Back in the olden days, before the iPhone and The Bachelor, real estate portals made money in a really straightforward way:
Agents and brokers were able to put their listings on a portal site for free, and could then pay for upgrades to gain visibility, or enhance those listings.
In this way, real estate “search engines” behaved much the same way that Google did and does.
Free was definitely free, but seldom satisfying.
Realtor.com would make you upgrade to show more than 3-4 photos. Trulia would heavily favor “featured listings” in search results.
This was free in the way that it’s “free” to walk inside Saks Fifth Avenue. If you want to leave with anything, you’ve gotta pay the price.
Eventually, Realtor.com, Trulia, and, in time, Zillow, realized that this model was not the path to a really big business. The infamous “three-headed monster” and other means of selling leads to agents off other agents’ listings were born. This is rapidly evolving into a referral-based model.
The portals got really big in this way.
Now, over a decade later, CoStar is planning to launch a real estate site to compete with Zillow and Realtor.com. They’ve bought Homesnap and, now, this week, Homes.com, to pull that together. CoStar CEO Andy Florance has pledged they will abide by the “your listing, your lead” principle. This means that the lead-selling/referral-making pathway to scale is off the table for this new portal (which I think we can safely assume will lie on the Homes.com domain, a nice pairing with CoStar’s Apartments.com property).
So, what revenue model does that leave them with?
My guess: the old-timey “free to list, pay to upgrade” model.
This will allow CoStar to claim the “industry-friendly” territory and begin enticing large brokers to pull their listings from Zillow. Since Zillow is now a broker and IDX-based, it could conceivably do an end-run around this by moving to a VOW, but that would require registration, a very un-Zillow-like user experience.
Either way, this opens up a strong consumer angle for CoStar, which could claim more listings, or more listings not hidden behind a registration wall, than Big Z.
Technically speaking (this gets into the weeds a bit, but is important), CoStar now has a good domain, Homes.com, that came with near-nationwide IDX agreements. This provides a foundation of listings data. But IDX rules limit the practice of upgrading or upselling listings display. That’s where the BPP data agreements secured in the Homesnap acquisition come into play. That’s a different set of data pipes that come with no such limitations.
If you’re still with me, the bottom line is this: CosStar now has what it needs to easily stand up a free-to-list, pay-to-upgrade portal.
Now, they still have to figure out how to make this more than a $200 million a year business (this was about as big as Realtor.com ever got using this model, even when it stood virtually alone, pre-Trulia and Zillow).
I do not think they’re counting on getting there selling software to agents. HomeSnap Pro is a solid product, but it’s not a big enough business to satisfy the ambitions of CoStar. Think about how quickly Zillow jettisoned Market Leader after buying Trulia. It just doesn’t pay.
I think the path to scale here for a truly competitive, CoStar-powered, Homes.com is to make the free option pretty darn unattractive. Maybe not at the beginning (you gotta get folks on board out of the gate), but over time.
Or I am completely wrong.
If you see a different way CoStar could make its residential real estate play a 500M+/yr. business, please straighten me out.
Need to know
You’re quite aware that inventory is scarce, but did you know lumber prices are up 193% percent year-over-year? I think we should be prepared to deal with a shortage of homes to sell for the long haul.
There were 1,463,806 Realtors as of the end March, according to NAR. That’s up 15,716 in one month and about 100K more than the previous high in 2006. There are literally not enough homes for sale right now (a little over over a million) to house the Realtor population. Ponder that over your Friday night cocktail.
Casa Blanca, a new rebate brokerage with a super smooth home search app (seriously, download the app), raised $2.6M this week. Who knows if they’ll make it, but it strikes me how great the new wave of “discounters” look. Help-U-Sell and the like back in the day just looked gross. These new companies often look better than their “full-service” cousins. I think that’s meaningful.
1 in 5 Americans believe climate change is already hurting home values in their area, and more than two thirds have already spent more than $5,000 to make their home more resilient according to a new study by Redfin. Whether our changing climate causes a real estate transaction boom, or causes people to hunker down and improve the place they’re in, I think it’s safe to say that it’s going to be more significant to the future of our industry than anything CoStar may or may not do.
That’s all. Have a restful weekend.