LOS ANGELES -- Zillow's purchase of Trulia makes the online company such a force in U.S. real estate that its market value now surpasses that of Realogy, owner of renowned brokerage brands from Coldwell Banker to Century 21.
Zillow, the biggest U.S. real estate website, has seen its market value jump to about $5.92 billion from $4.99 billion on July 23, the day before Bloomberg News reported the deal talks with rival Trulia. Realogy, the largest residential brokerage operator, has a market value of about $5.55 billion, compared with $5.67 billion last week, data compiled by Bloomberg show.
The shift underscores the Web's growing role in U.S. home sales as buyers start their hunt for homes and mortgages online and rely less on real estate agents, a migration that has taken longer than in industries such as music or travel. While Zillow is unlikely to compete directly with brokers, whose ad dollars are its top revenue source, buying Trulia gives it more command over marketing fees, sparking concerns among Realtors such as Stephen FitzMaurice that costs will rise.
"It will create a monster portal," said FitzMaurice, an agent with Premiere Property Group in Portland, Oregon, who joked the new company should be called "Zilla," in reference to Godzilla. "I don't want the marketing of my listings and my ability to sell them -- or not -- to be dominated by one company."
Zillow said this week it is acquiring San Francisco-based Trulia, the second-biggest real estate website, for about $3.5 billion in stock. Together the Zillow and Trulia networks had more than 68 million unique visitors in June, representing about 71 percent of all visitors to ComScore's real estate category, including desktop and mobile users.
The companies help buyers and renters find information on homes, generating revenue by selling advertising and charging Realtors to place their listings prominently. Visitors to Zillow have forums for real estate advice and property-value estimates for homes that are on and off the market.
Zillow also features a mortgage marketplace that allows borrowers to anonymously shop for home loans, comparing live, customized rates from hundreds of lenders. Customers submit requests and receive quotes in seconds and can then contact the lender they like.
"Our mortgage marketplace monetizes well," Zillow Chief Executive Officer Spencer Rascoff said on a conference call after the Trulia deal was announced. "I do believe there are synergies to be had in the mortgages business between these two companies."
The market's valuation of Zillow reflects its outlook for growth and the migration of searches online, said Steve Murray, president of Real Trends in Castle Rock, Colorado, which provides consulting for the real estate industry.
"If you only look at today, you might think this market valuation is crazy, but if you look at it three to four years down the road, it's not crazy at all," he said. "Consumers have already voted with their feet. They're looking online, that's where they go for housing. And it should not be a surprise that the advertising spending is following them."
Real estate agents and brokers spent 71 percent of their $11.9 billion advertising budgets last year on online media, the highest of any industry in the U.S., according to Borrell Associates, an advertising research firm in Williamsburg, Virginia. On average, industries spend about 30 percent of advertising budgets on the Web.
Rascoff said this week that real estate advertising on Zillow and Trulia accounts for less than 4 percent of the market. He has said that the company won't compete directly with brokers on buying and selling homes.
Pricing for advertising will be determined by the market and customers will go elsewhere if it is too high, Rascoff said.
"The audience is one click away -- they can go to any website at any time and budgets can follow audience," Rascoff said in a telephone interview. "Nobody forces agents to buy advertising with us. They choose to advertise if they make money when they spend money on Zillow."
Move Inc., the No. 3 U.S. property website and operator of the National Association of Realtors' Realtor.com, sees the merger as an opportunity to build its brand with consumers, CEO Steve Berkowitz said in an interview Tuesday after the San Jose, California-based company reported a wider-than-estimated second-quarter loss. While Zillow and Trulia integrate their cultures, Realtor.com intends to focus on an "Accuracy Matters" message, he said.
"Realtors are your trusted adviser, we have a human being behind our brand, not a computer program," he said.
Real estate agents are still recovering from the housing crash that reduced both the number of deals and value of commissions as home prices fell. The typical Realtor is 56 and closed 12 deals last year, up from a low of seven deals in 2008 and 2009, according to a survey released in May by the National Association of Realtors.
About 42 percent of homebuyers last year started the process by looking for properties online, up from 35 percent in 2011, according to a survey from the Realtors group.
Only one in 10 buyers found their real estate agent through a website. About 54 percent were referred to their agent by a friend, neighbor or relative, or used the person before, the survey showed.
The falling homeownership rate, the growth of Wall Street- backed landlords and the increase of houses sold at auctions are all nibbling away at the dominance of the real estate agent- buyer relationship, according to Rick Sharga, executive vice president at Auction.com, the largest U.S. online real estate auction firm.
"I'd be shocked if we don't see the majority of sales transactions take place online," Sharga, whose company received a $50 million investment from Google's venture-capital arm in March, said in a telephone interview from his office in Irvine, California. "That doesn't lead to the conclusion that the Realtor doesn't have a role. It's just different."
Agents still have a key role in the transaction that won't be diminished by the proposed merger, according to the National Association of Realtors, the industry trade group that dominates real estate listings and sales.
"In the Internet age, consumers are going to go online for real estate information, but they will continue to rely on local experts when they buy and sell property," the group said in an e-mailed statement this week.
Realogy, based in Madison, New Jersey, has been able to use its scale to reach agreements with Zillow and Trulia to gain placement and pricing advantages on the search portals. The company is the largest residential brokerage operator in the U.S. through its NRT LLC unit.
"Our existing marketing agreements with Zillow and Trulia are important to us and they will continue with the combined entity," Mark Panus, a spokesman for Realogy, said in an e- mail. The company declined to comment further before it reports earnings next week.
Realogy shares have fallen 17 percent in the past 12 months, while Zillow has doubled. Zillow briefly passed it in market value in June before surging again in the past week.
Dave Liniger, chairman and co-founder of Re/Max Holdings Inc., said he wouldn't be surprised if Zillow and Trulia raise ad prices after a merger. Raising ad rates is different from muscling in on sales to consumers, he said.
"If they decide to be competitors, guess what?" said Liniger, whose Denver-based company went public last year. "Re/Max would take our 200,000 listings off their site."
The migration away from the traditional real estate model will accelerate as younger, tech-oriented shoppers become homebuyers, increasingly reliant on the web for pricing information and services, according to Stefan Swanepoel, a consultant and author on real estate trends.
Zillow's advantage is using its big data capabilities to become indispensable to both buyers and sellers as "the strongest aggregator of real estate information ever created," Swanepoel said in a telephone interview.
"If these guys get to scale quickly, what you could see is Zillow-Trulia becoming the Google for online home search activity," Neil Doshi, senior analyst with CRT Capital in San Francisco, said in a phone interview. If the portals become a first stop for buyers and sellers, "Zillow-Trulia becomes powerful for agents. They know this is the one place they have to go to capture people in the market."
Real estate agents will be increasingly marginalized as technology takes a greater hold, putting pressure on the value of their services, according to Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles.
"Real estate agents used to be gatekeepers of information, which is how they made money," Green said in a telephone interview. "I expected to see compensation compression earlier. What other business can you get the same compensation whether you're good or bad?"
The combined Zillow and Trulia will have enough weight to counterbalance the National Association of Realtors, said Paul Habibi, a lecturer at the Ziman Center for Real Estate at the University of California at Los Angeles.
"They're not the 800-pound gorilla in the room, but they have the potential to be a 100-pound gorilla," Habibi said in a telephone interview. "They're a force to be reckoned with."