Real Estate Agents Lose From the Merger of Zillow and Trulia

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Monday morning’s announcement that online real-estate listing sites Zillow Inc. (NASDAQ: Z) and Trulia Inc. (NYSE: TRLA) are merging clearly benefits both firms because it neutralizes each one’s largest competitor. When number 1 and number 2 join forces, though, numbers 3 through X generally do not fare as well.

The number 3 online real-estate listing site is Realtor.com, which is operated by Move Inc. (NASDAQ: MOVE) on behalf of the National Association of Realtors (NAR). According to comScore, Zillow gets about 54 million unique visitors a month, Trulia gets about 32 million and Realtor.com gets about 24 million. The fall-off in visitors gets much steeper for numbers 4 and 5, down to 11 and 6 million unique visitors for privately held ForRent.com/Homes.com and Redfin.com, respectively.

Last week Realogy Holdings Corp. (NYSE: RLGY), owner of Coldwell Banker, Century 21, Sothebys International Realty, and Better Homes and Gardens Real Estate brands, acquired brokerage and technology company ZipRealty for $166 million. Of the top ten online real-estate listing sites, Coldwell Banker is number 8 with 4.1 million unique visitors and Century 21 is number 10 with 3 million. The acquisition of ZipRealty is intended to speed up an increase in those numbers by generating early-stage leads for brokers, one of the strengths of both Zillow and Trulia. Monday’s announcement puts even more pressure on Realogy to deliver an online service that can compete.

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The Zillow-Trulia combination may not be in consumers’ best interests, say some observers. Although home buyers don’t pay anything for the service, having fewer choices could ultimately lead to higher fees for real-estate agents who advertise on the sites, and those higher fees would eventually be paid by home buyers and sellers.

One industry analyst said last week that only about 15% of real-estate agents can afford to advertise on either Zillow or Trulia, and he said, “[M]y expectation is that a lot of brokers will say I’m not going to send my listings to you anymore. They might put them on realtor.com.” If that happens, of course, the Zillow-Trulia combination could face some challenges.

Some real-estate agents are also concerned about the future of the multiple-listing services (MLS) that have been traditionally controlled by the brokerage firms and that have dominated real estate listings for decades. With wider online dissemination of real-estate information, there is less value in an MLS and, therefore, less asymmetry of information, which is not always a good thing for sell-side companies.

Shares of Move were up more than 5% Monday morning to $14.91, presumably because investors figure the company is the next likely takeover target. Its market cap is less than $600 million and its 52-week stock price range is $9.47 to $18.36.

Realogy stock traded at around $37.83, down about 0.6% and in a 52-week range of $34.77 to $51.35.

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