CoStar Group Founder and CEO Andy Florance, left, with RISMedia President and CEO John Featherston.
Through a seemingly endless influx of tech firms into the real estate sector—those promising collaboration, as their businesses evolve into commission-siphoning referral-fee factories and pay-to-play lead-gen exchanges—traditional brokers have good reason to brace for impact whenever the next mega-million-dollar acquisition by these giants hits the airwaves.
But there’s one big-data firm that promises something different, and brings the receipts to prove it.
“When we first thought about the name of our company…we came up with CoStar to be clear that our mission was to ‘co-star’ in the real estate transaction. We didn’t want to try to use technology to replace the role of the traditional players. We wanted to improve the processes and the tools. So for 37 years, that’s been our founding principle,” said Andy Florance, founder and CEO of CoStar Group. “I’ve had plenty of time to take a commission; I’ve had plenty of time to do iBuying; I’ve had plenty of time to do a referral fee; I’ve had all kinds of time to do those things that people don’t like and we’ve chosen to never, ever do them.”
Florance shared these assurances in an exclusive interview with RISMedia President and CEO John Featherston at RISMedia’s 26th Annual Power Broker Reception & Dinner, held earlier this month in Orlando, Florida.
CoStar Group, which has been a leading provider of commercial real estate information, analytics and online marketplaces for almost three decades, moved into the residential space with acquisitions of Homesnap in 2020 for $250 million and Homes.com in 2021 for $156 million, prompting some raised eyebrows in the residential sector, along with the understandable concern about the company’s true motives for the long-term.
Following, is the Q&A with Featherston and Florance at the Power Broker event, where Florance addresses this critical question and also speaks about the company’s history and what their current and future plans are in the residential real estate space.
John Featherston: A lot of questions come to mind when you look at your business model and how it affects those in this room. There’s a tagline you have, ‘Your Listing, Your Lead’—that resonates with everyone in this room. If that is your mantra, how do you see CoStar helping those in this room become better professionals, both able to service their customers in changing markets and uncover new real estate business?
AF: One of the ways to look at what we’re doing that has a big impact on the folks here is, we are an open portal, whereas other portals are walled gardens. They try to manage and control relationships and only certain people can come and play who are willing to pay dearly to be in that walled garden.
We’re completely open. And the reason we’re completely open is—fundamentally, what some of those other companies are selling is agency. So if your product is selling agent leads or referral fees or buyer broker leads, you have control over the whole process to keep it closely guarded—we’re not trying to sell agency. We think that’s what RE/MAX does, or Anywhere or Century 21.
What we’re focused on is helping people sell real estate. That’s what we do at Apartments.com, what we do at LoopNet, in Europe with Belbex or Realla, we’re always helping people to get more leads on real estate—we use retargeting, price/risk, marketing methods to help sell real estate faster. So we’re neutral on the agency side.
What that means on the practical side is, you go into Homes.com today and you’ve got the listing agent there, very prominent. We’ve done focus groups and lots of sessions with buyer agents to understand how they view the world. Buyers hate not having a listing agent. When buyers are interested in buying a house, they want to be able to connect with that house now. When that happens, the folks in this room are going to get a lot of listings, your get a lot of listings—they’re going to get more leads and they can use that for dual agency, they can use that to refer someone else in their shop to avoid dual agency, or use that when the house isn’t quite right for them and they can take them somewhere else. But in this model, success begets success.
Secondarily, because we’re an open platform, we’ve put 1.5 million agents up in our directory and we’ve taken the 200,000 that do $100,000 or more in commissions and really spent some time trying to highlight them. We have their photos, their videos, their bios, their histories. When I think about buying a house and who’s the best buyer agent for me, I don’t think that what I’m really looking for is an agent who’s entering the business and willing to give 35% to Zillow. I want to find someone who has 10- or 15-years’ experience in the top 10 for doing deals in my price range. So our whole site is about making that visible.
Then the cool thing is, once you are working with a buyer agent on our platform you can digitally connect, and that means the buyers as they do their shopping—99.99% of buyers are going to go on these portals to shop around. And anything they do on our portal will be visible to their broker…when they favorite things, the broker or the agent can see who likes what; you can see their search activity if the buyer gives permission; you can see what they’re looking at. So it creates transparency and efficiency and you’re working where the buyer wants to work…we’re communicating with folks where they are.
JF: I know everyone in this room will want to know, will CoStar change its business model to get a portion of the agent commission?
AF: CoStar is not going to change its business model to get a portion of the commission. And in fact, when we bought Homes.com, they had $40-50 million in revenue from referral fees and we terminated that the first month we owned the company; we walked away.
Now, we do acquire a lot of companies, and as you acquire companies—we’ve acquired 40 companies over time—you transition to new business models, but it may take time to convert. We did the Homes.com really quickly and it raised some eyebrows, but we’re doing what we’re doing because we fundamentally feel it’s the right way to do it.
JF: What can broker/owners expect as far as partnerships?
AF: With our having been more focused on residential the last year or so, and you have ‘portal’ on your name badge, you get the cold shoulder, so it takes time to build those relationships. But if you take some time to see what we’re doing, I think you’ll feel pretty good about it. I’ll be frank with you—what our business model does is ‘success begets success’. If you’re a successful agent, you’re going to get more business off of our business model. If you’re just starting out, you’re not going to be able to buy your way into prominence on our site.
Five billion dollars is being paid out to Zillow and Redfin right now, and at some level, that’s coming out of broker/owners’ pockets. I think we can not only reduce that exposure dramatically; I think we can accelerate their businesses by improving the way they work with their clients and be able to meet their clients where they are.
I do hope you guys will give me a break and by the time I’ve been doing this for 50 or 60 years, you will stop asking me if we’re going to compete with the REALTORS®.
JF: What are you doing to stay relevant to brokerage firms?
AF: We have to have traffic for us to be relevant to brokerages, so how are we going to get the traffic? We’re doing some crazy projects—we’re hiring a thousand folks to go out and we’re visiting every park, neighborhood, condo, school in the country. We’re collecting all sorts of information, and every time they find really neat, rich videos and content about a really good public school somewhere, they’re going to find listings around it, and the agents that have done a lot of deals and have a lot of experience in that area.
We have to build that content, and we’re confident we can do that. If you look at what we’re doing at Apartments.com, we started realizing the model for what we’re doing here. When we bought Apartments.com, they were fourth or fifth in the industry, they were way down the line, doing about $7 million. Zillow was 4 or 5 times as big, Redfin was much bigger, Craigslist was bigger, and we put a lot of content that end-users, that buyers and renters thought was valuable, and then we invested in marketing, drove impressions, and we went from being dead last in traffic to being No. 1 by a mile. So today we’ve got 91%, the No. 1 position for rentals. And we just crossed a trillion dollars of revenue to our clients, in lease agreements.
JF: Is there any other new business that CoStar might get into that we should know about?
AF: Well, we are always doing something every two to three years, but I have to say, residential real estate in the United States is pretty good! Give me a year or two!
I look at certain players in the industry who go out there and try to monetize some model whether it be referral or discount brokerage, and pretty quickly that one thing they’re doing is not enough—all of a sudden they’re doing mortgages iBuying. You’ll notice that some of the other players are losing money with everything they do. We want to basically do this, do this right, get to a place where it’s profitable, and then we’ll take on the next thing.
There’s $200 trillion of real estate in the world. I promise you, I will never run out of things to digitize in this great, big real estate pond, but we’re going to be focused on what we’re doing now. We operate in 19 countries and I travel all around the world and I talk to all the folks doing what we do in other countries.. I couldn’t be any happier than to be in this space right now doing this.
I hope you’ll take a look at what we’re doing; we do need people’s help. My philosophy is, it’s not about having 200 million unique visitors; we have probably about 100 million visitors a month. Homes.com has tripled our traffic in the last year and a half. It’s about getting to the people who are buying houses, and that’s only a million or two, and so the people in this room and the people that work for you, it’s in your control. If you’re using our tools to refer and work with people in-market, we can provide the marketing solutions that add value.
