The Future of Real Estate, According to Zillow

So, you want to be a real estate agent, eh?
So, you want to be a real estate agent, eh?

A couple of weeks ago, I wrote a post about Zillow’s acquisition of Dotloop, and offered the following under “The Long Game”:

Over the long haul then, those who are working with Zillow, leveraging that end-to-end data, and managing the lead-to-contract-to-close lifecycle most efficiently will do more business, make more money, and drive competitors out of business. Which then allows those survivors to pay Zillow more, so they can consolidate even more power, etc. etc. A nice beneficial feedback loop for the winners.

I have long argued that the impact of technology is that it lays down the economic law of: He that hath, gets. The dotLoop acquisition is a big step towards fulfilling that vision and making it real. Those who can leverage technology for productivity gains, and then leverage that productivity gain for lower-cost, higher-services delivery model will come to dominate real estate. And at the center of that new efficiency-driven ecosystem? Zillow.

Well, now that I’ve had some time coming off of a three-week stint on the road, I looked over the Zillow Q2/2015 Earnings Call. And… why people are not talking about this is beyond me. I assume it’s because people in the real estate industry don’t do things like read earnings call transcripts, while Wall Street pays close attention.

My take is that Zillow has some of the smartest people working in and around the real estate industry. What they think is going to happen, and what they’re driving to make happen, will more than likely be something that will happen. This is one of those things.

From the Transcript

The first relevant part comes from Spencer Rascoff talking about  Zillow Group’s Premier Agents:

For example, at the end of Q2, the number of agents spending more than $5,000 per month, grew 48% year-over-year. Agents spending over $2,500 per month, grew 44% year-over-year. And the number of agents spending over $1,000 per month grew 34% year-over-year. The churn rate among these cohorts very low, validating our strategy of focusing on high performing agents. [Emphasis added]

Got that? Now, read this, where Spencer is talking about what Zillow has done with Trulia’s advertising products:

We made significant changes to the Trulia agent ad product in the second quarter that are impacting the business as we expected. Changing the Trulia agent advertiser list from four default checks to one default check, which is the Zillow standard and we believe to be a more consumer friendly model, has resulted in agent cancellations from lower ARPA agents and that’s okay.

This change positions Trulia for the ad product integration with Zillow, and benefits high ARPA agents and consumers alike. Additionally, we’ve sunsetted promotional discount pricing on Trulia, which has resulted in lower advertiser net adds. This too is desired as those impressions are now going to better agents, who value their leads more and provide better service to consumers. These Trulia agents who departed over the past few months were low ARPA and low producing; the agents who remain are higher-converting and higher ARPA. [Emphasis added]

Let me translate this into English from Wall Street financialese.

“We’ve kicked out a bunch of low-performing, low-paying, loser agents who don’t respond to customer inquiries, to focus on delivering even more leads and more value to the high-performing winner agents.”

This is exactly the long game scenario I mentioned in the Zillow-Dotloop post. Zillow now has a vested interest in working with the most productive, most responsive, most professional agents. Those are the agents who will spend the most money with Zillow, because they see great ROI. As Spencer mentioned, the agents spending more than $5,000 per month with Zillow grew by 48% year over year! And there’s very little churn among these agents.

(As an aside, if you’re an MLS executive, and you’re reading about agents gladly writing checks for $5,000 per month… I know, I know, that coffee suddenly tastes very bitter….)

So all the yammering in the industry, which I’ve heard, about how Zillow leads are crap, how new agents try it out for $99/month, and then just give up because they get nothing from Zillow… I gotta say, the numbers say otherwise. Agents are voting with their pocketbooks, y’all, while thought leaders make speeches and rage against the machine.

The Future of Real Estate: Concentration of Power

Unless something changes dramatically, this is the inevitable end of increased technology and the Internet. I’ve been talking about this ever since I started this blog. (A quick search finds this post from 2011 where I mention “he that hath, gets.”)

Zillow has read the tea leaves and has decided to bet the farm on the top 5-10-15% of the producing agents, who have no trouble spending $5,000 per month on Zillow because they have the systems, staff, technology, and the expertise to turn that $5,000 investment into $50,000 in income. The rest of the industry — franchises, brokerages, Associations, MLSs — continue to try and preserve headcount-based business models.

When the entire economic model of real estate is a zero-sum game, where the number of homes sold and the prices of those homes have nothing to do with the industry and everything to do with macroeconomic factors that no one (besides maybe the Federal Reserve) controls… productivity gains for the Best of the Best have to come from somewhere.

For all the Raise the Bar hoopla of the real estate industry over the past decade or so, maybe it’ll ultimately be Zillow that does it for us, over our objections, over much weeping and gnashing of teeth, as the bottom 60-70% of the agent population find themselves completely locked out of the Top Producing Agents Club because they can’t afford the investment it will take to compete with the big boys and big girls.

But that is the future of the industry that Zillow has foreseen, and is now committed to bringing about. And Zillow has put its money where its mouth is. It has actually change the product lines at Trulia to rid itself of the low-performing, low-producing agents.

Question is… what about the rest of the industry? Brokerage, franchise, Association, and MLS leaders who know as well as Zillow does that huge, enormous chunks of their agents, members, and subscribers are unproductive… will they embrace this new vision and start focusing on the “high performing agents” and when they lose agents or headcount or members do like Spencer did and say, “That’s okay”?


Imagine it. Just imagine it.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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33 thoughts on “The Future of Real Estate, According to Zillow”

    • I don’t know about that… it comes down to the ability to invest in order to generate sufficient income to stay in business. In a zero-sum game like real estate, every deal that you do takes that away from someone else. So if they start taking your deals through whatever means they have, then you lose those deals and that income. At some point, something has to give.

      • When Zillow started almost 10 years ago, the mantra for agents was: “To exist, you must list.” Perhaps we’re seeing a shift over to the agents that have mastered the leads coming in from Zillow.

        It’s possible that now the first point of contact is a Zillow Premiere agent who will happily process the lead through her system and take control of the listing, in addition to the buy side. After 10 years of practice, I’m sure some have mastered the process and built a team that includes a few listing specialists.


  1. It boggles my mind seeing the number of agents herded through the doors of our local association every year, with no retention. It’s like a game of “How Many Agents Can You Sign Up This Year?.” I mean, what’s the point? Wouldn’t a broker rather recruit a real estate agent who is serious about the profession and who will be productive? Being a real estate professional isn’t for “sissies” or “part-timers.” It’s REAL folks! AND in order to make money, you have to spend some. Yea, yea I know that’s a medieval saying, but it’s the truth! Zillow obviously knows it, too! I would like to see NAR push this new “Code of Excellence” we keep hearing about on the REALTORS like they pushed the Core Standards on the associations. It might weed out those who aren’t serious about the real estate profession!

  2. ROB,
    For starters…nice upgrade to your presentation here..looks and acts really nice 🙂

    To your story:

    To me, gravitating to the best (most productive) agents in the best markets (highest priced homes) is a natural progression and sound strategy – not surprised that’s where the impressive numbers are coming from.

    (I don’t know if the agents that are paying the $5,000 a month are from those targeted markets…I’m just assuming)….Jay T. will probably jump in if that’s not the case.

    While I personally don’t have the data to support it….I’d bet the seriously productive offices and agents don’t have the same problems as those in less productive markets. Unproductive agents in high producing offices don’t matter as much when the big producers produce so much business that the lower producing agent just doesn’t register on the P/L.

    I’m pretty sure the average brokerage isn’t run like GE in the first place i.e. ongoing replacement for underachievers.

    So, while probably not “politically correct”, IMO, Z is realizing that focusing more on the best (most productive) markets is where they will find better customers interested in better products with the cost of those products, while important, not as critical to the (the agent’s) decision making process. Why? Because they’re making so much #$@&ing money.

    Follow the money….I know I would prefer big checks from fewer people than small checks from a lot…especially if the larger customer pool was not enhancing our business or worse was ineffective and inefficient to acquire.

    Just my thoughts 🙂

  3. Alice – Know what Z and T and R are really scared of? Bank-owned brokerages, and someday it will happen, I hope.
    I note that there are no real numbers of how many agents are paying them $5,000 a month. Personally, I think they are few and very far between and in high value, luxury markets. And those few are already high income agents. Does not scare me at all and I will not pay for their so-called leads.

  4. Zillow not only has really smart people, they also have a great public relations team. There are a lot of well-curated numbers in that script.

    I’d agree that I see more and more teams/brokers with productive lead conversion systems in place that are increasing ad spends. That’s probably just a small portion of the “top 5%-10%-15% of the producing agents” industry-wide, but they are probably the top 5% of those that understand how to work internet leads. There’s probably some crossover between those two groups, but they’re not nearly identical.

    So, you’re right, the small fish who have depended upon portal leads will continue to become weaker as their lead sources are gobbled up by the bigger lead-converting fish. Those agents who still focus primarily on generating listings via personal relationships and traditional follow-up, big or small, will probably see little effect on their businesses. The listing side is still fairly untouched by internet leads/portals.

    It’s really hard to raise the bar on the agent whose family/friends will continue to list homes with them no matter what the rest of the industry is doing.

    • I agree with Sam DeB. You’ll always have agents who do a few transactions per year because of personal relationships, but the “middle tier” of professional, but not well organized agents will be squeezed.

  5. Rob another excellent analysis of where the industry is heading. A few thoughts come to mind. If the money and resources are concentrated in the top tier of producing agents this will effectively shut out the small mom and pop shops and some franchises as well. The ramifications will not only impact agents trying to make a living but all of the ancillary industries that live off of these agents; website developers, IDX providers, print media, virtual tour photographers, heck even Google will be effected since agents won’t be paying for SEO to make their sites better because they’re out of business. There are some very far reaching effects if this is indeed the future of real estate that go beyond getting rid of the low ARPA agents. As we all witnessed during the recent housing crash, Real Estate has deep tentacles in lots of other industries and what happens in the RE industry just does not stay in the RE industry.

  6. Since I’m a one man show realtor in a big city (Los Angeles) I don’t see how to standout in a Zillow world. We have a hundred thousand realtors in a 20 mile radius from my office and I don’t see how paying $500, or even $50,000 a month to be seen on Zillow will dramatically improve my business unless I want to get started on setting up a volume based team to cycle through the online leads looking for the 2,3 or 5% that actually ready, able and willing clients.

    Any thoughts on how this impacts the majority of agents doing good work but not willing/able to create a larger team to best take advantage of the online lead game?

    • I’ve written about this before to great disagreement… But I think the future is either you form and own an Agent Team, or you join one, or you do those few personal deals a year as supplemental income…

      • Do you have any public blog posts I could read about your thoughts on this?

        I’ve worked at ZipRealty and as a Partner Agent with Redfin as well as within a team running under a pretty talented listing agent at Keller Williams (home of the team based philosophy). All of those models had their ups and downs but my personal preferences and needs seemed best met by working in a smaller team or on my own.

        Because I recognize the folly of trying to handle the flow of online leads by myself and from my personal experience with the lifecycle of an online lead, I literally have chosen to completely avoid the online advertising systems with the thesis that a hyper-local, referral based business will be the best plan in my area. Luckily, the average sale price in my area affords a comfortable income with at least 12 closed sales per year.

        One fatal flaw in California with the DotLoop acquisition, from my perspective, is that the good folks at CAR waged war and chose to prevent DotLoop from being usable with our standardized forms. Obviously, this is not a small technical issue but a more complex business issue that doesn’t appear to be heading towards any type of resolution.

  7. The Future of Real Estate Agents, should be the headline.

    I don’t hear much talk about the consumer, other than the few references in Mr. Rascoff’s transcript, along with a few mentioned by Mr. Austin in the Zillow Acquires Dotloop article posted on July 22nd. But, I can’t help to think that while we’re focused on the impact of the low to middle producing agent’s future here, we’re all missing the boat when we don’t take into account what’s in the best interests of the consumer in the home buying process — isn’t that what it’s all about?

    It’s no wonder Z has experienced a 40+% YoY increase in unique visitors. It’s not just because they’re in front of home buying consumers; they’re in front of them and consumers like what they see. Z has incredible tools that allow consumers to educate themselves on the home buying process and identify properties quickly. That’s what the consumer has always been looking for and Z has made it all too easy.

    It’s a given that it all starts with the consumer; sans the consumer, there are no advertisers; sans the advertisers, Zillow is no more. We all know WHY the consumer uses Z, but do we consider what they think about Z? Sam DeBord mentioned Z having a great PR team. That PR team is busy managing agent perception of Z, as well as consumer perception of Z.

    Z targeting top producing agents is a huge benefit to the consumer. Agents that do more business, tend to do it better. Leaving the consumer with a positive feeling about their home buying experience, which started with Zillow “introducing” them to a more capable agent [than one who can’t afford the advertising costs].

    A few of you have alluded to the concept of weeding out the riff raff and raising the bar on professionalism in this industry, something NAR and our state DRE’s have failed to do so, since it’s mostly not in their best interests (they can’t “afford” to).

    If you are worried about Zillow gobbling up your buyer business (and soon to be seller business), then do something about it. Create a compelling alternative product or point of differentiation with a stronger value proposition — easier said that done, but not impossible (google “david and goliath business stories”).


    • “I don’t hear much talk about the consumer, other than the few references in Mr. Rascoff’s transcript, along with a few mentioned by Mr. Austin in the Zillow Acquires Dotloop article posted on July 22nd. But, I can’t help to think that while we’re focused on the impact of the low to middle producing agent’s future here, we’re all missing the boat when we don’t take into account what’s in the best interests of the consumer in the home buying process — isn’t that what it’s all about?”

      Yup. Zillow has the consumer. That’s really all that matters. Nothing is going to change, until someone figures out a way to win them away from Z. I’m not sure why the industry doesn’t realize this. The consumer does not give a crap about what an agent has to go through to sell their home, or who they have to pay, or how much. They just want their damn house sold, as quick as possible, for the most money possible.

  8. I may be stating the obvious (somewhat) – I view this as a shift of who pays for the advertising. 30 years ago, a sign in the yard, the MLS, and a Newspaper ad was paid for by the listing agent. What seems to be presented here to me is a shift of who is paying for the advertising. Zillow wants leads paid for by Buyers rather than by Sellers (currently). Selling agents still have listings and provide services that may or may not justify their commission (currently). The discussion here is who will pay for leads. As a selling agent, syndicators are asking for my listings and display them for free. I don’t have to purchase an ad any longer – someone else is getting the Buyer Agent to pay for my advertising. THANK YOU! In fact, from what I can tell Z/T don’t offer any real broker enhancement programs, and Rcom is phasing out the Broker Showcase. The syndicators have found it is more profitable to sell Advertising (in the form of leads) to buyer agents.

    The future is hard to read. If ZTR can make input of listings to sellers easy enough, with enough advice, with enough quality, and a check/balance system to ensure listings are accurate – it could be the listing agent would no longer be required. My position is we have enough fraud in the world of electronics that FOR NOW the MLS or Licensed Agent is a better source of accurate listings than consumers who would be unregulated and unchecked (such as Craigslist listings where money is sent to a far off land).

  9. RHS~ Stand behind the red ropes and pray to get in (love your picture)… Zillow has a great/devious team behind a terrible product, and that’s the only thing keeping them alive right now… The handful of Realtors that Zillow might keep interested isn’t going to get it done, and over time Zillow isn’t going to make it… Overall not only is Zillow selling a bad product, but more importantly “over the years Zillow has captured and earned a bad/terrible reputation… And forgetting about their bad reputation, focus on the bigger picture, for years now “Zillow” can’t turn a profit.. You know things are dim, and the outlook is even dimmer by the actions of Spencer (as fast as he can he unloads and sells his stock) -If you own the stock I would be like Spencer and sell it… -And if you are a Realtor, do yourself a favor and don’t even think about paying Zillow…

    • Jon – I think I will jump off and into the deep end. I will either sink or swim. I think you hit the nail dead, smack dab on the head. No offense Rob, but In many posts you have mentioned an affiliation with the biggies at Zillow. Coziness may cloud ones perspective. That’s why I have no friends in the real estate business.
      I think Jon has followed this ZTR thing longer than I, but just do the math. After 90 days at $5,000 a
      month – and a closing is unlikely within that time frame – the agent is down $15,000. That’s a deep hole to climb out of. I am still curious as to the actual numbers of agents who have paid the $5,000 and for how long. Zillow, don’t just brag and pat yourself on the back, tell us the numbers, all of the numbers.
      To pay $60,000 a year for so-called leads is stoopid unless you are the greatest agent in an extremely high end, luxury area – think Beverly Hills, Manhattan, South Shore Miami. Other than that, some one at Z is smoking left handed cigarettes. A broker at a large firm might buy in and hand out the so-called leads to the agents, but that’s only way this boat will float in a middle-priced market. $1,000 a month, maybe, but not this old man.

    • Whether Zillow ‘makes it’ or not isn’t the key to some of the trends that are coming up here. Their business strategy and (lack of) profit are not as tightly linked as you might imagine because they appear to be playing the long game. The price of their stock could go to zero tomorrow and the same trends will keep occurring.

      The online tools available to the public and realtors has become incredibly useful for all parties involved in the real estate business. Now the question is do you (and other realtor’s) think that the value of online leads is worth the money.

      Rob’s point is that he feels online leads are going to be a high ROI product for some types of realtors and that those realtors do not have as much churn as the majority of the realtors that sell 1-10 properties a year. I see that in my business area (Los Angeles) where a small minority of agents have large market share in certain areas. Interestingly, most of them do NOT advertise on Zillow. In my office, a boutique firm in Pasadena, there is only one paying zillow client in the top ten producers. To me that shows that it’s a bit of a false flag to say that the ‘best’ agents will flock to spend $60,000 a year for online advertising.

      • Actually, my point is a bit more generic:

        – Technology makes people more efficient. (Not just online leads, but technology in general)
        – Top producers who become more efficient capture more market share (because that’s what “efficiency” actually means)
        – Real Estate is a zero-sum game, where one agent increasing business comes at the cost of other agents losing business.
        – As technology makes top producers more and more efficient, they capture more and more market share, and the other agents lose more and more business. The trend is for the rich to get richer, big to get bigger, and everyone else to lose. This is true not just in RE, but everywhere in the economy, because that’s what technology (generically) does.
        – Zillow has put money on this trend continuing. It thinks that the top producers who have the money to invest in online leads will generate ROI, because they are more efficient than lower producers. That begets a virtuous cycle (for Top Producers) who invest more to make more which lets them invest more, etc. Ultimately, every deal these Top Producers close means one fewer deal for someone else.

        My point isn’t about Zillow or its business model. My point is about what technology does to the real estate brokerage game. Zillow is betting on that trend, and its bet will (partially) make that trend continue.

  10. RHS~ from day one I’ve watched the stock closely.. Back in 2013, when Citron ( )first reported on Zillow I took a short position and did very well and got out… Since then I’ve watched the stock go up to as much as 160+ and then skyrocket back downward to 68 dollars a share… Like I’ve mentioned, ZG has a smart/devious team behind them and they have the magic touch when it comes to puffery (so one way or another) I won’t bite anymore…. Recently, the ZG team made a last ditch effort by offering class C shares. This effort brings the stock price back down to 25 a share.. ZG has done this to make the stock affordable, and now that the stock is at an affordable they are hoping to get more suckers to buy their stock… But like I mention “I suggest you be like Spencer and sell the stock as fast as possible”

  11. Don’t confuse being good at converting internet leads with providing good service to clients. There’s more than one way to skin a cat.

    Don’t confuse a rising tide with thinking Zillow’s cracked the code. To some degree this has the vibe of real estate investors in 2005 who thought they were brilliant and that they had cracked the code.

    Zillow is doing great no doubt but some of those year-over-year improvements are due to a rising tide of home sales combined with team leaders needing to provide something unique – Zillow leads – to recruit and retain team members.

    I’m also getting a bit of a vibe from their rhetoric.

  12. Zillow could be stopped by one simple act of all of the real estate boards across the land – stop giving Zillow your data! Agents, do not post your listings on Zillow or Trulia, do not buy leads from them, and lobby your real estate boards to stop giving data to Zillow and Trulia. We have done this in Shreveport Louisiana, and now the Zillow search for this area is crap. It’s full of expired listings and stale listings. I invite anyone who is interested in this subject to read and comment on my article too!
    Zillow and Trulia will no Longer Access MLS Data

    • Hi Don – RE: The team concept –
      Me thinks the team concept is a partnership of sorts. Most partnerships fail because the top producer gets tired of sharing with the lowest producer or – “I am doing more work than you”. Jealousy prevails. I just do not see how a team can remain viable without a lot of changing team members and that’s another reason for the bickering that will consume them.
      MATTHEW – I agree with you 100%, but the greed factor requires that agents keep paying them.
      I guess Z, T and R will always be with us, but I have read a few senarios where they collapse inward on themselves.

      • Thanks for the reply. Indeed Zillow and Trulia capitalize on the greed of the real estate agent. No getting around that. I know greedy agents in my own board who go all-out on Zillow / Trulia. As a matter of fact I venture to say that absolutely all of their eggs are in the Zillow / Trulia basket. My message to them: If you can’t quit cold turkey then start scaling back your Zillow Trulia sponsorships and diversifying your advertising investments. Zillow and Trulia have got to be stopped.

  13. Zillow has never made it a secret that their interests are in serving the consumer. Even if it means taking an ever increasing share of the Realtors time and compensation at the expense of the same. It seems to me, the end game Zillow has in mind for the Realtor is that of a “fee for service” agent that receives a fraction of what they do today. While they don’t appear to want to be a Broker with the associated responsibility and liability they are managing to gain an increasing share of the compensation. In their world they align with the top agents and gain an increasing share of the business and its income. In the short run, I would say they are right on track.
    The end game however may be quite different. The biggest teams spending upwards of $5,000 a month on Zillow ads generally serve the consumer in a very transactional way. Typically, the leads are being handled by inexperienced buyers agents. The service performance is mediocre at best. Well, the Internet is slowly revealing us, good and bad. It won’t be long now before the consumer has an authentic picture of a Realtors service performance. The Realtors providing the best service will be revealed and receive an increasing amount of referral business, personal and professional. They won’t need to pay for Internet leads, which will leave Zillow chasing transactionally oriented agents to buy their advertising. The consumer will slowly realize there is a reason the agents advertise. Which will be because they can’t get enough referral business, because their service sucks.
    So, if you are providing extraordinary service, don’t fret. Transparency that is being created at an increasing rate is playing right into your hand. Advertising, which in fact is a redirection of the consumer is what is really at risk. Since Zillows economic model depends upon it, I assume they will look for an exit before that reality sets in.

  14. Zillow depends on real estate agents for their money. Real estate agents should buckle up and stop giving zillow their money. With Zillow a real estate agent is only as good as their next big fat payment to Zillow. If real estate agents would invest as much money into their clients’ real estate experience as they to Zillow then this whole Zilllow problem would disappear. Agents, build your legacy on your own platform where it is permanent, instead of Zillow’s pay to play platform.
    Zillow and Trulia agent reviews – 4 Reasons why they’re junk

  15. A very precise & useful analysis Rob! I was wondering how this will impinge sole agents rather than large real estate entities? Online lead generation is really on full knock than in past years and will be more impactful in the near future, we can’t disagree.

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