Pushing forward with his own unique take on portal monetization, CoStar CEO Andy Florance said on a recent earnings call he believes incumbents like Zillow, realtor.com® and Redfin are facing major headwinds from changes agreed to by the National Association of REALTORS® (NAR) as part of a recent lawsuit settlement.
“With recent seismic legal settlements in the real estate industry, we believe the portals that rely on the lead diversion models could become stressed,” said Florance on an earnings call yesterday.
Florance’s comments come as major changes to real estate compensation long pushed for by regulators and class-action plaintiffs are set to go into effect in a matter of months, and just as Homes.com begins monetizing its “your listing, your lead” model in an attempt to unseat Zillow and claim the top spot in the “portal wars.”
“Legacy portals rely on MLS data feeds that provide them with information on offers of compensation to buyer brokers so these portals can take a significant portion of the buyer-broker commission from the diverted leads,” Florance said. “Under the terms of the settlement, those feeds can no longer include buyer-broker compensation fields.”
And with CoStar claiming that its competitors face major headwinds, it is also pointing to Homes.com’s early numbers, with $40 million in revenue and 8,000 paying subscribers in the first two months.
Overall, CoStar posted solid financial results, beating its projections with 12% revenue growth to reach $656 million in Q1 2024, although net income fell significantly to $7 million, down from $87 million in Q1 2023.
Company executives also spent significant time celebrating an acquisition of 3D camera maker Matterport announced Monday, with Florance saying he thought luxury properties especially will begin utilizing “digital twin” maps created by the company’s technology, and pointing to VR headsets as leading to more demand for virtual property tours.
“I am a big believer in the value of a Matterport when you’re trying to sell a $500,000 or $1 million property. And then I think those adoption rates will ultimately go up 50% or more for digital twins with people moving real estate,” he said.
Homes.com, though, continues to be the main focus, with Florance making it clear he will continue to put the weight of his business empire behind the upstart portal. Several investors on the earnings call asked for more specifics on that side of the business, with Florance adding that there is demand for “premium” subscription tiers and promising to scale up the Homes.com sales team, which was initially bolstered by temporary transfers from employees working on other products.
Homes.com still has a long way to go before matching Zillow, whose “Premier Agent” program brings in around $300 million in revenue a year.
But Florance has repeatedly poked at the business model used by Zillow and other major portals, which primarily involves selling leads to buyer agents—even apart from changes precipitated by lawsuits.
“We believe that the lead diversion model is very unpopular with homesellers, agents, buyers and brokers, which may be why it has not been very profitable,” Florance said.
Another change forced by the NAR settlement is a new requirement that clients sign a written agreement with their agent before viewing a house. Florance said other portals will likely find it “difficult” to convince potential buyers to sign agreements just to view one property they searched for online.
“We are increasingly confident in our ability to build out the number one residential marketplace in terms of traffic, revenue and profitability in the years ahead,” Florance said.
