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Zillow-Trulia’s Merger : What Does the Future Hold for the Real Estate Industry?

While Zillow announces the merger of the two leading real-estate websites, competitors try to keep their heads above water, and American realtors are concerned about the digital future of their industry.

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Last Monday, Zillow’s Chief Executive Spencer Raskoff confirmed the rumor: the leading real estate website agreed to purchase Trulia, merging the two most highly visited portals in an all-stock $3.5 billion deal. While some fear this goliath of a merger overwhelms the other websites and even may break into the brokerage business itself, threatening America’s realtors’ jobs, others see an opportunity to jump on the bandwagon.

 According to the agreement, Trulia’s shareholders will keep 33% of all stocks, while Zillow’s would own a bit more than two thirds of the company with 67% of all stocks. The plan was approved by both Boards of Directors and is expected to be effective in 2015. Zillow reported 83 million users across all platforms, while Trulia reported 54 million with little overlap between the two as only half of Trulia’s users are present on Zillow as well. It will dwarf the competition as  Zillow-Trulia concentrates almost two-thirds of all users in the online real estate market, according to comScore. Until the deal is officially completed, Mr. Raskoff said that Zillow will still compete with its biggest competitor headed by Pete Flint, who will remain CEO after the merger.

One of the major benefits of this acquisition would be the significant savings, estimated around $100 million, on advertisements thus far spent on battling each other. Nevertheless, the merger should not face any opposition from antitrust regulators as the revenue of both companies would rise up to about $340 million according last year’s data : only a small slice of the $12 billion the real estate industry spends on marketing a year, according to Mr. Raskoff’s estimation. The fact is that most of this money is scored by little local websites, but Zillow and Trulia have a history of acquiring some of these such as the New York-focused “StreetEasy” bought by Zillow last year, or “Market Leader” acquired by Trulia.

As a result of the merger, Move Inc has become the runner-up of the industry with 23.8 million users whereas it used to be third behind Trulia. Hardly competitive now that Zillow-Trulia will be attracting an estimated 110 million users. They currently focus their efforts on Zillow’s weak spot, as for example a faster updating of listings. Moreover, the agreement gathers so much power that it might threaten the realtors themselves. At first, it will certainly increase the competition, reporting more realtors in the same area. Furthermore, even if both companies have announced that they don’t intend to break into the brokers’ Industry, they could grow recruiting their own real-estate agents.

Still, the weak spots of the newly merged Zillow-Trulia remain. Zillow’s property listing is open to anyone for free and agents can directly receive all the messages from interested viewers, without paying any fee. The customer wants the website to hand out the information for free and that gives agents the upper hand. The largest operators of real-estate brokerages have marketing agreements with all Zillow, Trulia, and Move Inc. which gives them strong negotiating power as Zillow licenses their listings from the Multiple-Listing Services. On the other hand, realtors have little power in negotiating if the newly merged companies want to raise their advertising rates.

Some contractors think that this merger will completely change the future of their business. According to Jim Klinge from bubbleinfo.com, the main consequences will be the end of small realtors unable to pay the rising fees for advertisements, which only major companies such as Century21 can afford. In the end, realtors might let Zillow “spend the big money of advertising” while they would “contribute our share in exchange for specialized leads”, Mr. Klinge says.

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