Revenue pivot or hostile takeover? Industry leaders grumble about Zillow’s latest power move

Brokerage chiefs weigh in on whether they think national listing giant Zillow is gunning for their jobs

New York /
Feb.February 05, 2020 07:00 AM
From left: Teresa Stephenson of Platinum Properties, Eddie Shapiro of Nest Seekers, Richard Barton of Zillow, Sarah Saltzberg of Bohemia Realty Group and Richard Grossman of Halstead (Richard Barton via JD Lasica via Flickr)

From left: Teresa Stephenson of Platinum Properties, Eddie Shapiro of Nest Seekers, Richard Barton of Zillow, Sarah Saltzberg of Bohemia Realty Group and Richard Grossman of Halstead (Richard Barton via JD Lasica via Flickr)

Zillow Group’s bid to get broker licenses from coast to coast is no surprise to New York City brokerage chiefs, but they disagree on the significance.

“They’re inching their way into becoming a brokerage. There’s no secret here,” said Eddie Shapiro, CEO of Nest Seekers International. “We’d be naive to think that it’s anything different.”

However, Richard Grossman, president of Halstead, argued that the license would enable the company to take a split of agents’ commissions, creating a new revenue stream.

“There’s a big leap between getting a license and being in the real estate business as a brokerage,” he said. “I don’t see that happening in the foreseeable future.”

Zillow, the parent company of the Big Apple’s most dominant listing platform StreetEasy, has appointed Doug Perlson, the former founder and CEO of online residential brokerage and listings consultant RealDirect, to be the broker of record.

Zillow says it has no interest in the traditional model of brokerage and analysts — and some industry leaders, such as Grossman — agree. They argue Zillow’s parent is pivoting from making money from subscription-based advertising fees to collecting “success fees” from agent commissions when they close deals from a lead generated by the company. Proponents point to the national Flex program as proof.

“They may be in the referral business, but they’re not in the brokerage business,” said Grossman.

“They’ve always been an advertising platform,” said Sarah Saltzberg of Bohemia Realty Group. “If they’re tossing their hat into the [broker] ring, we just expect that they’re going to be compliant — and we’ll see if they are.”

Zillow’s Premier Agent ad program, a major revenue driver for the company, was the catalyst for the state’s two-year probe into real estate advertising. The Real Estate Board of New York asked regulators in 2017 to investigate the program, and new rules are currently pending with the state. REBNY declined to comment on Zillow’s broker license.

To Adam Mahfouda, CEO of Oxford Property Group, the “success fee” model works for high-commission firms like his, which gives agents between 90 percent to 100 percent of their commission in exchange for monthly fees of between $99 to $500.

For his agents, paying a 35 percent fee in exchange for a lead that resulted in a deal to StreetEasy isn’t a problem. But for agents that have to split between 30 to 50 percent of commission with a brokerage, “there’s no money to be made,” he said.

For others, however, the new fee model is only part of the picture. StreetEasy announced that beginning on Jan. 1 it would transition away from any listing feeds to manual entry. Simultaneously, the company said it would hike daily rental listings to $6 from $4.50. It all comes months after the changes to the state rent laws took a bite out of some firm’s bottom lines.

“It feels like we’re being kicked while we’re down,” said Saltzberg.

By StreetEasy encouraging agents to use its custom app to upload listing data, Nest Seekers’ Shaprio said the company is trying to cut them out — and find more revenue along the way.

“Why are we going back 20 years and filling out forms on websites?” asked Shapiro. “Disrupt the relationship between the brokerage and the agents… To me, it’s a clear indication that they’re looking to eliminate the brokerage firm.”

Saltzberg also believes Zillow is angling to take the place of brokerages and pointed to StreetEasy’s requests for exclusive listing agreements — the contracts signed between a firm and its clients. After concerns flared last summer, the company denied trying to circumvent agents and said the practice is to ensure accurate listing data.

Heather McDonough Domi, the founding chairperson of the New York Residential Agent Continuum, said she’s been getting numerous questions from agents since the transition to manual entry began about the non-mandatory field where agents can upload the agreements.

Mahfouda said sharing listing agreements with the company doesn’t bother him because most client information is publicly accessible. But he agreed that he “can totally see” Zillow one day having agents directly working for it.

Still, he said he believes Zillow’s services are in the best interest of agents and consumers. “Where it leaves the brokerage is TBD,” he admitted.

“You have to be selfless in a way,” he said. “Maybe things that are good for agents aren’t that good for brokerages.”

The traditional brokerage model is under fire nationwide as margins grow tighter and competition hits new highs. In New York City, firms are trying to fight the squeeze with cost cutting and consolidation. Meanwhile, the iBuyer model, where companies make instant offers to purchase homes, shows signs of promise and profit in the eyes of Zillow’s CEO Rich Barton.

Teresa Stephenson of boutique downtown brokerage Platinum Properties, which uses StreetEasy’s programs and is now on manual entry, said she couldn’t see the national listings platform becoming a brokerage.

“I don’t see how that would be very smart on their part,” she said.

Write to Erin Hudson at [email protected]


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