2017 has begun with quite a shock from Zillow (the primary marketing platform for our listings). The future of the Zillow MLS relationship – and Zillow itself – is now far from clear.

Without Zillow MLS Cooperation, Zillow – and Innovation? – to Crater in Seattle

I remember the day Zillow launched. Back then change in the real estate industry seemed inevitable. Like travel agents and stock brokers before them, real estate brokers were about to face serious disruption and even obsolescence as a result of the internet. With its tech pedigree, Zillow looked like it would lead the way towards a far more efficient and cost-effective industry, driven by innovation and technology. Those were exciting times.

Zillow took the classic road to internet growth. Their “Zestimate” exploded on the scene. Literally overnight, they had the essential ingredient for internet-driven success: traffic.

Zillow’s revenue stream relies on the MLS.

When Zillow finally settled on a revenue stream, it was a little disappointing. Lead generation? Really? Hardly consistent with an evolved industry. Not leading the way at all. Rather, a revenue stream that relies upon the over-sized Selling Office Commission that is at the very heart of the traditional model and the Multiple Listing Service (MLS). The SOC, as it’s known, is a commission paid to buyer’s agents that is neither efficient (buyers find houses, not agents) nor cost-effective (a whopping 3%).

Yet Zillow provides an MLS alternative.

But there was still a big upside. Zillow allowed real estate brokers to post homes for sale, creating a new, internet-based marketing platform. And Zillow didn’t rest on its laurels, it grew aggressively (by purchasing Trulia and many other sites). Today, Zillow data appears on the three most popular real estate web sites and reaches 79 million monthly viewers.

In other words, Zillow is a meaningful and effective alternative to the MLS and its archaic business practices. Even with one foot – the revenue-producing foot – in the past, Zillow provides the technology-driven ecosystem that allows for transformative change in the industry.

Until May 1, when Zillow shows only MLS listings.

That all ends May 1, when Zillow will no longer allow agents to post their “for sale” listings directly. Instead, Zillow will display only listings on the MLS via a direct feed. Not on the MLS? Too bad, your listing won’t appear on Zillow. There goes the MLS alternative….

Will this be a good move for Zillow? They believe that their biggest problem is data quality, and that by using only MLS data they’ll solve it. We’ll see. But this change has even bigger implications for Zillow’s presence here in Seattle, its home city. The Northwest Multiple Listing Service is not inclined to share its data with Zillow. And that makes sense. Zillow compiles and provides real estate market data – that means it’s an NWMLS competitor. Why cooperate?

So as of right now, it appears that effective May 1, Zillow will no longer show any homes listed with brokers for sale in Seattle. That needs to be repeated:

Effective May 1, Zillow will not show any homes “for sale” in Seattle

Wow. That will be interesting. Perhaps Zillow will blink and allow for “direct entry” listings here in Seattle. Perhaps the NWMLS will decide it is best served by cooperating with Zillow. But both seem unlikely. Meaning that Zillow traffic here in Seattle should collapse in short order. Why would buyers continue to visit Zillow, when it won’t show houses for sale? And absent buyer traffic – the leads that generate revenue – how will Zillow survive?

I’ve long believed change in real estate is inevitable. But today, it sure is hard to see coming, at least from where I stand in Seattle.