Zillow's 'Instant Offers' Controversy Distracts Us

Oh, the slings and arrows Zillow invites upon itself!

The "Instant Offers" controversy led my local board of realtors in Southern California (South Bay) to host a meeting last week to vent the issues.

Judging from the tone in the room, agents smell a rat. People suspect they've seen Zillow showing some kind of "true colors" or the first hints of a secret plan with this new test. Suspicions that Zillow plans to "disintermediate" realtors out of the business are only fed when Zillow moves sooooooooooo close to facilitating a transaction directly.

What's more, the tests in Las Vegas and Orlando have Zillow collecting a "service fee" of 8-9% on transactions put together through "Instant Offers," which sounds a hell of a lot like Zillow taking a commission for making a match.(Ya think?)

Reasonable question that seemed to be on everyone's minds: How much longer will Zillow keep agents involved?

At the end, though, I suspect that on our side, as realtors, it's much ado about a nonexistent threat. In fact, we may be missing bigger threats emerging at the same time as "Instant Offers."

The meeting my board convened last week featured a Zillow representative, Wes Wiggins, and the VP and General Counsel of our vast regional MLS (CRMLS), Ed Zorn. You had to admire the two for stepping straight into the firing line.

The moderator encouraged the overflow crowd to keep their pitchforks on the ground for the first hour, while a series of written questions were presented to the panelists to flesh out the positions of Zillow and the MLS.

That discussion was full of reassurances from Zillow that real estate agents are their primary customers, and that they would never switch business models to become an MLS or a brokerage. (One question was, "Is Zillow trying to become Redfin?" To which Mr. Wiggins' answer was: "No way. No how. No chance.")

Mr. Zorn, from our MLS, added that CRMLS's contract with Zillow specifically prohibits Zillow from creating an MLS or becoming a brokeage. Under that contract, much of our regional MLS database pours into Zillow, but Zorn said it could be "switched off in 30 seconds" if CRMLS saw actual brokerage activity by Zillow.

Right now, more than 95% of listings entered into our MLS go to Zillow by direct choice of member brokerages, who must "opt in" to sending their listings to the portal. Losing that feed could be devastating to Zillow, at least in our region.

Moreover, Zorn said, the most alarming aspect of the "Instant Offers" test, that 8-9% "service fee," likely could not be collected in a California version of the system – if it ever rolls out here.

Zorn explained that anyone who collects transaction-dependent fees in California must hold a real estate broker's license. Hence the test model for “Instant Offers” likely could not be implemented here, on pain of Zillow becoming a broker and instantly losing access to almost 50,000 active real estate listings through CRMLS.

By Zorn's telling, Zillow is hemmed in.

I think it's fair to say that our MLS's top brass views Zillow more as a member benefit than a threat. If the MLS feed goes out to all agents & brokers and 16,000+ IDX websites (like my own Manhattan Beach Confidential), it still doesn't approximate the consumer reach provided by Zillow. So by getting our listings in front of more eyeballs, the MLS thinks they're doing their job better, not feeding a monster.

Mr. Zorn sounded a lot like Zillow's rep when he said something like "Instant Offers" could be "a good way to get listing agents in front of sellers." Indeed, we're told that most of the sellers dipping their toes into the "Instant Offer" process are, instead, choosing to list with Zillow agents to whom they've been introduced.

Full disclosure: I pay Zillow and have received good leads and successful business through my relationship with them. I tend to see Zillow as they portray themselves: as an advertising platform (really a pricey lead-gen system). I can't quite see why they'd want to cut off the predictable flow of advertising dollars in favor of a speculative flow of real estate commissions.

So while I see how and why my colleagues fear a systemic threat from Zillow, I tend to view the "Instant Offers" program as just another lead-gen scheme Zillow is tweaking. I'll probably never even have a use for it in my coastal markets.

If "Instant Offers" turns out to be just a gimmick, one that literally cannot presage a Zillow move into actual real estate brokerage, we may wonder in a few months or years what all the fuss was about.

Curiously, we haven't had a meeting at our association about Redfin, their upcoming IPO or what an actual brokerage like that, whose app is already on the phones of nearly all our clients, might do to disrupt our market. That could be a robust discussion.

Asked about his "5-year vision" for both Redfin and Zillow, Mr. Wiggins opined that five years from now, Zillow still won't be a brokerage, but that Redfin would be trying more and more to be like Zillow.

So, which one are we focused on?