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Redfin to Overtake Realtor.com by 2020?

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I’ve been extraordinarily busy due to a bunch of deadlines for a couple of projects. That isn’t an excuse, or an apology, but a setup since it was research for one of those projects that leads to this post.

Let’s not bury the lede:

On current trends, Redfin will overtake Realtor.com as the second most trafficked real estate website in the U.S. by 2020.

Should that become reality, it will have all sorts of interesting consequences for those three companies, as well as the industry as a whole.

Shall we?

Zillow vs. Realtor vs. Redfin

Let’s begin by noting that the whole “monthly unique users” thing is a terrible metric, except for the fact that it’s the only thing we have. Let’s also begin by noting that these numbers are based on the companies’ internal metrics; there is no third party validation. Once again, that’s terrible, except for the fact that it’s the only thing we’ve got.

In their respective Q3/2017 earnings reports (Realtor.com reporting under News Corp, which is the parent company of Move, and has a non-calendar fiscal year), the three web giants reported their traffic numbers.

  • Zillow reported average monthly uniques of 175 million, up 6.7% YOY from 141 million in Q3/2016.
  • Realtor.com reported average monthly uniques of 55 million, up 3.8% from 53 million in Q3/2016.
  • Redfin reported average monthly uniques of 24 million, up 38% from Q3/2016.

Since Redfin is starting from a far lower base than either Zillow or Realtor.com, it’s huge growth looks far more impressive than it is. So what about raw numbers?

  • Zillow: Up 9 million uniques
  • Realtor.com: Up 2 million uniques
  • Redfin: Up 7 million uniques

That’s… more impressive. Redfin added almost as many unique users from Q3/2016 to Q3/2017 as did Zillow. In contrast, Realtor.com is way, way behind both of them.

So what happens if the three websites maintain that growth rate?

 201820192020
Zillow186,737,805199,262,902 212,628,096
Realtor57,075,47259,229,26361,464,330
Redfin33,780,968 46,543,511 64,127,777

If the three companies maintain their growth rate from 2016 to 2017 for the next three years, Redfin overtakes Realtor.com as the second largest real estate website in the U.S. by 2020.

Caveats

First, one year is not a “trend”. In fact, two years are not a “trend”. But it’s something to look at, cuz it’s interesting.

I can say that Realtor.com grew 15.2% from Q3/2015 to Q/32016, from 46 million to 53 million. That is robust indeed. The same period, Zillow grew 16.3%, from 141 million to 164 million, which is mucho robusto. Redfin, in the same timeframe, grew by 36.3% from 13 million to 17.8 million.

But while Zillow and Realtor.com both slowed down in 2016-2017, with Zillow’s growth rate down to 6.7% and Realtor.com’s down to 3.8%, Redfin maintained its 37.8% YOY growth. Granted, Redfin is starting with smaller bases, but again, in raw numbers, it’s a lot as well.

Second, assuming that one year’s growth rate would hold steady over three years is likely foolish. All three companies are going to do stuff to increase the traffic to their websites. Or fail miserably to increase traffic. Could Zillow stumble, while Realtor.com sees huge success from some TV ad? Could Redfin zoom ahead with some cool new technology it releases?

Who knows. This is a blogpost after all, not a well funded research project that would maybe let me really dig in.

So What If Redfin is Number Two?

Let’s suppose for the sake of fun and games that Redfin does overtake Realtor.com as the #2 website in real estate. So what?

Well, first of all, the Redfin dynamic means that more it grows, more the other two suffer. We already know that Redfin does not syndicate for obvious reasons. We also know that more traffic to Redfin translates to more business. What some people don’t know is that traffic to Redfin these days is translating more and more to listings business instead of buyer business.

From Redfin’s Q3 Earnings Report Transcript:

Glenn Kelman

We don’t speak specifically to that mix. In general, the listing business is growing faster, and our goal is to be at an equilibrium for a long time. We’ve had far more buyers than sellers because we’ve built a real estate search site for buyers, but the strategic advantages of listing homes are numerous. It gives us more leverage over other websites and it really lets us serve our buyers better when we also have our own homes for sale. So we will continue to drive listing share as a financial lever, but also as a market lever. [emphasis added]

Other brokerages who also hate Zillow and doesn’t want to syndicate do not have the number two website by traffic; Redfin does. They can much more easily tell their clients that they won’t syndicate to Zillow or Realtor, because they have the second highest trafficked website in the country.

Which means that as Redfin grows traffic, Redfin grows its listings, which means fewer listings for Zillow and Realtor.com, which means lower traffic for them, which means more traffic for Redfin, which means more listings, which means… You get the idea. That’s a virtuous cycle that Redfin would looooove to get into.

It also means lower ROI for Zillow and Realtor customers — those agents who are paying for leads. Which likely means pricing pressure, at least in some markets, since Premier Agent spend isn’t returning as much as it once did.

[Update: Please see Glenn Kelman’s comment below about syndication.]

Don’t Be Too Thrilled, Now

I can hear the cheering going on in the Zaterade section of the real estate web. But don’t be too excited just yet.

You see, one of the reasons why Redfin’s listings business is growing faster is its 1% listing commission offer. When Redfin has ~1.66% market share, it’s a big shrug. When does it stop being a big shrug? At 40% market share? 30%? Whatever that threshold is, Redfin has a much better chance of reaching it if it’s doing 63 million monthly uniques than if it is doing 24 million.

This is one of those key differences between Zillow, Realtor.com, and Redfin. The former just sell leads to agents; none of them have much of an incentive to go start offering lower listing fees. Redfin has done it, and will continue do it, to capture market share. One puts zero pressure, and the other puts serious pressure, on your commissions.

This is something that some analysts bearish on Redfin miss. They tut-tut the 1% fee thing, saying that puts pressure on Redfin’s margins. They miss the fact that it puts pressure on everybody else’s margins too, if Redfin gets sufficient market share. Sure, maybe that means Redfin will be valued more like a real estate brokerage than a tech company. Doesn’t change the fact that every other brokerage will have to do something about it.

Of course, other brokerages aren’t setup to compete on low cost, like Redfin is, so there’s that. They’re not generating 36% margins like Redfin is, since they’re giving away 80-100% of the GCI to agents who grow steadily more powerful and steadily less needy of their brokers.

So if you’re Realogy, HomeServices, Howard Hanna, or any of the other Biggest of the Big Brokers (think Top 20 in the country)… and your website isn’t even a real player, what exactly do you do? What’s your gambit? Not even your own agents believe this “our website generates thousands of leads” propaganda today; how will it be when the #2 website is one that doesn’t sell buyer leads to Premier Agents?

In Case You Missed It

By the way, why is traffic such a big deal for Redfin?

If you’re asking that, you probably missed this post in which I explain the relationship between Redfin’s traffic and revenues. Feel free to read the whole thing, but let me summarize here for the TL;DR crowd.

There is a clear relationship between traffic and revenues for Redfin. Back in 2009, he posted a slide during a talk showing $38,170 in revenue per 100,000 unique visitors. That’s how they think of revenues: directly related to traffic.

Further, if you look at the Key Statistics that Redfin offers, there is (probably) a strong correlation between its website traffic and revenues (it’s 0.88, which is pretty damn strong, but if someone wants to do real stats and math, let me know.) And Redfin’s average revenue per 100,000 uniques over the past two years (from Q3/2015 to Q3/2017) is not $38,170, since it’s gotten better at converting the traffic. The average revenue per 100,000 users is $131,651 over the past 9 quarters.

So doing some simple math, we get this for Redfin’s annual revenues if it continues to grow at its current rate and overtake Realtor.com:

  • 2018: $533.7 million
  • 2019: $735.3 million
  • 2020: $1,013.1 million

That’s right. If those numbers hold (they won’t, but if nothing major changes, I don’t think it’ll be that far off), Redfin might be making a billion dollars in revenue by 2020 when it overtakes Realtor.com. That would put it at about 1/4 of what Realogy’s NRT does every year.

Every single one of those transactions has to come from somewhere, because real estate is a zero sum game. You know who they’re not going to take those transactions from? Zillow. Realtor.com. But Realogy? HomeServices? Your local Re/Max office? Well, who knows… but those transactions have to come from somewhere.

Conclusion

There is and can be no conclusion here. I’m just having fun with numbers and speculating based on bad assumptions. I know there are lots of reasons why the above can’t happen, won’t happen.

Or are there? Seems to me that barring some unforeseen circumstance (some new law, regulation, economy tanking, some Harvey Weinstein type of thing, etc.), Redfin’s traffic growth is likely to continue. Given the strong correlation between traffic and revenue, Redfin’s revenue is likely to grow as well. Unless something happens to create a real divergence between the two, seems like that’s the future — maybe not in 2020, but at some point and in the not-too-distant future.

Final question: Maybe Zillow can afford 7% YOY growth, since it’s starting with 175 million monthly uniques. Can Realtor.com really afford 3.8% YOY growth? With the money and power and name of News Corp behind it?

Your guess is as good as mine.

-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.

24 COMMENTS

  1. Reforming Zater here. Great points on where the real pressure will come from. Redfin continues to stay below the radar and when they finally pop up, I’ll point people to this article.

    That said…

    This is a bit like an article comparing dragon vs unicorn population growth over the next 3 years. The Z numbers are utter BS. (I said reforming, not reformed)

    When compared to that portion of the US population that would be looking at homes (over 18, under 75) we’re expected to believe that around 2 out of 3 people are swiping through Zillow every month…and more people are joining in every quarter?

    Every time I see these numbers being used I feel the need to point out that the Zemperor has no clothes…or not as many as they claim.

    You may now admonish and castigate at will.

  2. Rob comparing Redfin to the other media portals is a bit of an “apple and oranges” scenario. I say this with regard to the source of the listing data being displayed on the sites – the basis for the core of their current existence. And therein is the true determinate as to whether Redfin.com continues to grow or even exists in the future. Here is why. Realtor.com now provides a listing broker opt-out and all the other third party portals have secured the listing broker’s opt-in in order to display their listings. On the other hand, Redfin.com now uses an IDX / VOW feed strategy to populate the display of listings on its site. This display of listings is currently being “propped-up” by the MLS industry without regard for a permission-based firewall for the listing broker. Both the portals and Redfin are totally dependent on the continuance of the MLS for listing feeds but only one has secured permission from the rightful owner of the data. In other words, the portals have permission to “leverage” the listing broker’s data as a third party whereas, the listing brokers are now being forced through mandated cooperation and compensation and the leverage of IDX and VOW feeds that allows Redfin.com to exist. What if permission to display listings was required from all listing brokers for all MLS feeds to any third parties – including brokerages? Would listing brokers agree to feed Redfin their listings to display if they had a choice? I believe that there is a shift happening now that will have a direct impact on your prediction. And it has to do with the productive brokers that actually have listings continuing to tolerate this historical State of “resentful bondage” created by the failed MLS industry’s policies and rules. Or not. It’s time that the productive segment of the brokerage industry – those that have listings – have a bigger and louder voice over the masses of non-productive Realtors that are MLS members but they bring nothing to the “MLS table” but a “fork” – otherwise known as their never-ending quest to leverage listing display to get buyers. But as is the case with all things that are evolving, time will tell.

    • Well, you know I have been saying for years that there is no difference between syndication and IDX. What you’re proposing is that brokers will pull out of IDX. Sure, that could happen. Won’t hurt Redfin too much, though, since they have — as you point out — VOW access as a full participant in the MLS.

      Now, the NAR-DOJ Consent Decree expires next year. Does that mean that the MLS and brokers can go back to discriminating against Redfin? Maybe. Is the Trump DoJ somehow far less interested in anti-trust enforcement than the Bush DoJ? Maybe.

      But leave that aside for a moment. Are you saying that big brokers will pull out of IDX, which then removes the ability for them to use IDX on their (and their agents’) websites. I honestly don’t see that happening, Ken. In most markets, even the largest brokers control maybe 20-30% market share. Are they really going to leave 80% of the listings off of their IDX websites? Or tell their agents that they can’t have 80% of the listings? If they did, how quickly would agents jump ship to some other broker who is still participating in IDX?

      I just don’t see that happening, but maybe. Stranger things have happened after all.

      • Come on Rob, think bigger. Like this. Listing brokers of size pulling out of the MLS as they realize that they are fully capable of selling their own products (listings) rather than contributing them to an environment populated by non-productive MLS members for a 60% revenue haircut. Non-productive MLS members contribute zero to the efforts of productive listing brokers. And they irritate the consumer who would much rather deal with a buyer’s agent from the company that has the listing than work with some disassociated buyer’s agent that knows nothing about the product (the listing). Nothing new here, just a trend toward the residential real estate brokerage industry catching up with the way the rest of the business world – as in every other business – does business.

  3. Howdy. Just wanted to follow up on your comment “We already know that Redfin does not syndicate for obvious reasons.” I did a quick check and most Redfin exclusives also listed for sale on Zillow in multiple markets across the U.S. (Portland, Boston, Dallas, etc)

    I did not find Redfin listings on for sale on Zillow in Charlotte or Seattle though. Curious what their current syndication strategy is and if it’s applied at a market level and for what reasons.

      • What I find interesting is that most Redfin agents don’t have a profile on Zillow and even when they do most of them contain 0 reviews. It appears Redfin is not using Zillow for unaffiliated buyer acquisitions because they’re probably able to do it cheaper, while still gaining exposure for selling their listings.

  4. Seems the big question on growth is — what are Realtor and Redfin going to invest in growing? Are they going to acquire traffic? Will they acquire domains with longstanding SEO? Will Redfin go deeper in rentals (no doubt a big chunk of Zillow’s and Realtor’s traffic)?

    I wonder, who is buying up all the domains of all the agent who leave the business every year? Seems like a decent seo strategy, if they had a way to identify them.

    • Good questions all, Drew. I obviously have no idea; I assume the bigwigs at all those companies have plans and such.

      One thing I will point out is that Redfin can grow traffic simply by entering new markets. They’re only 37 states, and in many of those areas, they offer very little (just search in some cases). They have some issues with that, but looks like they’re working on it from what Glenn said during the Q3 call.

      • Agreed on the entering new markets leading to more traffic. They do need to invest in SEO/marketing for each new area, though they have a lot of built in advantages in terms of existing SEO power & a marketing/pr machine able to spin up buzz quicker than most.

      • I can’t see acquiring other domains that have had historically good traffic as a long-term SEO strategy. Those domains have authority and rank based on the efforts to build up those pages. Acquiring those sites and simply redirecting them to Redfin/Realtor will have short term effects at best. Acquiring those sites and maintaining them (like Zilllow did with StreetEasy) is much more viable however you need people to do that and you have to coordinate with those people.

        In terms of growth, I think Redfin has the advantage since, like Rob said, they can simply enter into many of the markets that they don’t exist in yet. It will really come down to who is bringing more value to the consumer and I think Redfin is a lot more like Zillow than Realtor. This whole situation heavily favors Redfin and I wouldn’t be surprised in the least to see Zillow put in a bid to acquire them within a year.

  5. Welcome back ROB!

    From my spot I see 3 Media companies. One, however, gets down and dirty into the deal by pursuing commissions. We know the horse is out of the barn as far as listing exposure to consumers, so the media component is done…..on to the brokerage side.

    So, for those in the deal business we have to wonder just how big will Redfin get and how long will it take them to get there.

    I’ve had a recent business experience with Redfin (the Company) and my take away from that is that Redfin’s problem won’t be traffic, it will be their people, the agents. They can have all the traffic in the world but if they can’t execute in scale, they’re media persona will outperform their transaction capabilities (which isn’t a bad thing, unless there isn’t a media revenue model).

    I think we need to remind ourselves that there is no salary a high producing agent would accept or that could compete with their commission pay, so IMO, the most profitable markets will be more difficult for Redfin to penetrate leaving the high ticket markets for the competition…kinda the opposite of Compass.

    IMO, of the three, Redfin undoubtedly has the advantage, a media and brokerage opportunity. The big hurt put on the brokerage business may be when they change from salaried employees to commissioned powerhouse agents? Who knows, maybe their traffic will drive so many leads that even the top agents will make the move over…maybe these agents will even give up some of their share if the company is providing a cash machine.

    #realestateisstilllocal πŸ™‚

    • You’re exactly right. The problem isn’t traffic; it’s monetizing that traffic, which means agents for Redfin. Glenn talked about that in his conference call. It’s worth reading the transcript in full if you’re interested in what they’re up to. πŸ™‚

  6. Great article here, definitely food for thought. One comment I have. Real estate is not necessarily a zero sum game if you can make it more efficient to buy or sell a home – the overall number of buyers/sellers in a marketplace could certainly be positively correlated with the ease and simplicity of the transaction itself. Think about stock market trading – when electronic trading came into play, the trade volumes increased significantly. Real estate obviously cannot be compared apples-to-appples to a stock for so many reasons that I don’t even need to list them, but I am sure we can all agree that there are great inefficiencies within the sale process today that leave plenty of room for improvement.

  7. I don’t know about uniques versus income, but if Redfin has a market share, longer term it can mean a drop in commissions. BecUse that what Redfin is all about.

  8. I can’t comment on the speculation about Redfin’s prospects, but we don’t hate Zillow. We syndicate listings to Zillow wherever an MLS deal is in place. We’re an advocate for every MLS to syndicate listings to Zillow, asking only that the listing agent is treated fairly. Gaining listing share gives us standing to modernize IDX, which we believe will make all brokerage websites better.

  9. The Zillow published Q3 number of175M Monthly Unique Users (MUU’s) should really be called ‘Made Up Users’ based on the method of computation described in Zillows SEC Form 10-Q Filing for Q3 which defines Unique Users as:-

    “Measuring unique users is important to us because our marketplace revenue depends in part on our ability to enable real estate, rental and mortgage professionals to connect with our users, and our display revenue depends in part on the number of impressions delivered to our users. Growth in consumer traffic to our mobile applications and websites increases the number of impressions and clicks we can monetize in our marketplace and display revenue categories. In addition, our community of users improves the quality of our living database of homes with their contributions, which in turn attracts more users.

    We count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month. If an individual accesses our mobile applications using different mobile devices within a given month, the first instance of access by each such mobile device is counted as a separate unique user. If an individual accesses more than one of our mobile applications within a given month, the first access to each mobile application is counted as a separate unique user. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites in a single month, the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain. Zillow, StreetEasy, HotPads, Naked Apartments and RealEstate.com (as of June 2017) measure unique users with Google Analytics, and Trulia measures unique users with Adobe Analytics (formerly called Omniture analytical tools).”

    With Comscore showing Zillow Users in the 75M to 80M range you can understand why Zillows methodology is fundamentally flawed and basically is duplicating most Users and perhaps the SEC should take issue with Zillow for such misleading information to Investors when they describe it as a “Key Metric” in the SEC Filings.

  10. […] Again, just for the sake of comparison, Zillow grew its traffic by 6% YOY and Realtor.com grew its traffic by 3.8% YOY. Even taking into account the far larger bases of Zillow and Realtor, that’s serious growth. The raw numbers tell a story as well: 9 million uniques for Zillow, 2 million for Realtor, and 7 million for Redfin. At this pace, Redfin will overtake Realtor.com as the second largest website by 2020. […]

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