The rumors that began circulating a few days prior of Zillow (Z) possibly buying out chief rival Trulia (TRLA) have come true. On July 28 Zillow announced plans to to acquire Trulia in a $3.5 billion stock deal. The real question now is: what's this mean for the real estate industry?
The Zillow-Trulia Merger Details
Using Zillow’s July 28 closing price of $160.32, the company will issue about $3.5 billion in stock, which is expected to close next year. Trulia shareholders will receive 0.444 shares of Class A Common Stock of Zillow for every share they own in Trulia.
"This is a tremendous opportunity to combine our resources and achieve even more impressive innovation that will benefit consumers and the real estate industry," Zillow CEO Spencer Rascoff said in the release. Upon the merger, these two companies will still operate under their original names. Trulia CEO Pete Flint will report to Zillow CEO Spencer Rascoff regularly.
Shares of Zillow were slightly up 0.8% to $160.32 a share after the market closed on Monday, and Trulia gained 15% to $65.04 per share. On Tuesday shares of Zillow dropped slightly in light of the deal, shedding nearly 4 percent.
Real Estate Brokers; Going the Way of Travel Agents?
The merger of two online real-estate giants implies the growing of real estate agents’ online counterparts. The market of real estate brokerage industry seems shrinking, and has aroused speculation that the industry's slide would parallel what travel agencies have gone through.
According to the Bureau of Labor Statistics, the size of travel agents industry shrank about 50% from 2000 to 2013. Because of the rise of Internet services, more travellers turn to the web for information and book trips online.
Taking a hint from the fact that Zillow was founded by people from travel website Expedia a decade ago, one may ask the question: are real estate agents about to perish like travel agents have?
The answer is no. Unlike travel agents, the number of real-estate brokers increased to 198,000 in 2013, from the estimate of 140,000 in 2000, according to the Bureau of Labor Statistics report.
This shows people still need practitioners in the middle of a house-buying transaction. Buying a house is nothing like buying a ticket online; it’s much more complicated and sometimes a decision that will affect the rest of a person’s life. There’s much more to leverage in the decision of buying a house. Thus people still rely on agents to help make the decision.
That is, in the digital age, online real estate listings become a convenient alternative to real-estate agents, while realtors will continue to exist, and serve an integral role in the industry.
The Co-Existence of Agents and Real Estate "Media Properties"
While online housing listing websites are still a hot trend, an ideal merchandising model probably is a combination of realtors and online sectors.
For Zillow and Trulia, for example, the National Association of Realtors’ listing website Realtor.com is a big competitor. A spokesman of the association said on Monday that Realtor.com was still the most accurate and up-to-date resource of real-estate information.
In response, Zillow CEO Spencer Rascoff believed Zillow would have a space in this market because of its market value. “We started Zillow as a media property, not a real-estate brokerage.” Rascoff explained, “We sell ads, not houses.”
The merger of two online listing giants highlighted the growing role of the internet in housing market where home buyers reply less on real estate agents, and doesn’t necessarily mean the death of brokerage. Thus online listing sites like Zillow and Truliaare more valuable in another sense.
Zillow for example, its ad income is the top revenue source of the company, and it will not directly compete with brokers on buying and selling houses. Like Rascoff pointed out, the media value of Zillow or Trulia is beyond its potential to sell houses, which secures its existence in the information era.