I am not an investment analyst, so I don’t cover each and every quarterly earnings report from the public companies in the residential real estate space. I cover them when the earnings reports and the analyst calls which accompany them reveal something interesting and important about the overall direction of the industry.
Q1/2018 was such a time, when looking at the releases and conversations from Zillow, Redfin, and Realogy showed us the shape of things to come. Q3/2018 is another such time, because of big moves by Zillow on the one hand, one very smart move by Redfin on the other, and stay-the-course moves by traditional companies as represented by Realogy.
But this time will be remembered as Redfin’s debutante moment. Redfin’s IPO opened our eyes to just how strong Redfin had become. Q3’s announcement that Redfin will start spending serious money on consumer advertising means that for the first time in a very long time, someone other than Zillow will dictate to the industry and force it to react.
I called this Red Dot “Darkness Comes” because Redfin is fond of saying that it was born in the dark, like Bane from Batman, as it was forced to deal with the biggest housing market collapse in history when it was founded. Over its sixteen year history, Redfin has honed its low-cost, employee-based business model, and has realized that it can survive, and even thrive, in the dark: in low-income market conditions.
So Redfin will bring on the darkness, and force everyone to fight in the dark, by pressuring commissions and seeing who can survive if half the commissions disappear. Even Zillow will be forced to react, as its recent changes makes it far more of a part of the industry than an interloper.
The next year or two is an important inflection point. Either the darkness comes, or it does not. Either Zillow successfully transforms into the most important partner for top producing agents, or it does not.
The former would wreak havoc on the industry, and some grand old companies, ancient and respected brands, and institutions deeply ingrained in real estate would perish. The latter would wreak havoc on the industry, and the next wave of real estate will crash upon the immovable rock of the American real estate industry and wash away into so much sea foam.
Either way, there will be chaos. But oh, what interesting times we live in!
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