A battle looms between real estate giants Zillow and CoStar.
Most realtors you talk with have very few positive comments about Zillow. The methods that firm has employed to acquire competitors and stifle the competition has created a lot of antitrust regulation conversations. With Zillow’s recent acquisitions of DotLoop and ShowingTime, they are poised to control even more of the real estate brokerage processes.
CoStar, Inc., is another sleeping giant in the real estate world that is unfamiliar to most residential realtors. CoStar, Inc. is a national commercial real estate database and brokerage listing service firm.
CoStar is well known, but only in the appraisal and commercial real estate world. That organization is to commercial realtors what Zillow is to residential. Realtors strongly dislike both firms, but view both as necessary evils.
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CoStar previously operated as a comparable sales database used by both commercial appraisers and brokers. Their acquisition of LoopNet in 2012 for $860 million created tons of problems for commercial real estate brokers as it became the nation’s largest commercial real estate marketing service.
The main issue with CoStar is that brokers have to use their service to be competitive. Any rival that tries to compete with them gets acquired or sued out of existence. Once the merger with LoopNet was completed, CoStar raised advertising rates to exorbitant levels, hurting a lot of smaller brokerages profitability.
CoStar has observed from the shadows how Zillow has expanded. Clearly, CoStar isn’t satisfied only having a monopoly on the commercial real estate marketing industry. Out of the need for continued growth, they are now entering the residential world that Zillow largely controls.
CoStar made a $6.9 billion offer for CoreLogic in February. CoreLogic, founded in 2011, provides automated real estate valuations. It functions very similarly to Zillow. In addition, CoreLogic integrates with Multiple Listing Services (MLS) and with rental screenings. The offer for CoreLogic was pulled this past week, which is a positive move for stopping CoStars’ rapid growth.
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CoStar acquired HomeSnap in 2020 for $588 million. They also own RentPath, Apartment Finder, and Apartments.com, and they have announced plans to acquire more firms in the residential space. An acquisition by CoStar of CoreLogic with their technology and analytics would position CoStar to compete more effectively with Zillow.
Residential realtors should not feel relief that there is coming competitor for Zillow. Most realtors on the commercial side of the business would tell you that CoStar is just as bad if not worse, than Zillow. The only positive news for commercial realtors is that it does not look as though CoStar or Zillow plans on trying to compete in the commercial brokerage business.
While Zillow has made it clear they want to be in residential brokerage, it would be very difficult for them or CoStar to break into commercial sales and leasing. The commercial sales or leasing process is complex, and the transaction timeline is very lengthy, causing a significant barrier to entry for any firm wanting to break into the space on a national level. The level of expertise required by a realtor to complete commercial transactions effectively is very high. Commercial realtors would fight any attempt of any company to try to take over the industry the way Zillow has in residential.
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The main reason Zillow has been able to control residential real estate is that it controls the flow of information. Commercial real estate works very differently, and information is not as readily available as with residential. The specialization of the industry will likely make any takeover by Zillow or CoStar unlikely. This may be the reason CoStar is attempting to break into the residential side. It is the only avenue left for them to grow in the industry.
Centralization of the home buying process will continue to be controlled by a few large companies. Over time this will take local realtors out of the process. Whether it is CoStar or Zillow, these trends are likely to continue. This is bad news for residential realtors nationwide.
Joe Edge is the Real Estate Columnist and Publisher for The Augusta Press. Reach him at joe.edge@theaugustapress.com
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