Tomorrow’s big real estate headline is likely to be the merger of Zillow and Trulia, which has been held up for a few months by a Federal Trade Commission investigation into the question of whether the merger will create an illegal monopoly. Apparently, the FTC’s answer is “no.”
For a market like Flagstaff’s real estate market, this development means little. Of greater interest is whether Zillow will carry Flagstaff listings as we hit the peak of the 2015 selling season. Their new MLS-by-MLS negotiating strategy may mean they don’t get to us in time.
While folks searching the internet for Flagstaff real estate listings are bombarded with ads for Zillow and Trulia, the usually end of up with a top-rated local real estate search site like BestFlagstaffHomes.com
Zillow to acquire Trulia, but still account for only 4% of real estate agents’ marketing budgets
Last Monday, after six weeks of secret negotiations, Zillow and Trulia announced a plan to merge in 2015. The motivation for the merger is to lower costs for development and delivery of real estate search services. While the two brands will remain separate in their external appearances, at least initially after the planned stock merger, they will combine operations behind the scenes.
Currently, Zillow has 83 million unique users and Trulia has 54 million, including users on both mobile and desktop platforms, according to Aaron Kessler and Ben Cohen, in a research note for Raymond James. “While we believe the deal could receive some [antitrust] regulatory scrutiny, Zillow noted that combined the companies represent less than 4% of the estimated $12 billion real-estate professionals spend on consumer marketing,” they wrote, as quoted in Amy Hoak’s MarketWatch column.
RE/MAX Chairman and Co-Founder Dave Liniger, who recently met with Zillow CEO Spencer Rascoff at RE/MAX World Headquarters in Denver, welcomed the news. He called the two portals “partners in our success.” Liniger added that companies such as Trulia and Zillow have the capital and technology resources to build sophisticated search platforms. Brokerage networks like RE/MAX have thousands of agents who have established personal relationships with buyers and sellers in their local markets.
“Some people in my industry panic and think the Internet is going to put Realtors out of business,” Liniger said. “But we don’t sell a commodity. We sell unique properties; each one is different. The value of someone to guide you through a [home] purchase is far more important than simply viewing homes online. We look at the portals as our friends,” Liniger said. “We wish them success.”
The last decade has seen IDX become industry standard with new innovations related to listing search and promotion coming at a furious pace. Very simply, “IDX” is the system that allows non-listing agents and websites like Zillow, Trulia, and hundreds of others, to display on their websites the listings “owned” by agents who list in any multiple-listing-service. Here is an example using the Flagstaff MLS.
Many real estate agents have seen themselves dragged into this new information age, kicking and screaming. They have hardly adapted their business model from what worked in decades prior, and they have essentially done the bare minimum required to keep their business functional in terms of technology. Forget optimized landing pages, drones for virtual tours, or a social media mix being part of the business plan; these agents do not even have email set up on their phone. We need to look in the mirror every day and make sure we’re communicating in the ways our clients want and need.
Much of what is discussed in articles about the potential obsolesce of real estate agents seems to have much more to do with old problems than with anything caused by new technology. New technology may simply make the agents’ bad performance more apparent to clients: Game playing with information, agents not communicating flexibility or motivation to the other party when negotiating contracts, the buyer’s agent not prequalifying their clients. Those are all pre-technology problems that arise from a poor choice of agent.
Where does this leave us? Can technology solve the age-old problem of bad real estate agents? Is an online auction model the way to go?
Auctions are part of the real estate landscape; however, properties have been listed on eBay for years and it hasn’t exactly been a game changer. MLS listings now refer to auction sites. A home is more than just another item being sold; it’s not a boat or a golf club.
A computer pricing algorithm does not know if counter tops were installed correctly, or what lies beneath those new floorboards, or if that third bedroom started as a garage. It most likely doesn’t know the motivations of the previous owner, upcoming development changes that may affect property values, and Zillow certainly cannot negotiate or write a binding contract protective of each party’s interests. Pricing a home correctly is art as well as science; experience and creativity count. To properly sell a house, real estate agents spend their careers learning about neighborhoods, rates of return on investment, title, financing, and contract-writing.
The real estate industry is about “real property,” but it’s also about the real human beings who buy and sell those properties. Every transaction has its own story; every seller has his or her own motivation; and every buyer wishes to achieve his or her own goals. Real estate professionals spend their lives as mediators and educators, using their experience to help a successful outcome to occur. That can’t be replaced by a computer algorithm.
Zillow describes the Flagstaff homes market as “healthy,” but its statistics reveal that 19% of homeowners in Flagstaff are still in a negative equity situation. This will keep inventory low because homeowners won’t sell if their sale price will not cover their mortgage payoff plus costs of sale. Low inventory will put upward pressure on prices in spite of the sluggish economy. Zillow also predicts that foreclosures will be a factor affecting Flagstaff home values for the next several years. Some people must leave their home even if they are in a negative-equity situation. Of course, some will be in a position to put cash in at closing and thus get out from under the mortgage without foreclosure, and short sale negotiations are still a possibility. The impact of foreclosures remains, but it’s not heavy compared with what we’ve seen since 2008.
Credit Suisse creates a monthly national survey of real estate agents, which has proved quite predictive over the years during which I’ve been following (and participating) in it. February buyer traffic was lower than expected: “Our Buyer Traffic Index slipped to 36 in February, from 38 in January—both levels indicate lower-than-expected traffic (50 is neutral). We typically see our February traffic index remain flat relative to January, whereas it fell two points this year. … Our index rose by only three points in January, relative to a typical eight-point increase. Now two months into the year and quickly moving into the middle of the spring selling season, we believe the impact from 2013’s sharp rise in home prices and interest rates is having lingering effects and the near-term demand environment will continue to underwhelm, especially for first-time buyers.”
Credit Suisse analysts blame low inventory for the decrease in buyer traffic. They say the market “has morphed from one where buyers want to grab what is seen as the last ‘suitable’ property to one … where, more often than not, those ‘suitable’ properties are difficult to find at all. In addition to causing buyers to just stay put, this lack of supply has also pushed prices to higher levels, where many buyers cannot [afford the properties available].” Bottom line in the Credit Suisse national outlook is for broad home price gains to continue but with “more muted appreciation in 2014, relative to 2013, based on the lower level of demand.”
The Phoenix real estate market is in flux. After the sharp rise in home prices last year, buyers seem to have less confidence and investors are less interested in the Phoenix market. Economic concerns and higher interest rates have put some buyers who were working with Phoenix-area agents on the sideline for now, according to the Credit Suisse survey. RE/MAX regional reports concur that the Phoenix market, which via traffic and second-home interest has an impact on our Flagstaff homes market, is not as strong in 2014 as it was last year.
In Flagstaff, we are seeing these national and regional trends result in the all-to-familiar Flagstaff Squeeze (my term): The low-end of the Flagstaff home market is very competitive, pushing up prices and making new listings disappear under contract within 24 hours. Meanwhile, the market in the higher ranges is slow. See the price range home sales chart in myMonthly Flagstaff Home Sales Report, to be posted tomorrow.
We’ll see what spring brings. If this is the year when your personal situation indicates a sale is in order, give us a call for specific advice. 928.714.0001.