Last summer Zillow announced that it would start a pilot program that allows instant offers on properties effectively eliminating real estate agents in the transaction. At that time 87% of agents thought Zillow would become a brokerage to eliminate agents. This week Zillow announced another step to dip farther into not only realtors pockets but also lenders, mortgage brokers, and title companies.
What Changed? Zillow will now begin buying and selling houses.
Zillow is now expanding on its instant offers program into buying properties directly from sellers and then turning around and selling them. Zillow says that home sellers in select markets will be able to compare an agent’s comparative market analysis to offers directly from Zillow or from other investors.
Why is this important?
Zillow (also the owner of Trulia) is the largest residential real estate portal. In the past, information on listings was controlled through local multiple listing services. This has all changed now that Zillow is the holder of information on the vast majority of property listings. This information gives it substantial leverage over the traditional brokerage model and the ability to generate leads for purchase and sale transactions that is unmatched by independent brokers.
Is Redfin the model?
Zillow’s largest competitor is Redfin. Redfin has learned to use all the data/information it generates on its website to promote a “discount brokerage model” that utilizes its own agents that are salary based to facilitate a transaction. This model has cut the average realtor commission from 5-6% to around 3.5%. These savings have been passed on to the seller of the property.
How Redfin makes money at this model is their agents close twice as many transactions as traditional realtors due to the lead generation. Its agents are not spending time marketing as the leads are flowing in through it online presence.
Along with offering a lower cost option for sellers, Redfin is also integrating vertically with a title company and mortgage product to continue to generate revenue from multiple streams off the same transaction. Redfin is positioning itself to control start to finish the real estate purchase and sale transaction.
Redfin is just the beginning?
The current model from Redfin is just the beginning of changes in the industry. David Eraker one of the co-founders of Redfin is back with a new model and company called Surefield which charges sellers 1.5% and offers buyers agents 2000 flat fee for bringing a buyer. Under the new model Surefield uses virtual reality and 3d modeling to provide virtual tours so that only the most serious buyers go into the property therefore minimizing realtors time. This is an interesting model that is now possible with the new technology that has come out in the past several years.
How does the model work? On a 300k home, a traditional buyers agent might get $9,000, 3% of the sales price. Under the Surefield model this agent would only get $2,000 or .67% . Will this model work? It will hinge on buyers’ and sellers’ behavior. Will buyers and sellers adopt this new technology driven model?
How is this different than for sale by owner?
For sale by owner basically took a fee to list a property in the MLS and provide templates for contracts, etc… This model never really caught on. The Redfin model is a bit different in that licensed real estate agents run the process giving consumers a bit more confidence and hand holding.
What will Zillow do?
Zillow is “testing the waters” with this new model of instant offers and purchasing properties. As the largest holder of real estate information, they could easily use this information to benefit an in house real estate staff like Redfin. It seems like every year they are inching a little closer to a brokerage model. I suspect over time that Zillow will adopt a Redfin model or even one that resembles Surefield.
Implications for the entire industry?
Zillow and Redfin are the first signs of larger industry consolidation. This consolidation is not limited to the brokerage side but also to title and mortgages. Every touchpoint in the real estate process will be impacted by this consolidation. The holder of the data has the keys. This is what Redfin has discovered with their brokerage model and Zillow is inching towards.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).