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Will the NAR Settlement Force Zillow to Change Its Business Model?

Services for Real Estate Pros with Kukun, Inc.

The real estate industry is abuzz with the reverberations of the National Association of Realtors (NAR) settlement, prompting a need for strategic reevaluation, particularly for online home listings giant, Zillow. Boasting an immense user base, Zillow has long been a dominant force in the online real estate realm, drawing in a staggering 105 million unique visitors in December alone, outshining the likes of Netflix and LinkedIn.

Zillow's revenue streams have exhibited diversity, encompassing lead generation, advertising, and software services tailored for agents. However, a substantial 75% of its revenue in 2023 stemmed from services provided to brokers and agents in the residential market, a reliance that now faces potential challenges in the wake of the NAR settlement.

This proposed settlement may necessitate a thorough reconsideration of Zillow's business model, particularly its dependence on monetizing buyer leads and agent services. In contrast, CoStar, a significant competitor, has strategically positioned itself to navigate potential changes stemming from the settlement. Unlike Zillow, CoStar, the parent company of platforms like Homes.com and Apartments.com, refrains from selling homebuyer leads to buyers’ agents, instead opting to charge seller agents for enhanced listing placements.

This distinction assumes significance as it shields CoStar's revenue from potential impacts on buyer agents, a fact reflected in its stock performance, which has seen a surge in investor confidence following news of the settlement. CoStar's revenue structure diverges markedly from Zillow's, with its residential segment accounting for a mere 2% of its revenue.

Moreover, CoStar's recent introduction of subscription memberships aimed at prioritizing listings in search results underscores its adaptability to evolving market dynamics. By offering seller agents the opportunity to boost listing visibility without compromising buyer agents' commissions, CoStar demonstrates a proactive stance in navigating potential regulatory shifts.

In contrast, Zillow may need to reassess its revenue streams and explore avenues for diversification to mitigate risks associated with the NAR settlement. This could entail reducing reliance on revenue from agent services and exploring alternative revenue streams such as rental listings and mortgage origination, which have been less prominent in its revenue mix.

It's worth noting that while the NAR settlement prohibits seller’s agents from listing compensation for buyer’s agents on the MLS and that it also prevents NAR members like Zillow from setting up alternative channels for doing so, it doesn't preclude offers of compensation elsewhere. Thus, there's a potential opportunity for Zillow's competitors to gain market share by offering an alternative venue for cooperative compensation. However, the fear of legal repercussions might deter them from fully exploiting this avenue. Workarounds, like those mentioned in Kukun’s earlier article about the NAR settlement, might offer their competitors the best of both worlds---a chance to become “the new MLS” while avoiding litigation by allowing compensation offers to be communicated indirectly and privately through direct messaging or some other means. For example, instead of listing the offer of buyer commission compensation directly, their competitors could put in place a system of automated messaging that allows the buyer’s realtor to receive that information in an email or a DM. It seems by joining the NAR, Zillow may have taken on a near insurmountable competitive burden. 

Overall, while the NAR settlement presents challenges for online real estate market players, it also catalyzes innovation and adaptation. In line with our earlier blog post, we think industry players will eventually concede that the old setup was better, but Zillow and other incumbents in the industry may end up recalibrating their business models, at least temporarily.

Matthew Scarborough
Scarborough Realty LLC - Santa Fe, NM
Local Market Expert

It's an interesting idea for sure. Lots of companies have been rethinking their business models since this whole thing began. 

Mar 27, 2024 05:34 AM
Michael Elliott
Fathom Realty - Burlington Township, NJ
Burlington, New Jersey Residential Sales

It will force everyone and every organization to make changes in order to adapt and survive.  $500 a month for maybe 2 leads will likely go by the wayside.  

Mar 27, 2024 05:48 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Welcome to the Rain. Enjoyed your blog page, and I added you as a follower. I would love the follow back. Also, then we both get 50 points. Bill

Bill Salvatore, Realtor- Arizona Elite Properties

Mar 27, 2024 06:01 AM
Alan May
Jameson Sotheby's International Realty - Evanston, IL
Cicadas are coming! Cicadas are coming!

The settlement specifically prohibits setting up an off-MLS system to circumvent the agreement, and that sounds like what this would be using Zillow.  And Zillow IS a member of NAR and subject to the agreement.

Mar 27, 2024 06:50 AM
Kukun's VP of Analytics Franklin Carroll

Thanks for the much needed correction. 

If Zillow cannot circumvent this somehow, their competitors at Co-Star are likely to win out in the marketplace. 

I have edited the article in alignment with your feedback. I hate to be proven wrong, but it is better than persisting in error.  Thanks. 

Mar 27, 2024 07:09 AM
Alan May

"better than persisting in error"... agreed.

Mar 27, 2024 07:44 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello and will be interesting to see what their new model will be and how it will effect pricing for them.

Mar 27, 2024 09:48 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

This probably is the end of Equal Compensation between Realtors in the same Transaction. Many companies had policies that made agents to offer the same amount that the Listing Agent would make ..

Mar 27, 2024 08:46 PM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Being retired I have not dug deeply into the issue as of yet. It all comes down to the benefit derived for the money invested. Enjoy your day.

Mar 30, 2024 04:32 AM
Peter Mohylsky, Destin BeachPro
PMI. Destin - Miramar Beach, FL
Call me at 850-517-7098

Interesting perspective on this issue.  Let’s wait, see, plan on a favorable outcome. 

Mar 30, 2024 04:37 AM
Leanne Smith
Dirt Road Real Estate - Golden Valley, AZ
The Grit and Gratitude Agent

Yes interesting perspectives.  Much fear is being sounded and for those who plan their work and work their plan they will be much more likely to succeed than those who have been flying by the seat of their pants.

Mar 30, 2024 10:28 AM
Hannah Williams
HomeStarr Realty - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-820-3376

We  cannot assume, and no one knows.


Mar 30, 2024 11:35 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

As WC Fields said - It was a woman who drove me to drink and I never wrote to thank her.  I don't think I will write to the DOJ, Stitzer or the FTC! 

Apr 06, 2024 05:23 AM