Zillow Becomes A Real Estate Brokerage What Does Rob Hahn Think?

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Rob Hahn is the prognosticator of the real estate industry. A few weeks back on Brokerage Insider, he discussed how teams are the biggest threat to the brokerage industry. This week Rob discussed the big news that Zillow decided to become a real estate brokerage AND that they will stop accepting feeds and instead just get IDX data from MLSs. Listen to what Rob thinks.

TRANSCRIPTION

Or in the explode virtual conference on Thursday, September 24th. We look forward to returning to our regular schedule program soon, but until then, enjoy this session. In this episode, I interview Rob Hahn, managing partner of 7DS and Associates and prognosticator of the real estate industry.

Eric Stegemann: And so, you know, Rob, I actually wrote up a whole bunch of questions before yesterday morning to talk to you about. Sure. And I kind of threw them in the trash can and started after the Zellers news. Yeah, after the big announcement. Yeah. Yeah. So, you know, and I mentioned this morning when we talked to David Gulper, and I'll just reiterate it for anybody that was not in the track this morning, but to announce that they are starting a brokerage officially, even though they had real estate licenses for a while, their official start markets are in Tucson, Phoenix and Atlanta. And so they're going to start up a brokerage, but particularly two things of note. Number one is they're going to focus their brokerage on just their home buying process. And number two is they're moving away from fees where they accept fees and going straight to index data directly from all of your analysis. So let's talk about Zillow homes for just a second. They are going to have salary based agents. Right. And, you know, on a scale of one to 10, considering last time one of our big topics when we talked on the last show of Brokerage Insider, so we talked about it and you said Zillow is not the biggest threat to brokerages. Let me first ask you, do you think that's changed at all? Like if you had to give a scale of one to 10, where did you think they were before yesterday and where do you think they are now? I'd say probably before yesterday.

Rob Hahn: They're probably three. And today there are three. I don't I don't think anything has changed, you know, and I think I made this point in my latest post about this, you know, that I just put up yesterday as a reaction. People are like Zillow is a competitor and yadda, yadda. I'm like, look, unless you've got a couple billion dollars of investor money and they don't care about losing it for 10 years, you're not a competitor. Like, that's not you know, that's not what their business is. And I guess the way I look at it is I mean, for because this is a brokerage group like do you think open doors, a competitor. Because this is the same thing, right? They have billions of dollars, they're going to go in and pay cash for a house they're using, they're in house employee agents to do it. So if you don't think they're open doors a competitor, then you probably shouldn't think that those competitors, if you did think they're open those competitors, I guess I'd like to know how, like, do you have billions of dollars? And again, their brokers who have started Ibai are at odds. Right. And I'm like, look, that's great. But do those investors expect a return for their money? If the answer is yes, you're not a competitor because neither Zillow nor Open Door their investors aren't expecting a return. They're expecting to lose money for a good long time. And they have real deep pockets and they don't care because they're all about kind of changing the world and, you know, that sort of thing.

So that's how I'm looking at it. I understand there's probably a different perspective on that, but I just want to hear the reasoning. Like I'm not saying I'm right and everyone's wrong, but I just this how I think about it. I'm curious what other people think about it, too.

Eric Stegemann: So, I mean, I think, you know, we talked about this over the last time, too. I think that I buyers like open door. I definitely change the dynamics. And it could be and it's yet to be seen. And I think it goes back to does it increase the number of transactions in the market? Right. So open doors, big push and statement has been we're not negative towards brokers because we will increase liquidity. And when you any time in the history of time that you've increased liquidity in a capital market like real estate, you've seen all boats rise more.

And so from that perspective, if that's really the case, if they're increasing the number of total transactions and I texted Rob this earlier this week, that we're actually on pace, that it's six million transactions. That's right near the top of any recorded year, maybe not the top or near the top of any recorded year that there's been, then I think that could be the case. But, you know, if it isn't, then it doesn't. It seem like they're taking transactions out, transaction sites out of the mix in terms of at least listings.

Rob Hahn: I suppose, you know, I suppose and I guess the secondary follow up question, though, is, are brokers really making is that really what a brokerage business is today? You know, and that's what you and I talked about on the podcast. Right. Because if the idea is that brokerages are actually in the business of buying and selling homes, then yeah, but I don't think brokerages are. I think brokerage today are in the business of recruiting and retaining agents.

Agents might be in the business of buying and selling homes, but then we get a whole other discussion, right? So from that standpoint, I'm not sure. And again, I would actually love to hear from brokers themselves, like how they see it, like, am I completely misinterpreting this? But so to your point, it's like if they take out some of the transactions, that's possible. So out of the, you know, 10 to 11 million or to your point, if it's six million a year, it's 12 million sides, you know, OpenDoor and Zillow going to take some percentage of it off the market, I guess.

I guess, you know, but to me, that's sort of like that's the world changing, you know.

Eric Stegemann: Like, so does that make them a threat? I suppose that's one way to look at it, but this is a world changing and it's just a matter of, OK, so how are we going to deal with it that consumer behavior is changing? You know, how do we deal with that? But do you think that the step that Zillow has made that already encroached upon something they said they would never do? Sure. Do you think that that's a slippery slope? Do you I mean, in your post, you kind of say no, unless brokers force it right and or the world forces. Yeah, yeah. I think at so everybody should totally read. Rob's most recent post called Don't Forcillo into a Corner. Yeah, but do you think that's really the case or do you think somebody at Zillow is sitting there thinking, hey, this is our first step into making everybody feel comfortable and it's like putting the frog into the pot where you are growing up slowly instead of real fast.

Rob Hahn: Sure. And that's obviously kind of been the the interpretation of the industry. And I saw it coming from I mean, when I first heard about this, like, really, you guys what that long ago when, like, Spencer was on stage swearing up and down that this would never happen. The problem is like. You know, it's like if the world changes, the world changes, right? So what do you what are you supposed to do with that? The world has changed. Consumers want something else. Are you supposed to then say, screw that, hell with what the consumer wants? I'm not changing. Like, that's idiotic. Like, nobody does that. Brokerage wouldn't do that. So I just record a podcast with Greg Robertson this morning about it.

And the thing I pointed out was, you know, brokers are and MLS is and the whole industry is swearing up and down. You know, we are all about cooperation and compensation and that's the pillar and so on. Well, here's the thing. There's a lawsuit going on right now to make that difficult or impossible to do away with commission sharing. If five years from now that lawsuit wins and the Supreme Court says you are no longer allowed to share commission or we going to say we don't give a crap, we're not going to change, of course we're going to change.

The world has changed. We have to change. So that's one part. The second part I'm saying, listen, the thing that I'm more concerned about is that we as an industry would do something just irrational and stupid, which then forces those guys into doing something that's not good for anybody. It's not making anybody any money. And yet we're going to do it because they have to. Right. So maybe the way to think about it is this and this.

Just my interpretation of how to understand Zillow pivot. I actually think it really has to do with the fact that I'm saying we're a market maker now, but we're still you think of Zillow as an advertising vehicle and they sell leads to agents and that's their business to me. When I look at what this pivot means, is that really kind of saying we're no longer that we're a market maker and I buy this. Our business going forward is buying homes for three hundred thousand and selling it for three hundred and three.

And in order to do that, they actually need to cut as much cost out of it as possible, and they have to make that process, that transaction experience better. And I think what they're finding is open door had the lead on that. They had the edge because open door use their own in-house agents. So if I'm a seller, I say, hey, give me an offer. It's one point of contact with Zillow. And this is what I said, right? It's like, OK, I talk to somebody on Zillow and then I get handed off to some local agent and then that local agent maybe hands me off to people on their team. And it was very disjointed. So I think what they're saying, OK, if our business is buying and selling homes, we need to improve that. We need to bring this in-house. The second part that follows, if we bring this in-house, we know that the Indians are going to cut off the data feed to us.

We know that for a fact. How do we get around that? Let's join the MLS. Right. So it's not I don't know. I have trouble seeing it as like this evil conspiracy plan and all of that and slowly boiling the frog inside because, again, these guys are worth.

We know that for a fact, how do we get around that, let's join the MLS, right. So it's not I don't know, I have trouble seeing it as like this evil conspiracy plan and all of that and slowly boiling the frog inside, because, again, these guys are worth twenty two billion. They have two billion in cash. Their stock is worth like ninety eight dollars a share, whatever. I mean, if these guys wanted to become brokers, if they wanted to, you know, really screw with the industry, then it's not that hard for them.

Eric Stegemann: Right. That's. It's really easy, actually, and I think that's what most brokers are sitting there worried and nervous about, is I think most of them recognize that Zillow has more or less won the consumers zero moment of truth to when they're starting to search. At least Zillow owns the space of starting the home, the place where people start their search. Right. And they have they out a two hundred million unique views.

And all of this stuff that they have, and I think that's where brokers are most nervous, is to say, look, if if if Zillow wanted to tomorrow, they could certainly get into the agent's space. And if they discover, hey, I can go higher salaried based agents and I can go just hire one hundred agents and and kill it in the market and then have team members and assistants and things like that to process the transaction, I'm going to execute on their vision, which is to make the consumer process. That's that's what they care about right there. Consumer prices better, simpler. And what I think that makes brokers most nervous is less expensive. Right. So sure, you go use a Zillow agent to list your home and they could say, well, we'll represent you to buy a home for free or something along those lines. You know, that's that's cutting out a chunk of commission out of that transaction would have happened that might have otherwise gone to a to a broker.

So I think the the bridge is not too far. The leap is quite small between point A and B. Whether they want to do it or not is a different question. But it would be very easy because they own the consumer in so many cases.

Rob Hahn: Sure, sure. But, you know, I think the way I look at that is, again, so I'm a I'm a strategy consultant for living my day job. So let's just imagine that a broker is a client of mine. The first question I would be asking the broker is, how do you make your money? How do you make your money, because I know brokers at one hundred shops, so way they make their money is a monthly membership fee and a transaction fee. Right. So for those clients, one of the things I've said to them is we should not care about what the price of the home is because you don't get paid on the on the value of the home. Right. You get paid on the transaction. So whether the agent is doing a hundred thousand dollars sale or a million dollar sale, you're getting paid for ninety five. If that's your business, then it changes everything that you should care about.

Right, if, on the other hand, you're a, you know, 70, 30 split, then it's a different thing. So the first question I think is as a brokerage, how do you make your money? And here's what I do know. And we talked about this in a podcast. Most brokerages in North America are really struggling with profitability, right? Three percent right. On average, which means that half of them are below that. So then you could say, OK, where where you actually really making your profits? And it's like, well, title, escarole, mortgage, et cetera. Well well, if that's the case, then we've got to think about in those terms. Right. Why do you care about Zillow? Is this, that and the other thing? And, you know, if that's your business, then you should do things to support your business, getting involved with all this stuff about home prices. And Commissioner Masek, why does it matter if you're not making any money from it?

Eric Stegemann: This I think. Oh, doesn't the money flow? What I mean by that is if you're collecting four hundred dollars per transaction. Right. And there's companies like Fathom Realty that are now free to companies that do exactly that. Yeah. And so when they have that, they still need the transaction to happen to begin with. Correct. But correct.

Rob Hahn: But they don't need the commission amount to be whatever. Right. In other words, if the commission amount drops to one percent on average, but we still have 11 million transactions or 12 million transactions, that will be fine. They don't care what the commission amount is. They just care about are their transactions happening and will my agents pay me? So that's what I'm talking about. So it's it's hard to just kind of broadly say brokers should be paranoid about this. Brokers should be paid. I'm just saying. Well, tell me what your business is. Right. Because here's the other thing. Red fin is a brokerage, right. But as you and I have talked about, I don't actually look at Red fin as a brokerage. I look at them as a really big giant agent team. If you're an agent team, then maybe you care more about it, because now your business is actually, you know, helping a consumer buy and sell homes and you're taking a big chunk of the commission and then you're actually splitting it out or you have W2 employees, so you have your expenses. That's a different business model. And if that's the case, I would think about things very differently, you know? So that's the first point.

The second point, I think it's like I said, having said all of that, it does seem clear to me that most brokerages in the industry today are in the recruiting and retention business. And if that's true, then I think the question is Zillow now says they're going to bring in buying and house. They are now going to join the MLS. My question is, how does that affect your recruiting and retention business? And as yet, I haven't gotten a clear answer to that, so maybe you have a thought. I mean, how does that affect recruiting and retention, having buyers or.

Eric Stegemann: Yeah, OK is now in the MLS.

Rob Hahn: How does that affect the ability of Re/max results to recruit in Asia? Well, I will.

Eric Stegemann: We're having Brendan on shortly, actually, and also in about 30 minutes. So you can you can ask her that question. Yeah, but I think, you know, I think I won't speak for Brenda particularly, but when I will speak from is I think it is about recruiting retention. And if a broker can go to Zillow and have, you know, an even Redfin and salary plus commissions. Right. But if there's a dwindling number of transactions that happen, even if you're averaging a high number of transactions and Brenda's company averages twenty three transactions per agent, per agent, and they have over 12 hundred agents. Right. And so, you know, from the the the proofing of your business, the Zillow proofing of your business, I think that's about as strong as you could possibly get that's out there. But I think at the same point, if I was sitting there and and I was the CEO of one of those types of companies, I would certainly look at it like there is likely to be a dwindling number of transactions. And every time my agents make less money, that means I can charge them less, whether that's in a desk fee, a transaction fee, a month or whatever it happens to be. Also, any model that's reliant on volume in terms of agents, you know, if you're an XP realty and you're, you know, getting everybody out there into the network and getting the transactions that go through, I think you're going to dwindle over time if there's more players in the market and there's not more transactions because of that.

Rob Hahn: Right. Sure. Yeah, I mean, I see that I see kids so close up, it's like if you're a software company, a big software company I'm not talking about.

Or Apple, you're also in the recruiting and retention business. I think if you ask a lot like Google, what they do now, it's their product is pretty stable. It's more like we just need good talent to keep building upon what we're building on. And I think their big problem or their big concern that they have every day is making sure they're getting the best talent possible to come work for them. But there's more people drawing from that talent. There's less to come to Google.

And if there's more people drawing from the Minnesota Minneapolis real estate market of the top tier talent and Zillow says, hey, top agent, I'll pay you five hundred grand a year salary to come work for me. And that way in a bad year, you're even like you're still going to make 500...