Trulia-Zillow $3.5B Deal Affects U.S. Realtors and Home Buyers


Online real estate giant, Zillow, announced Monday that it was buying its biggest competitor, Trulia, in an all-stock $3.5 billion deal that will change the home sale landscape for both buyers and realtors. News of the merger increased both company’s stock prices, sending Zillow up one percent on Monday to close at over $160 per share while Trulia’s stock price rose 15 percent to just over $65. With Trulia stockholders receiving 0.444 Zillow shares for each of their Trulia shares, Zillow paid $70.53 per share, a 25 percent increase above Trulia’s market-closing price the Friday before the sale. It is expected the deal will be finalized in 2015.

Zillow states that one of its primary motivators in acquiring Trulia is the reduction in marketing dollars it will spend competing with the other brand. Zillow expects to see what it calls “cost avoidances” of at least $100 million by the end of 2016 in money that would normally be spent competing with the company they just acquired.

Although the two companies will continue operating as separate brands Trulia’s CEO, Pete Flint, will now report to Zillow CEO, Spencer Rascoff. Both Flint and one other member of Trulia’s board will join Zillow’s board of directors. Last year Zillow bought another online real estate site called StreetEasy and the staff and day-to-day operations of each company remained separate in the short-term after the sale. Zillow’s Rascoff has expressed a goal of creating “a comprehensive suite of real estate sites.”

Both Zillow and Trulia are well-known by consumers as an online real estate source. However, earlier this summer, Zillow reported significantly higher sales with a June number of 83 million visitors across all its platforms while Trulia reported 54 million for the same time frame. Zillow stated that the majority of their income came via advertising sales to various types of real estate professionals.

Many experts believe that little will change for the everyday consumer of these sites. However, there is an entire other group that believes that this kind of massive availability of listings will be good for the average home buyer who can do their homework on a single site, rather than having to browse through a myriad of local real estate companies. From the perspective of real estate professionals, one very real problem in the Trulia-Zillow merger may be that brokers own the listings that appear on their sites. They then feed these listings to one of the vast numbers of multiple-listing services (MLS) available, who in turn syndicate them out. Although both Zillow and Trulia receive some listings from brokers, often they license their listings from an MLS.

This ownership of listings hands brokers the power to negotiate more reasonable advertising rates from Zillow and Trulia, particularly once their current marketing agreements expire. On the other hand, the brokers have less leverage if the newly merged companies want to raise their advertising rates since they will now control such a significant portion of the online market. Consumers value being able to get all the behind-the-scenes information on home sales, availability and comps that used to be available only to realtors. Many believe the merger will affect the smaller realtors, putting them out of business within the next few years as they cannot afford to compete with giants like Realogy, which contains the “big brands” like Coldwell Banker, Sotheby’s, ERA, Century 21 and Better Homes.

Although the Trulia-Zillow merger has realtors and home buyers playing close attention, the $3.5 billion deal has been smooth sailing so far for both companies. The only agitated parties in this, besides the aforementioned realtors, are the bankers. New York Times’ DealBook reported that Trulia hired investment bank, Qatalyst Partners three years ago to seal a deal like this one, only no deal was struck. For the merger with Zillow, Trulia used JPMorgan instead. Things got tense when Qatalyst said its contract with Tulia, mandating the company’s sale, was never terminated.

The result of this is that, although JPMorgan guided Trulia through their initial public offering and also brokered the merger with Zillow, Qatalyst demanded the two percent fee from the original contract (approximately 70 million dollars). The New York Times stated that Trulia’s CEO was an Oxford pal with one of Qatalyst’s bankers and the two of them engaged in some tense talks with other executives from both companies. In the end, Qatalyst’s insistence and the wish to avoid the distraction of a costly dispute pushed Trulia to renegotiate their contract with JPMorgan and include Qatalyst in the deal. Many feel that Qatalyst’s actions in this transaction were overly aggressive.

The merging of Trulia and Zillow cannot help but alter the real estate landscape. Currently neither of these companies charges for property listings. Their revenue is generated by fees from real estate agents who pay to have their contact information listed with the properties they represent.

Consumers are leading more of their lives online and this extends to the buying and selling of homes. According to a 2013 report from Google and the National Association of Realtors, 90 percent of people who buy homes list online searches as part of their purchase process. Mobile apps have a huge potential for growth as more and more people do their real estate searches from their mobile devices. Although the Trulia acquisition opens up new potential real estate practices and questions for home buyers, sellers and realtors, the $3.5 billion dollar price tag indicates that Zillow believes they have the answer.

By Jenny Hansen

WSJ MarketWatch
N.Y. Times – DealBook
The Verge
Wall Street Journal
CBS News

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