If you thought Zillow was taking over, now we’re adding CoStar to the list.
A little background on CoStar. CoStar is a publicly-traded real estate technology firm. They mostly focus on the commercial side of the business and first entered the residential side of the business with Apartments.com going toe-to-toe with Zillow in the rental market.
CoStar CEO Andy Florance made a comment during an interview with Brad Inman about Zillow’s business model of selling ads on listings is “unethical”. And now, CoStar is making waves.
After CoStar bought Homesnap, it was quiet. Until April 14th when CoStar bought homes.com for $156M CASH. Andy initially bought Homesnap for the data and bought homes.com because the technology is already built. Comparing the two real estate giants, Zillow sees its iBuying business as the future of the company, while CoStar is focused on the information and analytical side of the real estate business.
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Why not Realtor.com?
Some people are wondering why CoStar didn’t buy Realtor.com. Speculating, this might be because Realtor.com is #2 as far as the number of visits with 35-40 million visits per month whereas homes.com with 5 million visits a month. Zillow leads the bunch with 200 million+ visits a month. So it’s clear, CoStar needs an advertising platform. They’re buying relationships with REALTORS®. Homesnap had some relationships which positioned them as a mobile technology platform whereas homes.com is a desktop platform.
One of the reasons why CoStar is getting into the residential space as they are is because of the flurry of lawsuits coming out about transparency and commissions. CoStar is thinking there may be significant changes with the data so they’re positioning themselves in an Agent-friendly way.
Then there’s the pressure on IDX. Spencer Rascoff, the former CEO of Zillow, came out and said in a podcast interview with Rob Hahn that if Zillow is unethical then IDX is unethical. This CoStar deal comes in at a time of a lot of heat happening in the industry. This is the formation that’s going to control the next 5-10 years. This is why we came out with Real Estate Leopard so we CAN have a voice as our voice right now isn’t loud enough.
CoStar isn’t only focused on Realtors. They’re after the consumer.
Realtor.com then supports NAR because that’s their brand – REALTOR®. This begs the question, is Andy (and CoStar) only going to offer services to NAR members or to non-members as well? It’s likely he’s simply looking to cast the net wide to reach as many Agents as he can.
If CoStar also provides contracts this might take away the biggest advantage of being a member of NAR. CoStar IS the commercial version of MLS. The challenge with MLS (as a whole) is the heritage and how dated the platform is. CoStar bought homes.com and Homesnap because of the advertising platform on the website and the app. But the assumption is the long-term vision is to be a competitor on the MLS. And who wants to go to two MLS’s?
Is the purchase of Homes.com forcing agents to step up their game?
CoStar’s current business practice is not a direct-to-consumer approach. Currently, consumers can list their homes on sites such Zillow or ForSalebyOwner.com, or they can pay in order to get their property on MLS. But, we STILL have business despite how easy it is for owners to list properties on MLS.
Our whole point is to try and make sure that Elite Agents and Teams have a voice in the industry for this very reason! This is why Real Estate Leopard just today applied to be a part of the Council of MLS.
What a good time for CoStar to come in with all the lawsuits going on in the market. They can offer no compensation. They have a database in commercial and now they want a database in residential. They make their money off of advertising dollars. As an Agent, we pay them a fee each month to access their database. The challenge in our industry is that 95% of Agents do less than 10 transactions a year. So the quality of the data is poor. CoStar is in an industry with a lot fewer commercial Agents. They also control the data, not the Agent. As CoStar a dominant force, maybe they’re the ones to control the Agent count.
Under the current rules of NAR is that if we market a property, it has to be in the MLS. So, Andy can’t make exclusive content on CoStar while we’re members of NAR because it has to be on the MLS as well. This is how we know that the advertising is the first thing that will come out. By buying homes.com they’re picking up the relationships of 500K realtors that pay them a fee of some sort.
The effect on marketing platforms
If you didn’t advertise your listing on Zillow, Trulia, Realtor.com, and Redfin, would you still use IDX? Would you feel like you’re representing your seller well if you opted out of listing on any of these platforms? What if in order to get your listings on those sites you had to manually add them instead of them being syndicated through the MLS? Would you take the time to add your listing individually to each? It would hurt the consumer if you didn’t as a single practitioner, but what if ALL the agents stopped at one time? That then warrants the question of what are you replacing it with? How will you do direct-to-consumer marketing?
The Elite Agents around the US are the top 5% and have 50% of the listings. If 50% of the supply said they didn’t want to participate, then the consumer would find those houses. A person cares more about where they’re going to live vs. the site they found it on. How many times have you worked with a buyer and they said “I bought the house without you because I HAD to buy it without you”? This happens to all of us unless you have a buyer-broker agreement. Because the industry has taught us we don’t need a buyer-broker agreement, which is soon changing. We discussed this during last week’s podcast in more detail, but we now have to learn to do buyer-broker agreements because the compensation on the buy-side is going to change. The buyer is going to go wherever the house it at the end of the day. The site will no longer matter.
In the end, the consumer is the person that’s going to drive where the marketing takes place. We need to educate the consumer on where to go, but only if we band together. The world of real estate is broken up by brokers. There are 5,600 different brokers in Arizona alone and everyone acts differently. This isn’t bad per se. We’re here trying to create an environment that pro-consumers because otherwise, this creates extra costs for consumers. We can get people to come through us directly if WE, as Elite Agents, put it all in one place together as we stand together as we fight against the big conglomerates.
What’s changed and what can we do?
What’s changed is that when the MLS model was created, the brokerage model was different than what it is today. The brokerage model wasn’t 5,000 agent brokers, it was 5 agent brokerages. It was much smaller with boutique brokerages that were closer to the consumer. When the MLS’s came on board and when laws were written at the state level and brokers were built a certain way, brokers have changed. This has allowed teams to create 100 agents. Teams now are what a broker used to look like, which is a boutique brokerage inside a bigger umbrella. However, the state regulators and MLS haven’t updated to recognize teams yet. Because this model has changed, it very well can change again.
What is clearly happening and why we want more people to pay attention is that what’s going to be decided in the next 20-25 years is going to be determined in the next few years. This is why we need to band together so that we, the agents that are closer to the consumers, can once again have a voice in regulations at the state and MLS level.