mollifying statements are meant to keep the NAR beast calm while Redfin secures its jaws around its snout and suffocates it. Amazon, eBay, Google, Apple, Redfin; you bet. It's on the way. NAR modeled brokerages cannot function on a low fat diet; their metabolism is too high. The reaper awaits them.
Gerry
Great comment. It's terrific that you shared a detailed insider's perspective.
Thanks much,
Brian Kline