Now that a little time has passed since the announcement by Zillow that it will be “collaborating” on the purchase and sale of properties using its Instant Offers platform (currently being tested in Las Vegas and Phoenix markets), I’ve had the chance to think about what it might mean for organized real estate.
I’m going to approach the topic from the perspective of brokers, agents and the MLS — and also try to provide what I believe Zillow’s perspective to be as well.
As easy as it can be to demonize the folks at Zillow because they are doing new and different things — and have proven exceptionally good at disrupting the status quo of organized real estate — as in most things, gaining a little perspective will help us better understand motivation. And with better understanding comes the ability to make educated decisions.
What is the Zillow Instant Offer anyway?
According to Errol Samuelson, chief industry development officer of Zillow, Instant Offers is for buyers wanting “certainty” on price and timeline on the sale of their property. Zillow will present sellers with instant offers to buy their property from either investment companies or from Zillow itself.
Additional features of the Instant Offer include:
- Zillow will participate as an investment buyer
- Zillow will recommend a Zillow Premier Agent to represent the seller (or presumably will choose one, if the buyer is Zillow)
- Zillow will recommend a Zillow Premier Agent to represent the buyer
- When an offer to buy is made, the Premier Agent will provide the seller with a CMA estimating what the seller could expect to sell the property for on the open market as compared to the Instant Offer
- Once purchased by Zillow, as the owner it will conduct any necessary renovations needed to maximize the resale value on the property prior to re-listing it
- Using a Zillow Premier Agent, Zillow will list the renovated property on the MLS for sale
Zillow as the buyer
So, Zillow is getting into the investment game, too.
For agents, at least initially, the only way you’re going to touch their business is if you are a Zillow Premier Agent — with a brokerage that has a specific deal with Zillow to handle Instant Offers.
Even then, will Instant Offers be only for an exclusive club? It remains to be seen, but to maximize profits, I think it’s likely that Zillow will look to expand to any agent willing to pay for the business.
It’s pretty opaque how a broker gets selected to be an Instant Offer brokerage partner, and it’s not clear whether this will be a “first come, first serve” scenario, or if the path to getting into a potentially lucrative connection will be more clear as Instant Offers matures.
It stands to reason that, at least during the testing period, Zillow would prefer brokerages known to them already through existing cooperation and/or marketing agreements. Again, look for this to be opened to the widest possible market once Zillow has confidence in the final structure of Instant Offers.
It’s not Zillow’s world
Remember that Zillow didn’t invent instant offers or iBuyers. Opendoor and OfferPad created the marketplace, are well-funded and have a reasonable head start. Their success, and the fact that Zillow is following their lead, makes a powerful case that consumers have a real desire for the product.
From Zillow’s perspective, participating as an investment makes sense. It already has a lot of quality listing and market data in the markets it has launched Instant Offers in, so we can assume it is fully aware of the risks involved with holding properties in an investment portfolio.
Greg Schwartz, Zillow’s chief business officer, is a bloody smart guy, so I’m sure it’s thought through how much debt Zillow can carry in the event of a downturn, and it can’t unload properties quickly.
Besides, if it can monetize both investment companies looking to sell individual or blocs of properties and have brokers and agents fighting each other to pay for leads, it’s pretty much a win-win.
What’s kind of depressing is that even if they wanted to, most brokers couldn’t meet this new consumer demand because of the fragmented, haphazard nature of the data provided by 600-plus MLSs in the country.
Without the mashup of critical market information derived from those 600-plus MLSs and the massive investment necessary to build and maintain a common database from all the different data feeds, Instant Offers would not be economically feasible.
Only companies such as Opendoor, OfferPad, Redfin and now Zillow, which have all invested heavily on massive, commonized data sets and possess the financial resources to make Instant Offers as the buyer, will be able to take advantage of this new marketplace.
The opportunity being exploited by Opendoor, OfferPad and Zillow is not one of their own making. The current MLS approach of providing only local listing data, fragmented from the larger market picture, means that most brokers have no access to de-duplicated, comprehensive listing information free of MLS boundary limitations or available on a single-search platform. Clients, meanwhile, get it for free from Zillow or realtor.com.
The best MLSs already know this; they pursue data collaboration and consolidation because they know that their continued relevance depends on it. Instant Offers is a direct consequence of the inability of MLSs to provide brokers and agents with the comprehensive listing data necessary to meet consumer’s investment demands.
Pay to play
Zillow will be controlling broker/agent access to buyers and sellers using the Instant Offer platform by steering them to the Zillow Premier Agents from brokerages participating in the Instant Offers program.
Zillow Premier Agents spend significant amounts of money advertising their services on Zillow, which is why I’ve called it “pay to play.” Although this has a negative connotation in the political world, Zillow is operating as its own buyer within a marketplace it is helping to create, so I’m not sure there’s anything wrong, exactly, with funneling buyers and sellers to a specific sub-set of agents, but it feels just a little off.
I’m not sure how this will turn out, but let this be a request for Zillow to be open and transparent on both the presentation and selection of agents by the consumer. To the consumer, being fed a list of Premier Agents to choose from is very much a judgement, endorsed by Zillow, on which agents to use.
Now that may be fine as long as Zillow is an advertiser, but now it is going to be both an owner and operator in a marketplace facilitated by it. If I were it, I’d want to be as cautious as the MLS needs to be about recommending any specific agents — or group of agents.
As we know, a single bad experience can affect the reputations of numerous Realtors. I hope that Zillow, which got its start talking about how it wanted to change the bad experiences consumers had with Realtors, would not risk a promising new product by limiting leads to those most willing to pay, rather than those best suited to serve.
Shadow inventories
In high-dollar markets across the country, investment companies hold portfolios of large numbers of properties that never reach the MLS. Investment portfolios can range from a handful of properties to hundreds, but detailed information outside of price, sqare feet and location are often unnecessary to investors because properties are negotiated in bulk, similar to stocks.
The result of this investment behavior is that in hot markets across the nation significant numbers of properties are sold without any information or knowledge about them ever hitting the MLS system.
If the MLS is supposed to be the definitive source of quality listing information, every property that doesn’t hit the MLS degrades it both qualitatively and quantitatively.
On the positive side, because Zillow has stated unequivocally that it will keep brokers and agents at the center of Instant Offers, every listing Zillow buys as an investment will be eventually returned to the MLS data “orbit” when the listing broker enters it into the MLS.
However, it should be noted that, on balance, Zillow continues to improve the aggregate of its listing data by accepting FSBOs, “Coming Soon,” “Make Me Move” and via its concentration on rental properties.
At the same time, MLSs, and as a result, MLS data, are mired in an internal struggle over whether to even permit listings as a “Coming Soon” status. I have argued this for years, and I will say it again; every listing the MLS does not accept or facilitate diminishes its credibility and relevance by forcing critical real estate market data to find another home.
The final analysis
Zillow was not lying when it said that Instant Offers would keep the broker and agent at the center of the transaction — for those brokers and agents who are Zillow partners, at least. The Instant Offer idea is not unique to Zillow, and there is both a real business case and a demonstrated consumer desire for the product driving it.
Like it or not, through its partnerships with brokers, agents, MLSs and now real estate investors, Zillow has made itself an integral part of how real estate is transacted in the United States.
Just as the MLS acts as the conduit from individual brokers/agents to the broader real estate community, Zillow has made itself the conduit from the real estate community to the consumer online.
It will continue to innovate on real estate data — it’s purpose, uses and how consumers interact with it — because it seems to be in its nature to do so.
As a publicly traded company, Zillow must return shareholder value, and at some point, turn a profit.
My sense is that if it believed there were still massive untapped profits to be made monetizing brokers and agents, it would be concentrating its efforts there rather than branching out into somewhat riskier ventures like this.
That being said, maybe this is just the latest step in its stated mission to improve the consumer experience? Love Zillow or hate it, it has been effective at moving the market to meet its needs. I believe Instant Offers will be one more example to add to the list.
Cameron Paine is the founder of Inevate LLC. He live in Madison, Connecticut, and consults internationally. Follow him on Facebook, or connect with him on LinkedIn.
