Real Estate

How a Zillow-Trulia Merger Could Finally Change the Business of Real Estate


How a Zillow-Trulia Merger Could Finally Change the Business of Real Estate

Photograph by Andrew Harrer/Bloomberg

Despite the multitude of online real estate websites, buying a home today remains stubbornly anachronistic, with dual real estate agents, proliferating fees, and reams of old-fashioned paper documents.

Now two of the leading real estate websites are merging—Zillow, the Seattle-based site known for assigning a “Zestimate” to home values, is buying San Francisco’s Trulia for $3.5 billion in stock, the companies said today. Together they may finally get big enough to try to streamline the way homes are bought and sold.

The companies, which rely on advertising from real estate agents for the bulk of their revenues, are being careful about how they discuss the future of their combined efforts. Spencer Rascoff, the chief executive of Zillow, pitched it to the New York Times primarily as an effort to save money, estimating that the combined company can avoid about $100 million in expenses by 2016. He says Trulia will remain independent and that Zillow is building a portfolio of real estate websites, each serving different markets.

Over the long run, though, it probably makes little sense to keep the sites separate. Trulia and Zillow are remarkably similar—each lets buyers navigate an online map to find a home’s value, look at available listings, and connect with local real estate agents. They each have strengths in specific geographical areas. Trulia’s website tends to favor home buyers, and half of its monthly visitors don’t visit Zillow, which traditionally favors home sellers.

What’s remarkable about both sites is how little they’ve actually changed the selling and buying of homes. That’s mostly by design. Both were founded nearly a decade ago with a healthy respect for the intractability of the real estate market, with its unique dual-agent process (one representing the buyer, and one the seller) and with its multiple listing services (MLS), which has a stranglehold on home listings.

Zillow founder Rich Barton had helped destroy the travel agent business with his previous company, Expedia, but he understood that the real estate market was unique: Buyers and sellers liked getting professional advice on such a large transaction. Instead of trying to revolutionize real estate in one stroke, as local Seattle company Redfin was attempting at the time, Barton set out to change it from within, slowly building an audience by unlocking new kinds of information for buyers and sellers.

Since then, change is slowly creeping into the real estate business. Redfin, which employs its own agents and seeks to lower commissions and streamline the buying process, has recovered from infighting and early stumbles. Now in 28 markets, it is on track for an initial public offering, perhaps as early as this year.

A raft of new websites is trying to take more complexity out of the home buying process. Venture capitalist and repeat entrepreneur Keith Rabois has started a new real estate website, HomeRun, with the goal of creating a “frictionless, convenient, simple process” to sell a home. New York website UrbanCompass, which lets people rent, buy, and sell apartments, recently closed on $40 million in funding.

Change in the real estate business is inevitable. When buyers are finding homes on their phones, taking virtual tours, and securing loans online, brokers add less value to the transaction. Likewise, sellers can prep their houses and find buyers with a few clicks of a mouse and no longer need to lean as heavily on an agent. As Zillow and Trulia (Zulia? Trillow?) build an even larger audience, they will finally have to push through structural changes into the market, or their commerce-oriented competitors will do it for them.

The combined companies’ big challenge will be to do this even as they collect advertising fees from traditional players. “Real estate will always be a professionally assisted transaction,” Rascoff said this morning on Bloomberg TV. “[M]ost home shoppers in the U.S. are more than happy to have an intermediary, a professional to help with the transaction.” He also noted that “it’s very early in this category. This is an immature, fragmented market. This will play out over many years.”

It’s the politically expedient thing for Rascoff to say. But as the Zillow-Trulia linkup makes clear, even the stubbornly archaic act of buying and selling a home isn’t immune from the future.

Stone_190
Stone is a senior writer for Bloomberg Businessweek in San Francisco. He is the author of The Everything Store: Jeff Bezos and the Age of Amazon (Little, Brown; October 2013). Follow him on Twitter @BradStone.

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