Here’s why Zillow is getting brokerage licenses

Options to collect rent and vet buyers may require a license in some states

Feb.February 04, 2020 08:30 AM
Rich Barton (Credit: iStock)

Rich Barton (Credit: iStock)

For years, Zillow Group insisted it didn’t want to replace brokers or usurp their clients. But its quest to obtain brokerage licenses nationwide may test those claims.

The push to get licensed comes as the Seattle-based listings giant pilots new features like rental payments and referral fees, which flirt with the kind of brokerage services offered by traditional firms. Most recently, Zillow got a brokerage license in New York, as The Real Deal reported Monday.

In addition to New York, Zillow is licensed or is actively pursuing a license in about 25 states, the company said. It has a pending license in Florida, according to TRD’s analysis of state databases for agents and corporations licensed as of Feb. 3, 2020. The company has also been licensed in Arizona for two years, after state regulators demanded it get a license when it launched an iBuying program there.

“Even though we aren’t operating as a classic, traditional brokerage,” said Viet Shelton, a Zillow spokesperson, “we will be performing activity for which many states require a license.”

Sources said the changes are part of Zillow’s pivot in 2018, from a go-to source of listings to a company that is embracing instant home-buying, mortgages and other programs to grow its revenue. Last year, the company’s founder and CEO Rich Barton described the business shift as a “moon shot” opportunity that would accelerate the company’s growth.

In addition to iBuying, Zillow has been testing a “Flex” program that gives agents qualified buyer leads without paying any upfront costs; instead, agents pay a “success fee” akin to a referral fee if they close a deal.

“Flex could be a catalyst” for revenue growth and has already seen positive results in test markets including Colorado, Connecticut, Arizona and Georgia, according to Thomas Champion of Cowen Research. In a December research report, he noted, “We see Zillow evolving from its legacy advertising roots into a national real estate transactions platform.”

But in New York, when Zillow-owned StreetEasy tested a similar referral fee model last year with its “Experts” program, it raised questions about whether StreetEasy needed a brokerage license. “Unlicensed persons or entities cannot receive real estate commissions in any form, including referral fees,” one brokerage CEO told TRD.

Mike Del Prete, a scholar-in-residence at the University of Colorado who studies the real estate industry, said Zillow’s pivot brings it closer to the transaction.

“Whether Zillow is a brokerage or not is besides the point,” he wrote in an email. “The key is whether it is acting like a brokerage. Over time, whether through its Zillow Offers business or a shift to a referral model, it’s moving in that direction.”

Historically, agents have been wary anytime Zillow changes a feature or launches a new program out of fear they will someday be replaced. But Wall Street analysts said that fear doesn’t necessarily take into account how heavily Zillow’s business model relies on revenue from agents.

“Look, I think Zillow’s broader strategy is to use technology to streamline the process of buying and selling homes,” said Tom White, an analyst at D.A. Davidson & Co. “But the way they monetize that mission is selling advertising opportunity to agents and basically delivering them leads.”

That said, Zillow has been on a mission to improve leads. And White said by vetting buyers, Zillow may be communicating with buyers and sellers in a way that warrants a brokerage license. “Different states have different regulations about what types of things you need a license for,” he said.

Steve Murray, founder of the research firm Real Trends, said on one level Zillow “is already in the brokerage business” since it generates seller and buyer leads for a fee. “The only thing they’re not doing is opening a lot of bricks-and-mortar,” he said.

Richard Grossman, president of Halstead, said it’s clear to him that Zillow’s licensing push represents a new revenue stream for the company, not an operational shift.

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

Additional reporting by Erin Hudson

Write to E.B. Solomont at [email protected]

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