Is Zillow Stupid? Or…

Is the Real Estate Industry Lying to Itself?

Zillow and News Corp each have $1 billion invested in the concept that there are soon to be enough home buyer and seller leads on the internet that they will make a substantial yearly profit from their investments. Yet NAR, representing the mindset of the real estate industry, says 500% more buyer leads come from referrals and prior business dealings than websites. Whoever is right in predicting where leads will come from in the near future will determine who controls the marketplace.

In a previous Inman article Gary Keller discussed NAR’s 2015 home seller and buyer survey stating that 53% of home buyer leads come from direct referrals or the buyer having done prior business with the agent. This same survey also states that only 10% of buyer leads come from a website. According to the NAR survey home seller leads from websites are just plain bleak, coming in at 4%, while direct referrals and prior business dealings create 66% of business for brokers—over 1,600 percent greater business.

Why then the multi-billion dollar investments from some of the smartest business people on the planet? Why each month do more and more brokers pony up thousands of dollars in fees and claim 400% plus return on their investment in closed deals from the portals? Both the portals and this subset of productive brokers are stupid or the industry is lying to itself about where leads are truly coming from.

Assuming ZG controls half of these internet leads, or only 5% of total buyer leads in the marketplace, are they stupid for their investment? Or do Spencer Rascoff and Rupert Murdoch see something the industry doesn’t? Would the largest franchises in the real estate industry drop $1 billion each for 5% of home buyer leads?

Yet the public can’t stay away from ZG with 59 million unique visits per month. The only broker related sites in the top ten are Redfin at 6M and Re/Max at 1.8M. (As a note, Re/Max’s internet visits have grown since they instituted an AVM licensed from a third party company—perhaps taking a lesson from ZG’s results.)

What does ZG offer that buyers and sellers prefer to get there than brokers’ own sites?

ZG offers home information nationally, but buyers and sellers mostly are interested in very hyperlocal information. Theoretically brokers’ sites should do this better. But ZG has the name, the URL, and the budget to out gun every broker, brokerage, and franchise in order to be foremost in the market’s immediate memory and on the top results when they search using local terms. ZG wins here with money.

Is ZG’s spending an investment in the future or a stupid waste of cash? Would the largest franchises be willing to run in the red financially for a decade to dominate leads for their brokers at the internet level?

Honestly the only true innovation ZG offers is an instant valuation and some fairly in-depth market information. Brokers’ own sites could beat them on both counts locally but they refuse to spend a lot of money investing in their future. ZG wins here because of guts relative to those of the industry incumbents. Dominating a market entails great risk. There are no risk takers in the brokerage industry. No one is willing to lay everything— everything on the line for a shot at dominating the market.

If you have only a very few companies investing in the future then who is more likely to own the future, those who invest and take the risk or those who do not? Would the total technology spend by all major franchises combined compete with the billions spent by ZG and News Corp? If not then we certainly have a distinct line of demarcation: those betting on the internet and those not.

Who’s going to be proven right in the marketplace: boots-on-the-ground brokers or ZG and News Corp? If handshakes and door knocks are where leads come from then ZG and Move are out of business. But what happens if the market chooses a different channel of distribution for researching and hiring brokers? This whole internet thing does not seem to be waning.

As a broker if you were being sued and no one referred an attorney to you, or you thought the referred attorney was a schmuck or too expensive, where would you turn to research another one? Sellers and buyers aren’t doing real estate transactions very often and their mindset is perhaps at the same level of intensity as you being sued. It’s pretty convenient to google up some data to learn about what they are facing. Did I say Google? Sorry, I meant Zillow-up some data to learn about what they are facing.

For those not betting on the internet let’s check our math. Only 12% of buyers used an agent they previously did business with. Meaning that regardless of “intentions” captured in the survey, a lot of home buyers don’t use the same agent twice. They are finding brokers somewhere to help them buy a home. Where do you think they look?

Another part of the calculus is that when 41% of buyer agents receive business from a direct referral that does not mean the person referring the broker didn’t originally find them on a website. So be careful about assumptions and survey bias by design.

Home sellers claim 42% of the time they were referred to the agent, so the same caution holds here as for the paragraph above; where were those agents originally found? Then per NAR 24% of sellers hired the same agent to buy or sell their next home. Statistically this could mean 76% dissatisfaction with their previous broker or the process. (Yes, I’m using a little hyperbole to emphasize how bias can contort the assumed meaning of surveys.) Nonetheless, 76% of the time the same agent was not used twice.

If you at the slightest level are considering dipping your toe onto the “internet” side of the future, then also consider this: as an industry brokers will not take on ZG and Move at the national level. You will fail and embarrass yourselves miserably just as Realogy did.

You have to attack the market at the hyperlocal level via the internet. Your goal is to use the profits from knocking doors and shaking hands to fund your future on the internet. You are looking at great short-term financial sacrifice to build your future. And if the solution you propose comes from an automated IDX style theme where you pick your colors and tell them where your headshot goes you are doomed.

Investing in local control of the internet is hardcore; it’s all or nothing. Most will not have the guts to accomplish this. So shake a lot of hands over the next five years and then go to trade school to learn programming. I hear that Zillow is hiring.

Comments

  1. says

    Wow!! How can you continue to have such foresight and the “Big Boys” don’t? I am 64 years old and can see the innovation of this and other industries that is driving the future, but I am so perplexed at why our National did not see this coming and then not take early proactive steps to get in the game early. Sad testament to what we pay or dues for and why we should continue?
    I’m waiting for Zillow to make a “Offer that that can;t be refused” to Gary Keller & complete the merger cycle to go National Brokerage model……
    SSSSSS did you here that???? That’s the sound of national collective mourning !!

    Keep up the great work, it will bear fruit!

    • Demon of Marketing says

      Hi Kenneth, thanks for the kind comments. In response to your “why didn’t the industry see…”, you should get the book “The Innovator’s Dilemma” by Clayton Christensen. It will really help you to grasp why and how innovations happen and disrupt industry leaders. After you read and highlight the important stuff mail it to the industry leader of your choosing. Thanks Again!

  2. Sue Thiel says

    Great Article, always great insight to this issue. I look forward to hearing your thoughts on what should be done at the local level…

    • Demon of Marketing says

      Thanks Sue, yea…I look forward to hearing my thoughts too–I just need to have one some day

    • Demon of Marketing says

      Thanks Richard. I’ve got some near future articles which I hope will explain what the industry should do at the very local level. The national portal deal has long since sailed and they should not spend their time, money, and effort in that direction.

      • Richard says

        You are one of the very few in real estate that sees the emperor has no clothes on.

        I always look forward to your insights and opinions.

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