How a Zillow-Trulia Merger Could Finally Change the Business of Real Estate
How a Zillow-Trulia Merger Could Finally Change the
Business of Real Estate
By Brad Stone July 28, 2014
Despite the multitude of online real estate websites,
buying a home today remains stubbornly anachronistic, with dual real estate
agents, proliferating fees, and reams of old-fashioned paper documents.
Now two of the leading real estate websites are
merging—Zillow, the Seattle-based site known for assigning a “Zestimate” to
home values, is buying San Francisco’s Trulia for $3.5 billion in stock, the
companies said today. Together they may finally get big enough to try to
streamline the way homes are bought and sold.
The companies, which rely on advertising from real estate
agents for the bulk of their revenues, are being careful about how they discuss
the future of their combined efforts. Spencer Rascoff, the chief executive of
Zillow, pitched it to the New York Times primarily as an effort to save money,
estimating that the combined company can cut about $100 million in expenses by
2016. He says Trulia will remain independent and that Zillow is building a
portfolio of real estate websites, each serving different markets.
Over the long run, though, it probably makes little sense
to keep the sites separate. Trulia and Zillow are remarkably similar—each lets
buyers navigate an online map to find a home’s value, look at available listings,
and connect with local real estate agents. They each have strengths in specific
geographical areas. Trulia’s website tends to favor home buyers, and half of
its monthly visitors don’t visit Zillow, which traditionally favors home
sellers.
What’s remarkable about both sites is how little they’ve
actually changed the selling and buying of homes. That’s mostly by design. Both
were founded nearly a decade ago with a healthy respect for the intractability
of the real estate market, with its unique dual-agent process (one representing
the buyer, and one the seller) and with its multiple listing services (MLS),
which has a stranglehold on home listings.
Zillow founder Rich Barton had helped destroy the travel
agent business with his previous company, Expedia, but he understood that the
real estate market was unique: Buyers and sellers liked getting professional
advice on such a large transaction. Instead of trying to revolutionize real
estate in one stroke, as local Seattle company Redfin was attempting at the
time, Barton set out to change it from within, slowly building an audience by
unlocking new kinds of information for buyers and sellers.
Since then, change is slowly creeping into the real estate
business. Redfin, which employs its own agents and seeks to lower commissions
and streamline the buying process, has recovered from infighting and early
stumbles. Now in 28 markets, it is on track for an initial public offering,
perhaps as early as this year.
A raft of new websites is trying to take more complexity
out of the home buying process. Venture capitalist and repeat entrepreneur
Keith Rabois has started a new real estate website, HomeRun, with the goal of
creating a “frictionless, convenient, simple process” to sell a home. New York
website UrbanCompass, which lets people rent, buy, and sell apartments,
recently closed on $40 million in funding.
Change in the real estate business is inevitable. When
buyers are finding homes on their phones, taking virtual tours, and securing
loans online, brokers add less value to the transaction. Likewise, sellers can
prep their houses and find buyers with a few clicks of a mouse and no longer
need to lean as heavily on an agent. As Zillow and Trulia (Zulia? Trillow?)
build an even larger audience, they will finally have to push through
structural changes into the market, or their commerce-oriented competitors will
do it for them.
The combined companies’ big challenge will be to do this
even as they collect advertising fees from traditional players. “Real estate
will always be a professionally assisted transaction,” Rascoff said this
morning on Bloomberg TV. “[M]ost home shoppers in the U.S. are more than happy
to have an intermediary, a professional to help with the transaction.” He also
noted that “it’s very early in this category. This is an immature, fragmented
market. This will play out over many years.”
It’s the politically expedient thing for Rascoff to say.
But as the Zillow-Trulia linkup makes clear, even the stubbornly archaic act of
buying and selling a home isn’t immune from the future.
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