During the first tech boom of the 1990s, many entrepreneurs saw the internet as a way to disrupt industries. Retail shopping is the easiest example, with Amazon as its king. The thinking was you could buy just about anything online. Retail was conquered. Hotels and travel were conquered. Music was conquered. Lending, borrowing, and investing too. But there remained a major category of consumer spending that remained relatively untouched: real estate.
Fast forward to today. The service Redfin has sought to disrupt the industry by making it cheaper to buy or sell a home. For the most part that is done by bypassing the traditional real estate agent system. Today, using a real estate agent to buy or sell a home is 6% of the transaction. You can rely on the listing and buying agent to each take half. When you sell your $200,000 home, you’ll only net $188,000 after the agents take your cut. 6% is a big number. In other parts of the world the fees can be half that or less. This means the margins in this business are likely very good.
Fat margins invite competition. In most industries this happens with some element of speed. Someone creates a new market and reaps high margins. Competition comes in and the margins compress. Not real estate. It has powered through for a while now and even the internet hasn’t made much of a dent. Until now perhaps.
Earlier this week Zillow and Trulia announced they would be teaming up. If you’ve never looked at these sites you’re missing out. It’s made the home shopping experience so much better. You can research the values, sales history, and all sorts of other things about houses; and they don’t even have to be listed to see this stuff. On top of that real estate agents pay for advertising so you can see all this for free.
These two titans of housing though have not tried to undercut the real estate industry. However the founder of Zillow was also the founder of Expedia, and the current CEO was one of the founders of Hotwire. Both Expedia and Hotwire played a huge role in destroying the travel agent profession. These guys clearly have their eyes on that big real estate agent commission.
But so far they’ve played it cool, acting like a complement to the agent’s goal of selling you a home. But this merger is going to set them up to take on the buying and selling directly. The whole housing industry has always been a fickle one. The Realtors have a monopoly on buying and selling, take a cut at every stop. The transaction is complicated and requires expertise. This is partially why the internet has been slower to take a chunk of the real estate pie. The Zillow/Trulia merger could begin to change all that.
Read: How a Zillow-Trulia Merger Could Finally Change the Business of Real Estate (BusinessWeek)