Home Brokers & Agents The Winds of War: Zillow's Q3 Earnings Call and the Inevitability of...

The Winds of War: Zillow's Q3 Earnings Call and the Inevitability of Conflict

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By now, if you pay attention to this sort of thing, you’ve seen Zillow’s Q3/2015 earnings report and maybe even listened to the earnings call. And on the financial side of things, ZG appears to have kicked ass once again:

  • Revenue of $176.8 million, up 13% year over year on a pro forma basis.
  • Adjusted EBITDA of $29.5 million, up 51% year over year on a pro forma basis, significantly ahead of expectations.
  • GAAP net loss of $26.0 million compared to GAAP net loss of $16.0 million during the same period last year.
  • Seasonal peak of nearly 150 million unique users in July to Zillow Group consumer brands Zillow, Trulia, StreetEasy and HotPads; average monthly unique users during third quarter of more than 142 million.
  • Trulia integration completed during third quarter, one quarter ahead of forecast, with unification of Zillow and Trulia advertising platforms.

Spencer Rascoff, ZG’s CEO, mentioned during the earnings call that ZG has 60% of all unique users, and 70% of mobile-only users looking at real estate. That’s… well… we’re creeping towards Google-level dominance here.

But as usual, it appears that no one has picked up on what may be the most significant thing to emerge out of the Q3 call. It’s actually not new, as I’ve discussed it before. What is new is the extent to which ZG has reaffirmed its strategy and its commitment. Back in Q2, and back in August when I wrote about the development, it felt as thought Zillow was dipping its toes into the water, trying something out, and using the Trulia integration as the platform for doing that.

Now, after this, it is clear that ZG’s committed to this strategy. (More on that strategy below.)

But here at Notorious, we take the next step. What ZG’s strategy sets up is an inevitable conflict with NAR and organized real estate as we know it. One of two things will have to happen going forward. Either the Association of REALTORS must change who it has been over the past few decades, or the market has to change in such a way so as to render ZG’s strategy ineffective.

The winds of war are blowing, and on the current path, the cold war between ZG and NAR (and its proxies) has to go hot.

[Disclosure Note: I have a small business relationship with Zillow in which they pay me for my opinions on developments in the industry. From a bizdev standpoint, I hope that becomes a very large relationship, of course. You can make up your own mind on this, but I’d have written this one way or the other, relationship or not.]

The Strategy in Question

In August, I wrote that Zillow has seen the future of real estate and is putting money where its mouth is:

Zillow has read the tea leaves and has decided to bet the farm on the top 5-10-15% of the producing agents, who have no trouble spending $5,000 per month on Zillow because they have the systems, staff, technology, and the expertise to turn that $5,000 investment into $50,000 in income. The rest of the industry — franchises, brokerages, Associations, MLSs — continue to try and preserve headcount-based business models.

In the latest earnings call, Zillow has really gone full ahead with the bland name of “Higher ARPA” strategy:

We’re continuing to focus on growing revenue from these high producing agents, and not from increasing the overall number of advertisers. These higher-spending agents typically deliver better service to consumers, and we prioritize the sale of ad impressions to them. We anticipate these highly productive agents will continue to increase their spend with us to grow their business and grow their market share in their respective cities. In line with this, we will continue to encourage lower performing agents to leave and resell their inventory to agents with higher ROI. This will reduce our number of advertisers and connect more home shoppers with better agents, and we expect this will reduce our sales and support costs over time as well. [Emphasis mine]

Got that? ZG is “encouraging” lower performing agents to leave. It is firing its customers, so that it can sell that inventory to higher-producing agents who are willing to spend more with ZG.

But this little gem didn’t get overlooked by the sharp Wall Street analysts on the call, and so, Spencer had to explain further. This is one particularly interesting exchange (although I know it sounds bland finance wah-wah at first…):

Ron Victor Josey – JMP Securities LLC

Great. Thanks for taking the questions. Two please. So, first on just 2016. Spencer and Kathleen, you talked about accelerating revenue growth. Wondering what gives you confidence there? Is it newer ad products, greater share of wallet from the top producing agents like you’re seeing today, that would be helpful and clearly we’re looking at new products that you’ve launched like Premier Agent Assist, how does that factor in?

Kathleen Philips – CFO, Secretary, Treasurer & Chief Legal Officer

Great. Thank you, Ron. So, for 2016 revenue growth, you’re correct in pointing out that one of the major reasons we have confidence in reacceleration of our growth is through the continued growth of our high spending agents. And we’re very focused on that, and we believe that trend will continue. We’re investing a lot in products and tools to make those agents even more effective and efficient and to create greater value in the advertising they purchase.

Spencer M. Rascoff – Chief Executive Officer & Director

So, then that leaves you with the big piece, which is of course Premier Agent. And there is something happening in the industry right now which is, we could feel it happening a year ago, but it feels like it’s happening even more so now than ever before. I try to – it’s pretty hard to communicate through numbers, but one stat was the $5,000 a month agent spends about $60,000 a month – sorry, $60,000 a year, that those types of agents are spending, that being up 57% year-over-year. I mean these are people that are putting $60,000 a year on their credit card, right. So, they are not really individual agents. They are forming teams, they are building businesses on Zillow Group, and it was very clear from our Las Vegas event that there is just many of those people than ever before.

So, when you look at our strategy of doing more agent training, focusing on selling impressions, on basically churning, low performing agents to free up impressions for these top performing agents, building out our own CRM connecting to other CRMs, all these pieces are falling into place where we’re helping these top agents to be even more successful. And it’s a combination of all those things. The high growth rates of some of our emerging businesses, divesting of Market Leader and growing Premier Agent that gives us confidence. [Emphasis mine]

And then you have these statements, all from Spencer:

And to the question about number of agents being down year-over-year. I mean, I’ve said that we’re focused on is total revenue growth from Premier Agent is growing 25% year-over-year and the declining number of agents, say, quarter-over-quarter for example is intentional. We are trying to service small number of agents that are higher performing, and spend more on advertising, produce better service for consumers, rather than have a very large number of agents, that spend very little. [Emphasis mine]

And:

I probably addressed that, I guess, I would just say there is a significant change underway, in the real estate industry, which Zillow Group is accelerating and that is this shift away from the part-time agents who dabbles and is a hobbyist to the professional real estate team leader who is a business owner and is uses software and embraces technology. And that trend – we are in the middle of that trend, we are helping catalyze that trend and we’re the beneficiary of that trend. Eventually, most of the $60 billion in commissions will go to agents like that. And agents like that, tend to spend a lot of money advertising on Zillow Group. [Emphasis mine]

And in a separate exchange, Spencer couldn’t say how many of the ZG Premier Agents are in this high-end, high-spend category, but did say that he thought that doing 50 or 100 transactions a year was fairly commonplace for these super agents.

So… the bottomline is…

Zillow is no longer interested in the hoi polloi of the real estate world. If you’re doing the NAR average of 6 transactions per year, ZG would rather you not suck up the leads bandwidth from the top producers who have teams and systems and know how to convert. Zillow thinks those high producers are far better at providing excellent customer service, including things like getting back to them on an inquiry, and would like to put everyone else more or less out of business.

I reached out to Zillow about this, and ended up chatting with Errol Samuelson, Chief Industry Development Officer, who clarified that ZG isn’t only about production. Yes, on a call with Wall Street people who are only interested in dollars and cents, and don’t know squat about real estate, what Spencer and Kathleen would emphasize naturally would be these high-spending, high production agents. But Errol said that the bias is against agents who are non-responsive, not good at followup, not good at lead incubation, etc., rather than simply against agents who don’t spend the big bucks. Zillow’s view is that “low producing” agents who are new to the business, but are hard-working, responds to consumer inquiries, and provide excellent service to buyers, won’t be low-producing agents for long. He started to go into examples of such success stories, but I thought that’s maybe for some other post on some other blog.

That makes sense, because I’ve known for years (and have written before) that the biggest problem for all websites (portal, agent IDX, broker, MLS, whatever) is the lack of responsiveness on the part of agents who get leads from them. Because when a buyer goes to Zillow, submits an inquiry, and hears nothing back for three days, he thinks that agent sucks, yes, but he also thinks that Zillow sucks. Consumers don’t really distinguish between platform and people on the platform.

Well, I don’t visit the Raise The Bar Facebook Group anymore, but I have to imagine that there are dozens of posts over there lauding Zillow Group for finally doing something concrete to raise that bar! Or… maybe not…. (OK, I admit I went trolling to see how folks in that group felt, and… well… more or less what I expected.)

The Inevitability of War

So ZG has decided to make money by concentrating on its best, highest-paying customers. Why does that mean the path to war?

Because ZG’s stated vision, which it is accelerating and benefiting from, is one of very few super agents who head up teams doing 100+ transactions a year and providing superior service to consumers. I think we’re talking more or less about the Elite 100K, or possibly even the Elite 50K, at the very top of the industry in terms of production who are taking more and more market share with each passing week.

The Association of REALTORS vision, on the other hand, is… well, it’s a bit more nuanced.

On the one hand, NAR releases something like the D.A.N.G.E.R. Report in which the #1 Danger with a bullet is:

Masses-Marginal-Agents

That’s right. Too many crappy agents is the number one threat in a report commissioned and released by NAR itself.

Of course, we can’t forget that every dues-paying member of NAR, a REALTOR(tm), pledges to abide by the Code of Ethics. Said Code of Ethics has a Preamble, which contains this language:

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.

And since this week is when NAR’s Annual Convention happens, I’m certain that in strategy session after strategy session, thought leaders and Association Executives and elected volunteer leaders will all wring their hands and talk about how “masses of marginal agents” is a big, big problem. Then some people might provide an update about the Code of Excellence, which is an “aspirational” code that won’t actually be, you know, enforced or anything ugly like that.

So on the one hand, the Association definitely stands for professionalism, nay, beyond professionalism to a sacred duty to be diligent, nay, not merely diligent, but zealous to maintain and improve the standards of their calling.

And then, on the other hand… any actual attempt to prune the REALTOR garden of weeds and crabgrass would be met with resistance, stony silence, and elaborate excuses about “member benefit” and so on. We are treated to handwaving about how every Association and every MLS relies on member dues for their budgets, and raising said dues by even the price of a cup of Starbucks — regular Pike’s Place mind you, not the super-premium vanilla soy macchiato and such — would result in the immediate firing of the CEO and a restructuring of the Board of Directors.

Fact is, all of us who have been around the real estate industry for more than a couple of weeks know that the entire industry structure is based on headcount. All of the relevant business models are built on headcount, from Associations to MLS to brokerages to franchise networks. Indeed, REMAX, the only publicly traded real estate franchise today, published no fewer than four slides in its Q3 Earnings Call to discuss its most important metric: Agent Count Growth. Why do I call it the most important metric? Because REMAX does:

remax-revenue-streams

(I have no idea why REMAX says top line is driven by increased volume, seeing as how their Brokerage Revenue bucket is down 24% Y/Y for the quarter. But maybe I need to dissect their earnings report some….)

This is a head-on clash of visions.

Zillow Group envisions an industry where perhaps 100K super agents do all the business. So they’re concentrating on those Elite 100K, and telling everyone else to just go home: “We don’t want your money, thanks.”

Everybody else envisions an industry where 1 million plus agents, most of whom do two or fewer transactions, continue to pay subscription fees, dues, desk fees, and a gigantic split when the odd transaction takes place.

Best example of that clash? Broker Public Portal.

Broker Public Portal: The Anti-Zillow In More Ways Than One

Well, we already know that BPP is the anti-Zillow from its very inception. The goal is spelled out for all to see right on the BPP website:

“The Goal is the Create a Portal Funded by MLS dues and data, governed by brokers and MLS, to present listings to consumers with a display that adheres to the Fair Display Guidelines.” [Emphasis in original]

But with the latest developments by ZG, it turns out that BPP is anti-Zillow in more than its goals. The BPP cannot pursue the vision of the Elite 100K as Zillow Group has, because it is funded by MLS dues. Every agent, no matter how productive or unproductive, is paying for the BPP through the MLS. Accordingly, both the BPP and the MLS have to keep subscriber numbers up as high as possible, if not increase it.

The entire premise of Fair Display Guidelines is that the listing agent should get the lead, no matter how unproductive she might be, how unprofessional, how unequipped to respond to inquiries, and so on. List your mom’s house and skip out on all that troubling bother like professional photographs? Do absolutely zip besides putting the listing into the MLS to market the home? Fail to return phone calls from potential buyers? Doesn’t matter. FDG = your listing, your lead.

Neither of those can possibly work in a world where the Elite 100K dominate. Obviously, if MLS membership numbers plummet, then BPP’s revenue stream is gone. Less obviously, even if membership numbers don’t plummet, but 90% of the listing leads are going to the top 10% who utterly dominate the listing game, why the other 90% of the members would continue to pay for a lead-gen website that benefits the wealthiest and highest producing among them is not something I can figure out. Even Bernie Sanders, proud Socialist, would think it oughta be the other way around, with the richest 10% subsidizing the other 90%, no?

One might say that the vision of the BPP and the Fair Display Guidelines is more democratic. The vision of Zillow Group is more meritocratic.

Time will tell which vision wins the day, of course. The only thing that is clear today is that there must be a win or a loss for either one, because their vision of the industry is directly at odds with each other.

The Elites Versus The Masses

Fact is, there have always been the Elites and there have always been the Masses in real estate. This is nothing new. Even decades ago, every market had a Top Dog who had very large market share, listed the most expensive homes, did the most deals, and so on. The brokerages have always tried to recruit and retain these high-producers, offering lower splits, marketing dollars, free office space, awards, ego boosts, backrubs from the office manager, etc. — whatever legal or semi-legal thing it took to get those big kahunas.

What has changed over the past decade or so is technology, and the rise of the Agent Team. I’ve talked about that often enough and by now, it’s obvious enough that it doesn’t warrant much more. Suffice to say that the thesis is technology makes it possible for agents to handle far more business than they could years ago, and the Agent Team creates the financial incentives for the superior lead-generators to make a ton more money at the expense of brokerages and other agents. (Remember, zero-sum game, so every dollar gained has to come from someone losing a dollar.)

The trend is towards the concentration of production, the concentration of dollars, the concentration of power into the hands of the Elite few because that’s precisely what technology and the efficiencies from technology enables. And the clash of visions arises from how one thinks about that trend. Is it a positive, as Zillow thinks? Or is it a negative, as most of the Raise the Bar folks seem to think?

And the question that Zillow’s conscious, intentional move towards its strategy of serving the Elite 100K puts to the brokerages, franchises, and the Association is whether they will take the side of the Elites or the side of the Masses. That’s it. That’s the whole issue. Yes, it’s confused because of the #Zaterade (the immense irrational hatred of Zillow), it’s confused because the existing powers within the real estate industry certainly want to protect what they have, and so on. But if you cut through all the bullcrap, take away the emotion, and look at the situation with clear eyes, the real issue is that: Are you for the Elites, or for the Masses?

Cold War Going Hot

As of this writing, I can’t help but feel that the world of Organized Real Estate, Associations and MLSs, are for the Masses. They have to be, because that’s their business model. If the goal is to preserve the viability of the Masses, and to keep up the numbers for the sake of dues revenues, then Zillow and its vision of the Elite 100K have to be smashed. Whether that’s through direct competition, as with Broker Public Portal, or through backdoor strategies, as with Project Upstream, or via proxies, like Realtor.com, Zillow and the Elites have to get taken down. I suspect that the cold war will have to go hot.

On the other hand, if the Association and the MLS decide that the trend of consolidation of power into the hands of the Elite 100K cannot be stopped, then they have to transform into organizations that service that Elite 100K. They would have to follow through the obvious implication of the DANGER Report and take action that would remove their own members from the industry. You can’t do that while those people are still your members, which means shrinking the ranks of REALTOR members by doing much of what Zillow is doing: encouraging people not to renew. And in some cases, not giving them much of a choice on the matter.

That’s… possible. But difficult to imagine, at least until the cold war has gone hot, there’s been a battle or two, issues get resolved, and questions get answered.

So there it is. That’s why I think the winds of war are blowing, and Zillow’s Q3 earnings call may be something we all look back on years from now and say, “That’s when it all started.”

Your thoughts, as always, are welcome.

-rsh

19 COMMENTS

  1. Rob~ so much to address here. So I will start with my first issue I have about your post. I find it a joke anytime I hear Spencer and crew blame non-performing agents. Think about it, they claim non-performing agents on Zillow pay Zillow for lead generation, but when Zillow provides (so called) leads to said agent, the agent drops the ball and it is the agents fault… If you believe that, I got some swamp land I want to sell you.
    Sorry, Zillow, (even though Zillow wants you to believe that) that’s not the case at all. The truth is- most all of the impressions Zillow sells is snake oil at best. To prove my point- look no further than Spencers home that he can’t sell. Spencer has had is home on the market for over 3 months and he can’t get his home sold. I am sure there is a premier agent for that zip code as well as I am sure Spencer has a great listing agent…

    Anyway, I have much more to say about your post but I have to go… But when I get a chance, I will address a few more issues about Zillow and the facts “as well as” point out a few more of Zillow’s flaws.

  2. very well written – outlines the issues beautifully.

    I think there can be a middle ground between the industry headcount dependant, egalitarian, everyone is included view and the ZG, feed the rich, elitist, only the big and powerful are included view.

    The listing data is gathered on behalf of the homeowner by an agent. The agent (with his or her broker, currently) can decide to put it on a site that is owned and controlled by agents, as well as the others (ZG, r) for as long as needed. The ultimate power resides with whomever captures and can direct the listing data – why not use it?

    It is time for agents wake up and look out for themselves. An agent owned listing site that has honest to god consumer ratings would allow more agents, but only the agents that do their job well, to continue to attract new clients online and continue to practice.

    It should not be a given that the highest spending agent teams are somehow the best agents. Many agents that work alone and focus on quality over quantity may be a much better consumer choice.

  3. According to the numbers, there are more people looking at the search engines than there are people in this whole country. I think is hyperbole and I do not care what Z does or claims, or, for that matter, what any of them hope and claim. Rob, I do not think you should be commenting on any RE search engine since you have a financial interest in Z.

    I am a one man shop and generate all the buyer inquiries I want with out paying $5,000 a month. The trick is not generating buyer inquiries, the trick is to have a bunch of listings, and the buyers will come.

    160,000,000 users per month. That’s about 45 %of the entire population. Get real and sell the Brooklyn Bridge somewhere else.

    • I have a financial interest in MLS and Associations too, given they’re my clients. Should I stop commenting on MLS and Association stuff too?

      Don’t you have a financial interest in real estate stuff? Maybe you could set an example by following your own advice first. 🙂

  4. Fantastic article, and very thought provoking. While there’s at least a 1000-1500 word response or followup for this just waiting to happen, here’s a quick thought.
    It’s discouraging to think that the lines will be drawn to ZG on one side and Associations on the other, with neither mending their ways. Associations judging success by number of realtors and dues paid, and ZG by traffic/impression and profit per team.
    In both cases, they’ve built a business around a deeply flawed model. Associations that fleece not only low performers and part-timers, but those new into this amazing business and learning and hoping to achieve a level of profitability before savings dry up.
    Much more serious is ZG, which has built arguably the best, most user friendly customer portal, but filled with often inaccurate information. ZG’s entire business right now is built, as I see it, on a house of cards – hoping that consumers don’t figure out they can get better information from other portals.
    In my area, our MLS’s do not share information with Z, and thus the information the customers see is poor at best. Even before the information spigot was turned off, ‘Zestimates’ were frequently wrong by 20%, leading to disappointment and frustration for homeowners and buyers.
    How long can the charade continue until a critical mass of frustrated Z users abandons the site in search of others (heck, I get better and more accurate info from Homesnap)? Once that moment hits, Z’s entire business shrinks and their reason for existing and supporting super-teams with it.
    Unfortunately, for every team that’s “doubled their business” with Z, there are 10 or more individuals who are professional, followup, and work leads and are still frustrated with Z, so I think their focus on these high-spending teams is really just a creative spin on a decreasing agent base willing to spend money for lower quality and expensive leads.
    Both these together could conspire against Z in coming years, and unfortunately all the tweaks to their algorithms won’t fix what ails them

  5. I have had two memberships with Zillow. That’s two 6 mo the stints of trying to get leads from them at $240 and $300/ month. The first round was 4 “leads” in 6 months from people with either bad contact info or unrealistic buyers. The second round was with a higher class zip code and in 6 months I got roughly 5 direct phone calls from other vendors trying to sell me their advertising, and 2 agent calls asking info on a listing that wasn’t mine. That’s a lot of coin for 0 actionable leads in 1 year. Yes I have reviews, yes I have solds. I have the full profile filled out, etc.. it’s crap.

  6. I just came by to finish up my comment. Like I have mentioned- shame on Zillow. Casting blame on the REALTOR for the lack of their success is comical. But I guess that’s their only go-to move after account after account (like Simon’s.)

    Another thing I wanted to address is the so-called traffic Zillow claims to have. I have to agree with Marvin. And I want to expand on the so-called traffic propaganda. When a user goes onto to Zillow, that user gets counted four times. And the traffic that Zillow does get- most of the folks have no interest in buying/selling real estate.

    Besides, most of Zillow’s foot traffic comes from the Zillow advice section. And in the advice section you have the top anonymous contributors that are on the site every day boosting up Zillow’s foot traffic. Besides the anonymous contributors foot traffic (and BTW: the anonymous contributors work for Zillow, and they create endless fake usernames,) Zillow’s foot traffic comes from homeowners complaining about the unfair Zestimate that Zillow unfairly places on their home. On top of all that- you have the college kids along with other folks ONLY looking to rent.

    As far as a war goes? The real war will take place when Zillow investors finally realize Zillow can’t turn a profit, ever! And the reason why Zillow can’t turn a profit is because what they are selling is worthless…

  7. I appreciate the thoughts and ideas that you share here Rob but think that you seem to be glossing over the real and true main goal of the MLS systems in the US.

    Contrary to the tech centric view of the MLS as an advertising medium (which it does beautifully), it’s a business to business agreement system that allows for brokers to make an unconditional and unilateral offer to pay commission to any broker that is a member if they bring a buyer and close escrow.

    MLS’s don’t need to go to ‘war’ with Zillow because it’s a completely different audience with different needs and different goals. I’m a member of the local MLS so I can get paid if I bring a buyer to another listing. On the listing side, it’s the most efficient method of creating a widely seen advertisement to invite interested buyers to come and see the property and make a formal offer.

    Remove the MLS and you end up with a market that is very different. That goes to section E7 of the Danger report. If Zillow brings buyers to houses without any agent representation I can sell them my listings and pocket the entire listing commission, great. But that brings up all kinds of questions about who enforces accuracy of data, disclosures to the buying public, agency relationship to the sellers and buyers, and how to pay a commission to a co-broker without any enforcement mechanism.

    There is a place in this world for a nationwide, statewide or even regional MLS and that seems to be the general direction of things (at least in California). In addition, there is room for a company like Zillow (and any one else that wants to build a business) in selling advertising to realtors that are trying to either sell a property or build buyer leads.

    But do the end case of selling to agents trying to find buyers if there is no guarantee of a paid commission. Now all of a sudden they are selling impressions to Realtors that are not guaranteed to be paid if they help them find a house that is not listed on the MLS. And if you’ve worked internet leads at all or worked with millenial aged buyer clients, they are not generally comfortable signing buyer rep agreements to an agent they met by clicking on a checkbox and asking for more information about a listing that the agent isn’t affiliated with.

    • I appreciate your educating me on the real and true main purpose of the MLS….

      Kinda new to the blog, right? 😀 Well, welcome. Appreciate your perspective, Adam.

  8. Its “pie in the sky”, its a lotto ticket,but the price is $5000 per ticket instead of $1 for the lotto ticket,but this is how a free market works,I did business with Z when they first started and was the only Agent on the zip code,and it worked until they diluted my exposure with 200 other Agents,and it became an expensive lotto ticket,the way the internet marketing is evolving Z and nar ,mls’s, will soon disappear,their desperation is evident,without the crappy Agents (your words ) at the bottom subsidizing the “super” agents at the top, and they will leave unless they get results, the system will collapse.,the future is going to be fun, almost any Agent will soon be able to duplicate Z and nar ,mls’s, on the internet.

  9. I’m beginning to wonder if some of my commenters are automated bot scripts that scan for the word “Zillow” and then spits out something that bashes Zillow, whether that something has anything to do with the substance of what I actually wrote or not. 😀

    How to administer the Turing test on a comment system… hmm… 😀 Heh.

    • Start with a CAPTCHA in the reply form. Something tells me it will block a few of these responses. 🙂

  10. Another interesting post Rob. Zillow has built a trusted brand reputation as a destination portal, originally to find homes for sale.

    As the traffic builds, they are trying to protect the Z brand reputation from being harmed by the agents as the consumers are starting to actually buy homes and engage after 12-18 months of search.

    “Errol said that the bias is against agents who are non-responsive, not good at followup, not good at lead incubation, etc.”

    They understand that in the eyes of the consumer there will be no difference between portal or real estate company. They want to invest to deliver the best experience across the board from not only finding a home but also finding the most a professional agent.

    If the agent does not provide good service, it damages the Zillow brand. Hence heavy the investments in tools and this focus on top agents.

    As the consumer engages these agents, Z’s position & branding in eyes of the consumer will be that “Zillow agents” are the best. As Z premiere agents (ZPA’s) find of benefit from promoting Z affiliation, they will continue to promote that they are ZPA back to the consumer. Just like the gold jackets of c21 in past years.

    Z will throw a lot of money at that message with ads that state “Zillow premiere agents are the most responsive & do the most volume, etc, ala old re/max”.

    Eventually like, Uber in transportation, Airbnb in rooms, Amazon on products, it will become the largest business in its category without having the liability; cars, hotels / rooms or products… or in this case real estate agents and offices.

    Once Z is viewed as a real estate company w/ the best agents the end game to profitability will be in all on the ancillary services being packaged and offered via ZG owned… such as title, escrow, mortgage, etc.

    In the end, consumers are simply looking for someone to help them and will work with whoever is the most responsive and professional. Z just wants to protect its brand and make sure that happens with them.

    Agents can (& do) succeed with or without Z as long as they meet the consumer expectations of good, responsive service.

  11. Nice work here Rob, As always. The core issue of the masses of REALTORS is really all about the clash of a membership model v. a competitive brokerage model. There are different rules for both. Fiercely competitive brokers trying to unlevel the playing field while MLSs, NAR, State Associations and local Associations strive only to level it. These things serve the masses, do things for the masses, must treat the masses equally and strive to increase the mass. BTW love those membership business models like the NAR. Get paid in full by the end of each January even if no listings are taken and no sales are made by your members. Beautiful. Brokers on the other hand fight to provide unique offerings to agents that are different and better than other brokers. They must have sales and listings to survive. The issue of performance is real for the broker and the consumer and it is this fact that will ultimately cause the NAR house of cards to fall. Just think. If the NAR were the FAA all airline pilots would only need to pass ground school to fly a Boeing 777. No actual Pilot in Command experience required. Just get certified. Just like the highly successful (not) GRI, CRB, CRS, VHS and DVD certified REALTORS. Zillow’s well-intended “industry cleansing ad strategy” could one day be mirrored by a new professional association aligned with real performance standards in real estate. You know, something more than get a license, promise to play nice in the sandbox and oh yes, pay your annual dues. Would that make such an organization, The National Association of People Who Have Actually Done Real Estate Deals? Hope so, for the sake of the consumer and to the benefit of those who have actually done something – like taken lots of listings and made lots of sales – in this business. Onward.

    • Thanks Ken –

      So, how close are the brokers to moving away from the Masses strategy towards the Elites strategy, do you think? I haven’t yet seen any evidence that brokers are willing to reject the numbers and headcount based models, but you’re closer to their thinking than I am.

  12. Great read, Rob. Since I’m late to the game, I’ll just repeat my comments from the Facebook anthill you poked a stick in:

    A pivot in strategy for profitability’s sake is commendable for business purposes. Let’s please not pretend that its intention is anything else

    And yes, there are lots of other companies developing systems, training, and tools that improve agents’ ability to provide superior service. Kudos to Zillow on the intelligent strategy, but let’s save the humanitarian awards.

    • Thanks Sam –

      I suppose it all depends on whether “Raise the Bar” means anything with regards to masses of marginal agents (from the DANGER Report) or not.

      Those “lots of other companies” — how many marginal agents are they turning away?

  13. You know me well enough by now to know I agree with so much of your post. I think that it is interesting that NAR’s DANGER report cites the bad/unethical agents as a major, most important threat yet of course they rely on head count to fund their business. NAR and the associations – and many brokers – do not want us to thin the herd or weed out or misbehaving agents. Ethics is a joke. Brokers in too many cases worry more about keeping an agent on board to pay the fees than they do about straightening out a problem agent. I won’t cite examples here because that could turn into a very long reply. My AgentGenius blog post a few years back about a self-policing model that discourages “narcs” says it all.

    So if NAR itself says that bad/unethical/unprofessional agents are a major threat, and yet their very existence (and those of the associations and brokerages that count on income per head) relies on keeping a million plus dues paying members, what is the solution here?

    I don’t buy it that all Zillow leads suck. I pay for zipcodes and buy premier status for my agents and buy them zipcodes as well. It works for me. Yes some leads are either far out in the timeline (so require nurturing) or are dreamers (sell me a million dollar house for a fraction of the price, and no I am not prequalified). I get that. But that is not ALL the traffic. It takes work to qualify a lead and find out what they want, set them up on searches, answer their questions. Maybe it takes 6 or 12 months of grooming and nurturing.

    And sometimes it takes no more than “Answer your freaking phone.” Agents diss Zillow and their “junk” leads. They are no worse than the guy who calls off a sign who is sitting in the driveway asking the price, who may or may not be qualified, and who expects you to answer the phone right now to meet his needs. The Zillow haters will hate. Those of us who spend money and know how to work the leads and – answer our phones – will benefit.

    I am on NAR national committees. I teach real estate licensing and continuing ed. I run a brokerage. I am on the ground with my agents, working leads and know how hard it is right now to be in this business. I would be thrilled if the herd was thinned and we got rid or the worst of our tribe – those who give us a bad name, who don’t answer the phone, who are unethical and unprofessional. I would gladly pay higher NAR and state and local dues to get rid of the hobbyists and part timers who sell 2 or 6 homes a year. Maybe I’m in Zillow’s target top producer list. I don’t care – if this is a war then I am afraid I will land on the Z side – against those who want “equal status for all dues payers.” Do your job, do it well, and you will profit. Treat it like a business. If Zillow produces a positive ROI, pay for it. If you don’t want to out of “zillow hater” mentality, so be it. Go check out those old print MLS books to see how they’re doing these days and run a few open houses. Those who do recognize the benefits to advertising with zillow – and in PICKING UP THEIR PHONES – will still be standing when the dust settles.

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