Zillow vs. Redfin — Automate versus optimize

I’m exactly the sort of nerd who spends her Saturday morning listening to replays of the Zillow and Redfin earnings calls (spoiler alert: both firms are growing their iBuyer programs, both are also placing heavy bets on a lot of different initiatives that are still relatively untested). 

Glenn Kelman’s folksy approach is so disarming, you almost forget he’s still on a mission to completely change real estate as we know it. In a way, he’s just getting started. While Zillow has far more visibility (it started out nationally whereas Redfin, as a brokerage, has always moved market by market) which has meant that it stayed off the radar of many folks. You probably haven’t seen a lot of major Redfin campaigns and it doesn’t get name-checked in the media like the big Z. 

Also, because Redfin started mostly with a really great site and app and attracted buyers, most of us didn’t see a lot of Redfin signs in our neighborhoods starting out. That has changed a lot in the past year.

The difference between the two company approaches is interesting, Redfin is doing more things that might be considered technically disruptive, specifically its aggressive move to cut commissions and its tests to cut out a buyers agent completely in some markets. That last one is still in its infancy and it’s too early to know how big it will get. Personally, I’m not a fan of this. I took my license test in California and I know how complicated transactions are. Kelman says that the people opting to buy direct without an agent are those who have done a lot of transactions before. I think that may be true, I also think there's still value in being guided by an expert. When I buy in a new state, I'm going to use an agent. I'm smart enough to know what I don't know.

 One thing that was interesting on the call was Kelman’s discussion of Redfin’s principal agent program. Basically, Redfin, like any other brokerage, has realized that as agents mature in the business they get better at their jobs. When I worked at a brokerage in Los Angeles, some of the best agents we had came from Redfin. They spent a year or two inside the Redfin system, become very focused and did a lot of transactions quickly, and then they moved on to brokerages where the commission structure was a lot more agent-friendly. So as much Kelman wants to take agents out in some ways, he also clearly wants to keep agents that start at Redfin, staying with Redfin.

When you look at Redfin and Zillow collectively, you really see two different visions of the future of real estate. Zillow CEO Rich Barton said on the earnings call: “Zillow Group's business model expansion to mechanize real estate transactions is gaining traction.” That word mechanize, immediately hit me. As much as Zillow makes much of its money from agents right now through Premier Agent (and now Flex, its newer way of turning leads into referrals), that’s not its end goal. Its end goal is a system that serves consumers. A single unified way to buy, sell, rent and finance. Now that could benefit agents and brokers, certainly, I know plenty of agents and brokers who have used Zillow to their advantage and done very well with it over the years. But benefitting agents isn’t at the heart of what Zillow wants to do, it’s always been clear that what it wanted to do was revolutionize the transaction itself. 

Redfin is a little different. As I see it, Kelman doesn't see the industry as in need of revolution as much as he thinks that existing structures can be improved and shifted, tweaked and fine-tuned. He's gotten it wrong a few times but he tends to approach things like an engineer, building a big enough sandbox to test stuff out before moving forward. Now if he hits on a way to take the buyers agent out, he'll do it. If he can whittle the commission down to 1%, he'll do that too.

 I’m not an analyst (luckily I work with brilliant folks who do that), and I look at these companies not from a question of their value now or in the future but in terms of their impact on the real estate industry. One more note on that is that Zillow keeps renters squarely in their equation, Redfin doesn't.

Last weekend, the National Association of Realtors held their annual conference. The conversations about housing affordability continued as did the discussions of pocket listings. The industry continues much as it has in some ways despite all the changes in the offing. The biggest shift, however, may not come from inside the industry at all, it will come from the millennials as they decide what the future of housing looks like and what model they want to embrace.