Real estate recovery sets stage for 2014 tech, acquisition boom

Propelled by rising home prices and home sales, housing markets around the U.S. marched toward “normal” this year, laying the groundwork for a real estate tech and acquisition boom in 2014.

The recovering housing market boosted the stock prices and market caps of publicly traded companies whose fortunes are tied to residential real estate, including Realogy, Zillow, Trulia, Move Inc. and Re/Max, increasing their capacity to acquire new technologies or companies outright.

Source: Yahoo Finance * Re/Max went public on Oct. 2, 2013.

In October, franchising giant Re/Max pulled off residential real estate’s fourth successful IPO in the last two years, riding on the coattails of Zillow, Trulia and Realogy to raise $225 million.

Seattle-based brokerage Redfin, which raised $50 million in November, is widely seen as being primed to go public sometime in 2014. Fast-growing Irvine, Calif.-based brokerage and new franchisor Realty One Group — the seventh-largest brokerage in the U.S. in 2012 by transaction sides — has signaled its intention to eventually go public and could take steps toward that goal in 2014.

Franchising grows

In 2013, the percentage of agents working for franchised firms rose. Close to half (45 percent) of all residential real estate agents hang their license with a brokerage affiliated with a franchisor, according to the National Association of Realtors’ 2013 member profile. That’s up from 41 percent in 2012 and 40 percent in 2011.

In September, the first of 51 Prudential Real Estate-branded brokerages that have committed to affiliate with the Berkshire Hathaway HomeServices brand made the switch.

It remains to be seen whether Buffett’s new franchise network will catch on with independent brokerages or companies affiliated with brands other than Prudential Real Estate, which is set to sunset as a real estate brand in the 2020s.

Franchisors also expanded their global footprints in 2013: Re/Max entered Japan and South Korea; Coldwell Banker started doing business in India; Century 21 launched a global, multilingual website; and Keller Williams Realty continued its nascent international push with an entrance into the United Kingdom.

“The world is a becoming a much smaller place,” Re/Max CEO Margaret Kelly told Inman News. “Many of our colleagues are now marketing themselves to specific foreign buyer groups, and this trend is likely to not only continue, but grow even stronger.”

Franchise Times ranked Re/Max as the top global franchisor by 2012 global sales with Coldwell Banker, Century 21 and Keller Williams following, respectively.

Franchise Times 2013 ranking of real estate franchisors

Source: Franchise Times *Estimate by Franchise Times by multiplying total sales volume by 2.5 percent.

Realty One Group grew its new franchise network to 23 firms in 2013. With the launch of a new website, the company is poised for national expansion and a possible IPO in 2014.

Big portals seek continued dominance

The five most popular real estate sites grew their consumer mindshare over the course of 2013 from 33.9 percent in January to 38.7 percent in November, according to Experian Marketing Services desktop computer Web traffic data.

Zillow, real estate’s most popular site throughout 2013, accounted for much of that growth, swelling its Web market share from desktop computers from 9.17 percent in January to 15.38 percent in November.

Zillow kicked the year off by announcing it would bring its long-term goal of becoming the go-to real estate site in the U.S. to the next phase with a strong marketing push, including its first-ever national TV campaign and high-profile housing policy forums, highlighted by a housing discussion between President Barack Obama and the public moderated by Zillow CEO Spencer Rascoff in August.

That effort helped Zillow become more popular with consumers and increase its Web market share lead during the year over chief competitors Trulia and realtor.com in the process, according to Experian data.

Source: Experian Marketing Services

In an effort to reclaim Web market share lost to Zillow and Trulia, realtor.com unveiled a consumer-focused marketing campaign in March, “Find It First,” that highlighted the superior accuracy and timeliness of its listings compared to its competitors. Thanks to its relationship with NAR, realtor.com receives direct data feeds from more than 800 MLSs in the country, most of whom update data in 15-minute increments.

Zillow, Trulia and other portals that get listings from a variety of sources can have coverage gaps in some markets. An analysis by tech-focused brokerage ZipRealty in March highlighted the accuracy and completeness of MLS-sourced listings databases.

Zillow, Trulia and other third-party listings portals like Homes.com continued their push to improve the quality and comprehensiveness of listing data in 2013. All three signed up MLSs to send them direct data feeds during the course of the year. Zillow and Trulia added brokerages to networks that reward companies that provide direct feeds with enhanced branding and placement on the sites.

In October, Trulia launched an MLS direct data feed program that gives brokers increased branding on the portal on their agents’ profiles, in lead emails to consumers, and in Trulia’s agent directory.

However, it could take years for MLSs to overcome reservations about providing direct feeds to Zillow and other third-party sites, Zillow’s point man with MLSs and brokers, Bob Bemis, told Inman News when he and Zillow parted ways in July.

Zillow’s broker network — Zillow Pro for Brokers — surpassed 200 members in October. Trulia operates a similar brokerage network.

In July, NAR signed off on amendments to the realtor.com operating that allow Move to display listing information from non-NAR-affiliated sources, which brought additional rental and new homes listings to the site.

The amendments helped realtor.com plug holes in its listing data in parts of Seattle, Hampton, Va., and, most notably, New York City. In December, realtor.com announced its first listing data agreement with a non-NAR-affiliated brokerage, The Corcoran Group, in New York, where it had a dearth of listings.

Zillow also looked to shore up its listing database and audience in New York City with the acquisition of StreetEasy, the most popular listing portal in the city, for $50 million.

Trulia closed a $355 million acquisition of real estate marketing and tech behemoth Market Leader Inc., giving the portal access to Market Leader’s valuable partnerships with several large franchisors, including Keller Williams Realty, Century 21 Real Estate, and Better Homes and Gardens Real Estate.

With the addition of subscribers to Market Leader’s agent-focused tools — including a customer relationship management platform, lead generation services and Internet Data Exchange-enabled websites — Trulia could lay claim to having the most paying agent clients at the end of the third quarter (56,000). Zillow reported that more than 44,000 agents were paying the firm to advertise on its site at that time.

Trulia’s acquisition of Market Leader highlighted a distinction between the San Francisco-based firm’s business model, and that of its slightly older Seattle-based competitor, Zillow. While Trulia says it will focus on providing enterprise-level software for agents, Zillow CEO Spencer Rascoff made it clear that his firm will provide lightweight, adaptable software solutions like CRMs and agent websites, but not professional-grade software for agents.

Both Zillow and Move unveiled tools this year aimed at fostering collaboration between agents and consumers.

Zillow launched AgentFolio — an adaptation of technology developed by the firm Buyfolio, which Zillow acquired in late 2012 — in June.

Move acquired Doorsteps, a developer of software built to simplify the homebuying process for buyers and enhance their communication with agents and others involved in a transaction.

To help agents consolidate leads, Move acquired FiveStreet, a Washington, D.C.-based startup that brings leads from multiple sources and helps agents respond to them.

Late in the year, Zillow, which also added HGTV’s FrontDoor Real Estate to its network in February, took over powering AOL Real Estate’s home search from Move Inc., building its network to four home search sites in the process.

In their third-quarter earnings calls with investors, Zillow and Trulia’s CEOs revealed their long-term strategies.

Rascoff told investors that he envisions agents will eventually view online advertising as they do referrals, which will shift the market closer to “lead referral economics, which is to say that (agents are) willing to pay up to 40 percent of their commission to the channel that provides them with a customer.”

Rascoff clarified later in the call that Zillow has no intention of shifting its business model to a success-based referral system, but he believes the amount agents will spend on online advertising could double or triple, expanding Zillow’s addressable market.

Trulia CEO Pete Flint said his portal has a long-term goal of signing up 250,000 agents as subscribers who will pay an average of $450 per month to advertise with the portal and use its software.

Syndication becomes an issue again

The provision of listing data to third-party portals — once controversial, now largely routine — became a subject of interest again when the Austin (Texas) Board of Realtors announced that it would stop providing its members’ listings to Move Inc. syndication platform, ListHub.

ABoR cited concerns about unethical business practices and inaccurate listing data on consumer websites not affiliated with a Realtor trade group. Individual brokerages in Austin could still syndicate to portals through ListHub, but the association would no longer coordinate the effort.

Nine Austin brokerages followed their association’s lead and decided to stop sending their listings to portals not affiliated with a Realtor trade group.

The Houston Association of Realtors took the opposite tack, and decided to begin syndicating the listings of its 26,000 listings through ListHub. HAR said it decided to move syndication to the ListHub platform “in order to provide members with consolidated marketing analytics, centralized lead and traffic routing, a centralized control panel for making all online marketing choices, and the benefit of the data licensing protections provided by ListHub through their agreements with the publishers in their network.”

Later in October, North Alabama MLS became the first MLS to take control of syndication to third-party portals itself with the implementation of new software from Atlanta-based Bridge Interactive Group that allows it to monitor and send its listing data feed and negotiate syndication terms directly with portals, including the possibility to monetize listings. It signed syndication agreements with Zillow, Trulia and Homes.com using the new platform.

It remains to be seen if more brokerages and MLSs decide to stop sending their listings to third-party portals in 2014, or if those who have taken that step remain part of a small minority.

Rentals ride high

With inventory at near-record lows and investors playing such a large role — more than 50 percent of home sale transactions over the 18 months ending June 30, 2013, were completed solely with cash — the rental market and the tools to service it heated up.

More Realtors are specializing in rentals in 2013 than they have in the last 15 years, according to NAR’s 2013 member survey, which found 6 percent of member agents said their primary business specialty was property management.

In February, Zillow opened a rentals-focused office in San Francisco, housing both Zillow Rentals and HotPads, the rental listing site it acquired in late November 2012 for $16 million. In July, Zillow began monetizing its rental business — which it launched in October 2012 — for the first time by charging property managers of multifamily units $50 per month to enhance their listings on Zillow Rentals and HotPads.

Apartment search site Zumper launched nationwide in July and three other firms — San Francisco-based Cozy and Lovely and Vancouver-based PendoRent launched software platforms this year dedicated to help property managers with smaller portfolios take payments, find and screen tenants and market properties.

Lovely, which also has listings, is aiming to be a full-service rental marketplace that services all aspects of the rental process for both landlords and renters. Cozy raised $5 million in October.

Editor’s note: A previous version of this story incorrectly stated that Zillow CEO Spencer Rascoff said Zillow has plans to shift its ad model to a referral-based system. Rascoff actually said that he envisions agents will come to view online advertising in the same way that they view referrals, where they are willing to pay up to 40 percent of their commission to the party that sends them a deal, and thus may end up spending two to three times more than they do now to market themselves on the Web.