Redfin, EXP Realty and Zillow: Is there room for everybody? - News

[ Redfin, EXP Realty and Zillow: Is there room for everybody? ]

While Redfin, Zillow and EXP realty have all been around for over a decade (Redfin est. 2004, EXP Realty est. 2002 and Zillow Group est. 2004) the technology and disruption they present to the traditional real estate sale has been gaining steam recently. These companies are all disrupting the homebuying and selling process in different ways, but is there room for more than one victor in the battle for how we buy and sell homes? To get an idea of where the field is headed, we should start with what these companies aim to achieve. Zillow When Zillow was established in 2004, information regarding homes for sale i.e. square footage, price, etc., was kept very closely guarded by real estate agents in the form of the MLS or Multiple Listing Service. Generally the information was sequestered locally and there wasn’t an easy way to search out comparable homes, etc. unless you had a real estate license and were given access to the local MLS. Thus real estate agents were the guardians of this information and were able to use it to justify the 6%+ commissions that were common at the time. Zillow’s aim was to make this information more readily available to consumers, allowing homebuyers and sellers to search out the information for themselves. This naturally created tension between the National Association of Realtors (NAR) who would prefer to keep the information to themselves, and with Zillow, who was trying to democratize it. While Zillow still operates within the traditional way of buying and selling homes with a real estate using a buyer’s side commission and seller’s side commission, the free-flow of information that it has unleashed have started to erode the assumption that 6% is a fair fee to sell a home. This struggle culminated in the 2008 landmark settlement of the case of the US Justice Department versus NAR in 2008, which stated that the NAR could not discriminate between technology brokerages (such as Zillow and Redfin) and established brick and mortar brokerages with it’s release of housing data. Redfin The goal of Redfin has always been to disrupt the real estate industry by focusing on the consumer, homebuyers and sellers, rather than real estate agents themselves. Redfin challenged the notion that a 6% commission (3% for the buyer’s agent and 3% for the seller’s agent) was a reasonable amount to pay to sell a home. Originally Redfin focused on homebuyers by offering them rebates on the 3% fee that was charged to the seller. Before Redfin, many homebuyers were unaware that their agents were being paid a 3% commission on the cost of their house. By doing this, Redfin angered the NAR who saw this as an attack on their 3% commissions. The model that Redfin deployed to be able to give back fees to the consumer, was to employ agents as employees rather than as independent contractors who only make money on sales. By paying agents a salary, they were able to get more sales per agent, and could make less money on each one. Eventually Redfin started courting home sellers as well, with an aggressive marketing campaign promoting their 1% listing service. This downward price pressure on both home buying and selling commissions has also angered the National Association of Realtors. The average commission for real estate agents per sale has been slowly decreasing for years now. However, while Redfin is causing downward pressure on the commission real estate agents are able to charge per transaction, they largely operate within the framework of traditional brokerages, just at a lower price. EXP Realty EXP Realty’s main pitch is that they are a brokerage that does not operate any brick and mortar offices, they do all of their business virtually, in the cloud. They have branded themselves the cloud-based brokerage. By doing this, they are able to charge lower commission splits from their agents, making them more attractive to individual agents. Thus, EXP Realty is leveraging cost savings from technology in order to attract more agents with higher commissions/sale than other long standing brokerage firms. EXP is also a publicly traded company, EXPI on the NASDAQ, and they offer stock to agents for completing sales, achieving certain milestones, etc, which also allows them to recruit agents quickly. Similar to Redfin and Zillow, they currently operate within the traditional manner of buying and selling homes, and their main disruption is the downward pressure on commission splits that individual agents have to pay to the brokerage that sponsors them. Where do we go from here? In the battle for market share, it seems that real estate technology companies are gaining ground on the long standing brick and mortar brokerages. All three companies, Redfin, Zillow and EXP Realty have changed the services they offer as they have grown, making it difficult to pinpoint one long term winner over the others. Redfin and EXP have always employed agents directly, however Zillow traditionally did not. Recently however, Zillow has announced that in order to facilitate it’s foray into ibuying, they will be hiring real estate agents of their own. The recent introduction of ibuyers into real estate has thrown a new variable into the equation. ibuying is when companies buy homes directly from home sellers, rather than facilitating a sale between homebuyer and seller. This practice has been gaining steam in the past few years and will certainly change the trajectory of home sales going forward.