On REAL Trending episode 86, we’re discussing developments at Zillow, secondly Compass and their entry into the title and settlement business, and the issue of segmentation and data analysis.
From REAL Trends, the trusted source for real estate industry trends. This is REAL Trending episode 86. We’re analyzing the most important trends affecting brokerage companies and their agents. I’m Steve Murray, president of REAL Trends.
Today, we’re discussing developments at Zillow, secondly Compass and their entry into the title and settlement business, and the issue of segmentation and data analysis. What do these trends mean and how can brokerage firms best deal with them? First, a quick message.
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So, Zillow announced that they were entering the brokerage business, albeit they’ve already been in the brokerage business, but they’re actually going to hire their own salaried agents to handle, at least initially, their own inventory to present offers to sellers and to handle subsequent resales, either where Zillow buys it into inventory and probably down the road. If the people don’t want to sell it to Zillow, maybe even get a listing for that agent who is now an employee of Zillow’s.
And we’ve had numerous emails and phone calls about this development. Our view is this, we have seen this before, first with ZipRealty years ago, and most recently over the last 12 to 13 years with Redfin. Online company develops a huge presence and Zillow’s is a big one. They run an advertising model initially. Then they realize there’s a bigger revenue slice to be gained if they’re actually participating in the commissions.
Also, as we’ve said before on these podcasts, Zillow, and Realtor.com, and others like them have a problem of that last mile. They have great web presence, superb information, but then the agent has to actually act on behalf of the customer, and if you will, for Zillow. And that requires them to respond to inquiries and stay on top of leads, et cetera, which to some extent, agents still aren’t all that good at and most of us know that.
Putting that aside, Zillow is now going to direct to their agents. Well, first of all, what does this mean? It means we have a new brokerage competitor. We have somebody who’s just a lot bigger than Redfin, but basically emulates Redfin’s model. Great online presence, generate leads, and inquiries, and customers, use your own employee agents to service that base, and build a very large potentially profitable business.
That’s it. There’s no mystery to what Zillow’s doing. There is a big revenue opportunity, a much bigger revenue opportunity from having their own agents handle their own customers. Does it mean that their advertising business may diminish? Could be. Could be that’ll happen as they continue to build this out. But the revenue opportunity is a lot bigger for Zillow in generating 100,000, or 50,000, or 200,000 customer referrals a month to their own agent force.
Okay. So, in a manner of speaking, they’re are a lot like Redfin. In another way to look at it is they are just one big, enormous well-functioning team. And there are a lot of those out there operating with online marketing, and direct mail marketing, and generating customers, which they handle with their own inside sales agents and they build some really good businesses.
Zillow’s just a lot bigger and they have home buying, and they have mortgage services, and rental services. The other thing that Zillow’s entry into this will do, as we’ve heard from numerous brokers around the country, is they will put further pressure on the retail commission rate for all buyers and sellers out there.
You could expect that to happen, it’s already starting to happen. We expect more of that. So, that’s it. Zillow becomes a big brokerage company. They have a great online presence, the biggest that we know of, and now they have to figure out how they’re going to capture those very same customers with their own agent force. That’s ultimately where they’re heading. That’s our guess.
Yesterday, Compass announced they had bought Modus, an online title and settlement services company. Great move by Compass. We wondered when it would happen. Compass has built obviously a huge brokerage presence in the country.
By our measurement last year, the third largest in the country on closed volume and growing again this year, it was a natural that ultimately they would be in title escrow settlement services, and yes, they will figure out a way to be in the mortgage banking or mortgage brokerage business.
Robert Reffkin, CEO and co-founder of Compass has said so publicly recently that he sees the day coming where settlement services, mortgage, et cetera, and related services will probably be the larger part of their profit, just like other big brokers have figured out in the last five, 10, 15, or 20 years. And knowing Robert and his talented group of people, they will try to merge that into one tech platform where everything can be accessed from one point of entry. More power to them.
Our industry is not a big mystery to those who are in it. For large brokerages, the importance of core services, like mortgage, title, escrow, and others has long been known that in many cases, those businesses produce more profit per transaction or per customer than the brokerage business did. That’s where that part of the industry is evolving. It will continue to evolve in that direction. Congratulations to Compass.
Modus, we’ve interviewed them in the past, seem like very competent, capable people with a reasonable chance for great success. Lastly, the issue of segmentation and data analysis. One of the things we’ve observed over many years is how many broker owners deal in anecdotal evidence, or if you will gut instinct in other cases and in hearsay when they plan how, when, and who they’re going to recruit, who they’re going to retain, how they’re going to grow their businesses, how they’re going to improve productivity.
We recently spoke to a group of leading brokers, in fact, two separate groups and suggested it is now time, given the analytic tools available for broker owners of medium to larger firms to really analyze three, four, five, six years of past data to find out who moved from what firm to another firm? Who left our firm and who joined our firm? Who moved from broker A to broker B in the marketplace?
How many years had they been in the business? What was their production level? What was going on with those particular brokerages? Internal surveys to find out from our own agents, why did they join us? What did they see is the value that we delivered? Why do they stay with this? How can we improve that? And really look at all of this data that’s available to more accurately focus efforts, capital, and time in the recruiting and development of your agent force.
As we have said, ad nauseum, this is not a complicated business to understand. You must recruit talent, you must develop talent, and you must find a way to spend less money than you have coming in. But in that recruiting segment, which is where too many brokers are running into too many problems, it’s time now to leave behind anecdotal evidence and gut instinct.
And I’m not saying all of it, but a lot more time and effort should be applied to actually studying data related to why agents move, where they move, when they move, when they stay, and what they value.
Learn more about industry trends and success tactics for brokerage firms, agents, and teams, as well as listen to past REAL Trending on Apple Podcast, Spotify, Google Play, and others. Visit www.realtrends/channels/. This has been Steve Murray until next time.