The Great War of Realtors against Online Platform Zillow

While general interest media may be focused on the war between taxi drivers and the Ubers and Lyfts of the world, a similar war against the disrupter Zillow is being waged by the National Association of Realtors. Inman news reports that the National Association of Realtors is claiming more than $1b in damages for violation of trade secrets! Zillow, the Uber of real estate, just hired a top-level executive from Move, the internet company that manages, the online service of the National Association of Realtors. The NAR claims that such top-level executive will reveal trade secrets to its competitor Zillow.

While the news are behind Inman news’ paywall, some of the comments there are revealing. A substantial chunk of the readers are professional real estate brokers. Example: “NAR and all local boards need to curb these third party websites such as Redfin, Zillow, and Trulia.” Sounds like some brokers are not preparing to be ready for disruption, but are trying to prevent disruption. We know that those kinds of battles don’t necessarily end well for the incumbents.

A few questions on the real estate business suggest the customer benefits/should benefit from the disruption of Zillow and the likes:

  • commission fees are a percentage of the transaction price, around 5-6% (see this FTC report), but more expensive homes are unlikely to be that much more expensive to sell/buy for the broker.
  • commission fees don’t vary much across the country (see Figure 2 of Hsieh et al)… when more competitive locations should command lower commission fees.
  • stories of collusion in the real estate business abound. The National Association of Realtors has been particularly successful in litigations.

Will Zillow win this latest stage in the online business vs realtors war? We’ll see what the superior court of the State of Washington says…

Reading suggestion: Hsieh, Chang‐Tai, and Enrico Moretti. “Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry.” Journal of Political Economy 111.5 (2003): 1076-1122.