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The End of the Road?

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Although we got to the end of the road
Still I can’t let go
It’s unnatural
You belong to me
I belong to you

My co-blogger, Notorious BOB Bemis, wrote one of his finest works over the holidays and suggested that perhaps it was time for a divorce between Move and NAR. I was ah… deeply engaged with the intricacies of Pokemon with six years olds at the time, and didn’t really have the bandwidth to engage his points. I do now. While Bob’s insights make perfect sense in so many ways, there are a few reasons why I think the Move-NAR marriage will endure like Tony and Carmela’s.

The Public Markets

The biggest reason is that there is no graceful way for Move to get a divorce from NAR without getting absolutely murdered by Wall Street. This is Move’s CEO, Steve Berkowitz, from the Q2/2013 earnings call:

REALTOR.com is the only brand that serves the consumer in both the online and the offline world. There are 1 million realtors out there, real people with feet on the street, who have the REALTOR brand on their business cards alongside their own. REALTOR.com enables local one-on-one relationships on a national scale. There are two core objectives both sides achieved in this vote. First, is that REALTOR.com can continue to expand its audience to reach more consumers before, during and after the home buying process. When you combine the breadth and depth of data with our accuracy and timeliness, there is now no other company that can match the content richness we deliver.

He echoed much the same sentiment during the Q3/2013 call, and the entirety of Move’s strategic positioning vis-a-vis its competitors is that it has the blessing of the industry. Take away that Most Favored Nation status and what exactly do you have left? Say goodbye to the idea of the local one-on-one relationships on a national scale. Say goodbye to the accuracy and timeliness schtick (which has been Move’s central marketing theme vs. its competition). Say hello to dropping to fourth place in consumer traffic.

Move is trading at time of writing at around $16 per share, with a market cap of around $625 million vs. Zillow, which is trading at about $90 per share with a market cap over $3.4 billion. Analysts are getting down on Move even today. Should Move start talking about a divorce with NAR, Move might become a penny stock overnight. We’re talking shareholder liability lawsuits by the bushel here for all of the executives and probably members of Move’s Board. Not going to happen that easily.

Open Competition

The upshot and benefit for Move, Bob writes, is that post-divorce, it can compete head-on, without one hand tied behind its back, with Zillow and Trulia and whoever else comes down the pike. That is, without question, true.

And if this divorce had happened five years ago, or even three years ago, or hell, at the beginning of last year, I would have applauded the foresight of both Move and NAR management. But today, it really feels like that horse might have left the barn, and then a fire burned the barn down behind it.

In Q3 of 2012, Realtor.com was at 24 million average monthly uniques vs. Zillow’s 36 million. That’s a steep hill to climb, but if the shackles had been taken off, not insurmountable. A year later, we’re at Realtor.com with 28 million and Zillow with 61 million. That… is not close. And now we’re talking about Realtor.com having to more than double, just to not lose any more ground. If Zillow keeps up its growth rate (~70% year over year), we’re looking at about 104 million monthly uniques by Q3/2014. Realtor.com would need to grow by 370% — nearly quadruple its current traffic — to catch up.

It could happen. I just wouldn’t bet on it. Neither would Wall Street.

What Do You Do With A Problem Like NARia?

At the same time, the issues confronting both Move and NAR are deep and significant. Bob is absolutely on the money when he says that the brand is more of a liability than an asset today. He’s also correct that Realtor.com creates dissension and unhappiness amongst the ranks, even over little things like the AgentMatch program. He writes:

Despite the deluge of disassociated complaints included in the comments posted after every new news story on AgentMatch, there were a number of valid points made about the service that would give one pause before moving forward. It is based primarily on listings taken, managed, and sold and measures such basic parameters as list to sale price ratio, days on market, volume of listings, etc. The loudest cry from the Realtors who object was two-fold: (a) numbers alone do not a story tell, and (b) NAR should not be in the business of rating its members or comparing one member to another by any measure or mean. (emphasis mine)

So. What do you do? My answer is that Move cannot change, for the reasons stated above. Therefore, NAR must change. Bob actually lays out a compelling scenario:

Exposing selected portions of the accumulation of property information that is RPR could become the basis for a new and improved RdC. They wouldn’t even need active listings. The content on RPR is unrivaled anywhere and would definitely separate and differentiate RdC from the current portal competition. By making RdC the showcase for REALTORS® rather than just one more website with listing data, NAR could put the sheen back on their brand. NAR could recapture the respect and support that has long been missing from its membership be creating a flagship website that truly offers unique content and value to consumers and at the same time guides buyers and sellers toward Realtors to help in their transaction when the time is right, all without competing advertising, three-headed monsters, or “selling us back our own leads.” And all without dues dollar support if the RPR revenue plans are still intact and on track.

The idea of NAR literally “taking back Realtor.com” (something many people really wish would happen, though they have no idea what they’re getting into there), merging it with RPR, and operating a true “showcase for REALTORS(r)” rather than just another listing website is compelling. Could we get there, or somewhere very similar? I think so.

Here’s how.

True Partnership

Like any bad marriage, what is required to improve things is more commitment, not less. In this case, I think that’s very doable.

First, Move’s market cap is around $625 million. NAR generates $120 million per year just in member dues. I don’t think getting financing to buy say 30% of Move ($180 million or so) would be all that difficult for NAR to do. NAR would likely pay a premium to give the current investors a chance to cash out now, or ride along to see what might happen. The acquisition option makes it easier to fend off shareholder liability lawsuits, since, well, they would have had the chance to cash out if they didn’t like the decision. (Of course, they can always sue saying the price was too low or whatever, but that happens in almost every major M&A deal.) So have NAR buy a real stake in Move.

Second, NAR itself needs to change the assumptions and presumptions of the so-called members. Instead of caving in to charges that NAR shouldn’t be in the business of rating/ranking its members, NAR (and its real members, the ones who give a shit) ought to come firmly down on the side of rating and ranking its members. It can even cite NAR’s Preamble to the Code of Ethics:

Such interests impose obligations beyond those of ordinary commerce. They impose grave social responsibility and a patriotic duty to which REALTORS® should dedicate themselves, and for which they should be diligent in preparing themselves. REALTORS®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS® a common responsibility for its integrity and honor.

How the hell do you zealously maintain and improve the standards of the calling without rating and ranking people who claim to dedicate themselves to such standards? Sure, you can argue over the algorithms, the metrics, say that numbers don’t tell the whole story, and the like — but the core argument needs to be established: NAR will impose obligations on its members that go beyond those of ordinary commerce. NAR will do this with actions, not mere words. It’s a fundamental shift in the meaning of membership, and it is high time that this happen, not just for the sake of Move and Realtor.com, but for the sake of the Realtor brand itself.

Because NAR cannot put the “sheen back on the REALTOR brand” just by putting forward some website showcasing REALTORS; it can only put the sheen back on when the brand actually means something in the marketplace, and not everyone with a license will qualify to become a REALTOR.

The goal should be, as Bob suggests, to get out of the traffic game. Instead, get into the TRUST game. Transform the REALTOR brand into something that doesn’t just talk the talk of ethics, professionalism, and competence, but walks the walk. Sorry, my friends at NAR, but the brand isn’t that today. It has been too diluted over the years, with too many yahoos carrying the brand simply because they paid the dues.

Above all, that has to change. (And… seems to me that NAR brass are getting more and more comfortable with the idea of a smaller, more focused NAR in any event….)

With these in place, the new marriage of Move-NAR could start to transition to positioning Realtor.com as the authorized BMW dealership to the used car sales lots of Zillow and Trulia.

It has to be “They might have more traffic, but we have the best professionals” or something like that. Ethics, Professionalism, Service — the Few, the Proud, the REALTOR — something like that has to be the core message and core value. Not saying that will definitely work, but it’s likely the only brand positioning a re-envisioned Realtor.com could make stick.

Such changes would inevitably lead to a drop in membership, and a corresponding drop in member dues. That’s where the 30% stake in Move comes in. Despite the gloomy news, Move actually made more revenue than Zillow in Q3/2013: $58.8 million to $53.3 million. Move has very strong cash flows from operations: $10.5 million in Q3/2013. There are a variety of ways for NAR to turn Move into a revenue source given the financial strength of its operations to offset any revenues lost from decline in membership.

The benefits of open competition will happen, not because Move has divorced NAR, but because NAR has changed how it views itself and its membership. Rather than trying to prohibit FSBO’s on Realtor.com, the new NAR might proudly display them, but stress that working with the highly professional, ethical, and above all service-oriented REALTOR (“And only one out of four licensees achieve full REALTOR status” says the commercial) has benefits for consumers. One can have open competition, but on a different, orthogonal basis, rather than on the straight up losing battle of “who has more eyeballs”.

End of the Road?

I’m not suggesting any of these things will happen. In fact, it is far more likely that none of these things will happen, and we’ll go through 2014 with yet another cycle of status quo and handwringing without much being actually accomplished. I am suggesting, however, that given Bob’s trenchant analysis, and the real problems at issue here, the solution to the NAR-Move relationship is not divorce, but a second honeymoon, with one partner making real, fundamental change for the betterment of both.

Ain’t love grand?

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.