Zillow, Trulia Forming A Blended Household

Zillow and Trulia, the Nos. 1 and 2 in online real-estate listing sites, announced an all-stock merger yesterday, creating a behemoth that will “dominate the traffic for online home listings” and result in combined savings of about $100 million by 2016, reports the New York Times’ Michael de la Merced. 

Zillow will pay about $3.5 billion in stock for its competitor; existing Trulia shareholders will own about 33% of the combined company. Pete Flint will remain as CEO of San Francisco-based Trulia, which will retain its identity, and will report to Spencer Rascoff, CEO of Seattle-based Zillow.

Unlike travel agents, independent bookshops, consumer electronics chains and big-box retailers, real estate is one area of commerce where bricks-and-mortar shops apparently have not been hurt by the easy access to information and comparison shopping provided by websites. 

“We started Zillow as a media property, not a real-estate brokerage,” said Rascoff, according to the Wall Street Journal’s Joe Light. Then, echoing remarks he made last year during a Bloomberg TV interview when he was asked about the online discount broker Redfin, he said: “We sell ads, not houses.” 

“In real estate, there will always be a practitioner in the middle of a transaction, helping consumers with an infrequent, complex, and emotional transaction,” Rascoff tells Light, who points out that the Bureau of Labor Statistics “estimated that there were almost 198,000 real-estate brokers and agents in 2013, well more than the estimate of 140,000 in 2000.” 

There are about half as many travel agents by comparison.

“Zillow executives say the combined company — which will maintain both companies' sites — will do even a better job of listing data on most houses in the country and connecting agents with buyers and sellers,” Light writes.

“The two sites, with their troves of searchable, mappable home listings and other data, have transformed the way Americans shop for homes, giving consumers the sort of information that was long the exclusive domain of agents and multiple listing services,” writes the Los Angeles Times’ Tim Logan. “They generate most of their revenue from selling ads to real estate agents.”

But together they garner just 4% of the $12 billion spent on real estate advertising annually — leaving lots of room for growth. 

That growth will primarily come, alas, at the expense of our old friend, the daily and weekly newspaper. Even now, “more than 90% of homebuyers begin their search online, while only 27% stated that they bought a house they saw in the newspaper,” wrote Mark Stansbury on real-estate site Inman News last year, quoting NAR data.

Rascoff tells Bloomberg’s Jing Cao and Pui-Wing Tam that the strategy of creating a portfolio of online real estate brands — and both Zillow and Trulia have acquired smaller competitors in the past — is akin to InterActiveCorp (IAC) investing in multiple matchmaking services such as Match.com and Tinder.

“That diversity means it can compete for multiple different audiences and attract a larger swath of users — and advertisers,” blogs Andrea Peterson in the Washington Post. “Zillow and Trulia provide seemingly almost identical services, but could build a similar synergy: Zillow's ‘Zestimates,’ which provide a baseline for how much a property is worth, are a popular tool among home-buyers while Trulia's tools are more geared towards home sellers.

But Time’s Jacob Davidson points out that those Zestimates, as well as other data on both sites, can be inaccurate.

“Because neither company has access to the large sample of multiple listing service (MLS) data that members of the National Association of Realtors are privy to, each relies on a hodgepodge of MLS listings, third-party services, and individual brokerages for their listing information,” Jacobson writes.

Meanwhile, the index of pending home sales, which tracks the number of home resales under contract, dropped 1.1% from May after rising for three months, according to the National Association of Realtors, and is 7.3% below year-ago levels. 

“Unfortunately, I don’t see much of an acceleration in housing demand going forward until we get a significant improvement in the labor market and the income part of it in particular,” BNP Paribas economist Yelena Shulyatyeva, tells Bloomberg’s Victoria Stilwell. “An uneven recovery in the housing market is really one of the biggest concerns of the Fed.”

NAR chief economist Lawrence Yun forecasts existing-homes sales to drop 2.8% in 2014 to 4.95 million, compared to 5.1 million sales in 2013. The national median existing-home price is projected to grow between 5 and 6% this year and in 2015.

We’ll stick our neck out here and Zestimate that growth at a combined Zillow and Trulia is likely to outpace that figure.

Tags: m&a, real estate
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