There is no doubt that both Zillow and Redfin are seeking to be the leader defining the high tech evolution of the online residential real Estate market. With Redfin’s recent IPO, the philosophic line in the sand became a little clearer. Still, comparing the two is like comparing apples and oranges. Zillow’s business model is providing information to consumers and real estate professionals. Redfin’s business model is as an internet based brokerage competing head to head with traditional brick and mortar brokerages. The clearer line in the sand was drawn when Zillow CEO Spencer Rascoff implied that Redfin is a direct threat to the traditional real estate market.
Redfin’s threat is based on cutting the time-honored 6 percent brokers’ commission to 4.5 percent. Further breaking the mold, Redfin’s brokers are paid employees earning a salary and benefits rather than being strictly commissioned independent agents.
Differentiating it from Redfin, Zillow does not employ local real estate agents. Instead, it looks upon real estate agents, mortgage brokers, and contractors as customers who will advertise on its various branded sites. By working with the industry as a leader exploiting internet technology, Zillow’s revenue growth potentially has much more upside than Redfin.
Redfin’s advantage is the ability to scale brokerage operations to the national level almost at the speed of light. It’s currently located in over 80 different markets around the country and employs almost 1,000 lead agents. Redfin’s and Zillow’s strategies are both technology based. Redfin uses technology to help agents be more productive by spending less time finding buyers/sellers and technology enables customers to monitor the transaction process online.
Zillow’s upside or Redfin’s downside is that while consumers gravitate towards lower costs resulting from lower commissions, traditional brokers will compete against Redfin by also lowering commissions. This becomes very significant if Zillow’s services enable traditional brokers to also lower costs through technology.
Currently, this rivalry is little noticed by most casual consumers because both websites offer primarily the same information by displaying housing data, such as home value, home appreciation, square footage, year built, and other data points homebuyers want to know. What is important to note abut this is the large difference in site visits. For 2016, Zillow had a monthly average of over 140 million users. Redfin averaged 16 million monthly users. An almost ten-fold difference. Still, neither has a clear advantage at this point. Zillow needs more eyes on its computer screen to drive advertising dollars. While Redfin pulls in more dollars from fewer viewers based on commissions from home sales.
However, none of this may matter in the long run. The drive for online supremacy in the real estate industry is far from mature. While Zillow and Redfin are popular real estate sites today, there are many other online real estate and home valuation websites that are excellent alternatives. It’s way too soon to count out Realtor.com, which is the online real estate website run by the powerful National Association of Realtors. There are many others still looking for the winning approach that will revolutionize the online home buying and selling process. Zillow and Redfin may ultimately become internet footnotes the same way Netscape and MS Internet Explorer came to be footnotes to Google in the search engine battle.
Certainly, you have thoughts about how the online real estate market will evolve. Please leave comments about your insights and thoughts.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for seven years. He also draws upon 35 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. In the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.
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