A few random, or perhaps not so random, thoughts this morning from three recent news stories.
First, we get a story in the mainstream media by Andrea Riquier of Marketwatch, about Keller Williams entering into the iBuyer space:
Keller Williams, the sprawling national real estate franchisor, plans to launch an instant offer service later this year, another indication of the future path of residential real estate transactions. The embrace of a technology-driven approach to buying and selling by the brokerage most keenly associated with real estate agents points more to the increasingly blurred lines between the two approaches than to an affirmation of one over the other.
Second, we get this Facebook update from JP Piccinini, CEO and Founder of JP & Associates Realtors about… well… more or less the same thing:
And finally, last week, we got a news story about Zillow suing Compass over hiring its employees away allegedly for the purpose of trying to steal Zillow’s intellectual property. But in that story, we get this interesting counter from Compass:
Compass, however, disagrees with Zillow. In a statement to Inman, a company spokesperson said that “you cannot break a non-compete by leaving to go to a company that does not compete with you.” [Emphasis added]
What I wanted to reflect on today was this idea of “a company that does not compete with you.” Seems to me that taken together, the three stories above are pointing to a clear shift in the grounds of competition. Companies that did not compete against one another are jumping into various rings.
I’ll have to think more about why that’s happening and what the consequences are, but let me think through some of the big picture issues with all of you.
The Old Way: Apocrypha
I have heard second and third-hand stories over the years that nonetheless ring true with me. These stories relate meetings between Zillow and Trulia on the one side, and Re/Max and Realogy on the other. As these companies were hashing out various deals, supposedly both Dave Liniger, former CEO of Re/Max and Richard Smith, former CEO of Realogy, told Zillow and Trulia, “We can be partners today, but if you ever cross the line over into our side of the world, we are enemies.”
“Our side of the world” meant franchising and brokerage. So as long as Zillow and Trulia remained in the business of selling ads to real estate agents, Re/Max and Realogy did not consider them as competition, but as partners. But if Zillow and Trulia started taking referrals from agents, started recruiting brokers and agents, or selling its brand in exchange for royalties, then it was war.
So the old modus vivendi, was that Zillow, Trulia, Realtor.com, and all other portals swore up and down that they are not brokerages or franchises, they did not want to be brokerages or franchises, and kept assiduously to their side of the line. Consider the care with which Zillow went into its iBuyer program: making sure to use an agent on all of its transactions, recommending to potential sellers and buyers that they use an agent (preferably a Premier Agent), and so on.
Not that such care mattered all that much in the court of public opinion, of course. For the past several years, we have been treated to the would-be-amusing-if-it-weren’t-so-sad spectacle of Zillow (usually through Jay Thompson) talking about how it loves brokers and agents, wants to make brokers and agents more money, and how indispensable the broker and agent are to the “most important transaction of your life”, to be met by a legion of brokers and agents talking about how Zillow competes against them and is looking to put them out of business.
Maybe that day that the Zaterade crowd warned of is finally here… but not because of Zillow, but because of brokers and franchises.
The New Way: Grand Mêlée
Consider how Compass in its response to the lawsuit says it does not compete with Zillow, but… it did open an engineering hub in Seattle and hired a serious tech executive from Microsoft and Amazon to run it. That Compass is a brokerage matters, but then again, Redfin is also a brokerage and I doubt anybody anywhere would believe it if Glenn Kelman claimed that Redfin wasn’t competing against Zillow.
Then consider how Keller Williams famously pivoted to being a tech company. Now it is entering into iBuyer. What more does KW have to do to make it clear that it is competing against Zillow and Opendoor and Redfin and so on?
Rich Barton more or less laid out the iBuyer business as being the future of Zillow. $20 billion a year business in buying/selling homes vs. ~$3 billion a year in Premier Agent… that’s a pretty clear statement of intent, isn’t it? Yet, Realogy is kinda-sorta in that game now, and KW is joining that, and even smaller players like JPAR and agent teams and boutique brokerages everywhere are getting into the iBuyer game.
Now, to be fair, most such brokerage-based “iBuyer” is nothing of the sort: it is merely a variation on the “Guaranteed Sale” programs of the past, which are just lead-generation vehicles. The difference? Price and conditions. If the price is 1-3% below fair market value (as per Mike DelPrete), with very few terms beyond the actual condition of the property, then that’s an iBuyer. If the price is more like 10-20% below fair market value, with a bunch of hoops that the seller has to jump through before the iBuyer actually cuts a check, that’s a bait-and-switch investor-backed lead-generation deal.
But still, the added noise would be a thorn in the side of the real iBuyers at least for a while as consumers need to sort through the bewildering array of offers and terms and conditions and so on.
Of course, we can’t ignore longstanding initiatives like Broker Public Portal and Upstream and whatever else out there. Brokerages have been crossing the line over into the technology world forever, largely because they sort of have to in the 21st century, but there has long been a strong push to compete against instead of partnering with actual self-proclaimed technology companies.
At the same time that the brokerages are crossing over into the technology and iBuyer space, we can’t ignore the fact that technology companies are doing more and more in the traditional franchise/brokerage space either. Opendoor’s Agent Partner program isn’t recruiting per se, but it is a referral-based program that has long been the domain of brokerages (because you need a brokerage license in order to receive referrals in the first place). Redfin has the longest running such program, but then, Redfin has always been a brokerage. Which brings us to Zillow and Zillow Flex, which is… well… a referral-based program, exactly the kind that Dave Liniger and Richard Smith supposedly warned Spencer about.
Finally, it isn’t as if all of the existing competition goes away. Zillow will still be competing against Realtor.com and Redfin and Opendoor and whoever else. Keller Williams and Re/Max and Realogy will still be competing against each other and every other brokerage out there.
All in all, what I’m seeing is a new modus vivendi in which everybody competes against everybody else, and it really isn’t clear where the line between “brokerage world” and “technology world” is drawn… or that there is such a line at all. It’s two melees merging into one grand melee.
Dar al-Hab in Real Estate
I’m not entirely sure what the result is. I’ll have to do some more thinking about that in greater detail.
But it does seem to me that real estate is entering a new phase, a dar al-hab (“House of War”) in which everyone is at war with everyone else. That doesn’t mean cooperation and collaboration won’t happen, since real estate has long been all about competitors cooperating in certain ways while fighting viciously in other ways.
I suspect that there will be numerous alliances made and broken, unthinkable partnerships and unexpected rivalries come and go. It will be a few years, perhaps, before we see who emerges on top.
More I think about it, more hopeful I am about the grand melee. Why? Because who wins will be determined more or less by how much they are able to win the consumer over. Ultimately, once you merge all of the competition into one grand melee, the winners will be those who can offer a better consumer experience, win consumer loyalty, build a relationship with buyers and sellers, and give them what they want, when they want it, at a fair price.
That doesn’t seem so bad now, does it?