Zip Realty to Close 11 Brokerage Offices. Reorients to emphasize personalized service. Huh.

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Cost-CuttingLate yesterday, Zip Realty announced they were shutting down 11 real estate offices across the country, including their Tucson brokerage.

For those not familiar with Zip Realty, they were founded in 1999 and have grown rapidly. They are usually considered a “discount” or “rebate” brokerage – according to their website’s buyers page they offer to rebate the buyer “up to 20% of the commission” they are paid by a seller. The ZipRealty.com website is consistently listed among the highest trafficked real estate web sites.

I’m not about to enter into a discourse on the differences, or viability, of the “full service” real estate brokerage versus the “discount brokerage”. I’ve said many times that I’m glad there are different brokerage models out there. Competition is good, different models are good. Good for real estate buyers and sellers, and good for real estate agents and brokers.

I was immediately struck however, by a statement in the press release announcing these office closures:

Zip’s restructuring plan includes: “Reorienting the Company’s marketing approach, initially in select markets, to emphasize personalized service, outstanding technology and experienced local agents that together connect consumers to great real estate transactions”

Sounds like Business 101 fundamentals to me.

The Thompson’s Realty “tag line” is “The Power of Technology with a Personal Touch”.  While I’m sure this sounds hokey and cliché to many, there was actually a lot of thought that went into that tag line. Technology (at least as “technology” is generally defined in the real estate vertical) is important. It’s allows for increased efficiency and lower costs. We try to utilize technology to help our agents better serve their clients. We use technology to “empower the consumer” (oh dear God, I sound like a Dilbert cartoon) so that they can learn more, and help us help them.

But without a “personal touch”, all the tech tools on the planet won’t help the real estate buyer and seller get what they are looking for – a closed transaction that minimizes their pain while simultaneously maximizing their gain.

Real estate is, and always will be, a very personal experience. Yeah yeah, there have been people claiming for years that the real estate agent is headed down the same path toward extinction as travel agents, brick and mortar book stores and other disintermediated (cutting out the middle-man) industries.

I don’t buy it. I wrote my first article on disintermediation in 2006. In that article I said:

Shopping for a book, or buying an airline ticket is not the same as finding a home and closing a sales transaction.

That article also linked to articles from some pretty well-regarded people proclaiming that the end was here for real estate as we know it.

That was over four years ago.

So they were wrong.

At least for now.

Sure, things could change. But I just don’t see real estate agents ever becoming completely disintermediated. I’ll say it again, buying a home that costs tens to hundreds of thousands of dollars is simply not the same as buying a book or plane ticket online. And it will never be the same.

So, what’s the point?

Zip Realty, a huge real estate brokerage with some assumedly bright people behind it, lost  $5.1 million dollars in the third quarter of 2010 (according to Inman News – and that article will slip behind a stupid pay wall later tonight).

So they are going to reduce their field sales support workforce by roughly 35%, reduce the corporate sales support and administrative staff by 25%, convert employees to independent contractors and close company owned and operated brokerage offices in eleven markets.

PLUS they are going to “emphasize personalized service, outstanding technology and experienced local agents”.

In short, they are going to get back to fundamental business practices –  that being reduce overhead expenses and provide superior service – that numerous small independent brokerages all over the country have been doing since Day 1.

Or at least that’s what they should be doing.

I say good on Zip Realty for finally waking up and restructuring and making organizational and philosophical changes to their business model. I wish them success. Maybe (hopefully) some of the other real estate brokerages that continue to apply maddening and often incomprehensible business practices will take heed and learn something from Zip.

I’m not holding my breath though. But I am holding out hope. At least until the day finally comes when I just can’t take slamming my head into the wall one more time. 

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About the Author
Jay Thompson

I'm a real estate broker in Phoenix, Arizona and the publisher of the Phoenix Real Estate Guy blog. I tend to drive too fast and scream at the University of Texas and Denver Broncos football teams. My two kids are smarter than most adults I know and my wife is simply amazing.

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  1. It’s absolutely revolutionary! Like MLS books!

  2. Proud to still be an independent brokerage! What has always cracked me up is that some of the “big brokers” out there have consistently been less profitable than smaller ones. I remember a meeting with a national chain franchisee that needed another 150 agents to break even in Phoenix. I would much rather have 20 and be profitable personally, than need to recruit more than 100 agents to crack your monthly nut. Oh well!

  3. @Dane – The multi-million dollar losses these big box brokerages have just blows me away. Our little indie has been profitable since Day 1.

    • Rob McCance says:

      Jay,

      I totally agree. When everyone is working on commish, it’s pretty hard to take a huge loss. IN RE, you typically just give up before that can happen.

      I don’t know their biz model but there must of been a lot of salaries involved, followed by a lot of cash spent on third parties delivering technology, then maybe “marketing” and who knows. I’m just guessing here as again, it seems impossible to LOSE money.

      Sell just a few million at 3% and that certainly pays for a TON of internet related stuff, and then some.

      Oh well. Whatever. Nix that biz model Zip.

    • Update: total losses reported for 2010 for Zip was nearly $10,000,000. They currently only have around $30,000,000 in liquid assets. They needed to make these changes fast. I think after I lost the first $1,000,000 I would be questioning my business model.

  4. Wow! Such forward thinking

  5. Funny that they are figuring out that the way to rest of us run a business isn’t so dumb after all…

  6. So they finally figured out that people still want to work with real people they know and trust…cutting edge!

  7. Doug Francis says:

    I hope those abandon agents find a stable brokerage to join soon.

    • Jay Thompson says:

      I guess the key word in your comment is “stable” Doug, because as we both know, any agent can hang their license with a multitude of brokers within minutes.

      But that problem is a whole ‘nother blog post…

  8. Emphasizing personal service. What a concept. Yeah…

    The question is will they actually walk the talk? Personal service doesn’t come out of the blue, it’s something that is deep within the soul of a company. It’s what makes us tick. We small indie brokerages know that. Do they?

  9. Elizabeth Ramsey Cooper-Golden via Facebook says:

    Ha ha ha..priceless. What a “DUH” moment.

  10. I wrote a similar blog posting in my Facebook page about a month ago, but my focus was on “what the heck happened to BuyOwner.com(similar to a discount brokerage, but more like a marketing firm masquerading as a real estate company). They came into the Houston market and left very quickly.
    Analogies and random thoughts:
    Buying an Ipad is a big decision and some people can make it without ever really researching it. You hear the rave, drink the Kool-aid, and buy the damn thing. Well,…. Imagine buying 2,000 Ipads at one time and having to take loan out to buy them, and….. This Ipad has a shower, running water, can shelter you from the rain, can fall apart on you and leave you pissed and homeless….
    Yep… Definitely something that deserves attention and something that requires a professional to help the common consumer to not get screwed over.
    With that being said, you get what you pay for….. Discount brokerage will often get you discount service, and…. That has proven to a whole lot of buyer’s remorse and no referrals coming back the discount agent with the discount service. In the end this business is a local business that demands personal attention and professional service. With those requirements and the education and dedication it takes to get to being the best this industry has to offer…. I am not gonna offer my services for a discount upfront, like I am a damn walking coupon. I am worth my paycheck and my clients can vouch for that.
    Funny story….
    About 4 years ago a Zip Realty agent was showing a house just as I was showing that same house. The agent, with her pressed khakis, polo and Zip Relaty name badge, is coming downstairs as I am entering the property.
    She pauses and looks at me, in my T-shirt, flip-flops,a dn khaki shorts, and says to me, “Are you seriously showing homes dressed like that?”
    I bit my tongue and walked on with my client that I had known since 6th grade and was wearing similar attire.
    I pass her again, and again she says to me, “I cannot believe you are dressed like that and showing.”
    So I got pissed and said, “When you close as much as I do and your clients love you for your personalized service and knowledge, you can wear whatever the hell you want.” My client hi-fived me and bought the house and we closed the deal a few weeks later.
    I do not wish ill will on anyone, but dang, I wonder what that agent is doing right now. Because my business is still growing, my clients still love me , and I still dress down on occasion.
    I haven’t told anyone that story since it happened, but I had to get it off my chest.
    Hahahahahahahahahh!

    • Liz Benitez says:

      Love that last little story. Can’t imagine what the Zip agents client was thinking. “How can she be so rude to another agent” and “Man I need to work with that agent.”

  11. Jay, as usual, you my friend have hit a home run….. Great stuff and I enjoy your blog.

  12. In the end though, Zip Realty took a bold stand on a business model that was unconventional just hoping to penetrate and grow the “non-full-service” sector of residential real estate. I am not brokeraged with Zip Realty, but I also recognize that one must take risks in order to grow. And as we all know, there are sometimes setbacks due to the risks that don’t pan out…

  13. John Wake says:

    My guess is that, “emphasize personalized service” is P.R. B.S. because Zip is gutting their agent support services at the same time, “reduce their field sales support workforce by roughly 35%, reduce the corporate sales support and administrative staff by 25%“.

    50/50 chance Zip is in a death spiral and can’t pull out.

    Zip investors have obviously lost confidence and are in cut-our-losses mode.

    Zip got started back in the day when everyone hated Realtors. Everybody hated the commissions they paid their Realtors and Zip’s management and investors were going to stick it to those stupid, lazy-assed Realtors with Zip’s new discounted brokerage business model and shiny new website.

    Zip’s head guy was all over the media back then. His shtick was saying Realtors were ripping off people. The media LOVED him because back then everybody hated Realtors.

    I think Zip’s business history has shown that hating Realtors isn’t a business model.

    Instead of changing the old real estate industry, Zip has slowly become the old real estate industry… with a shiny website.

  14. In Maine, we don’t have to deal with Zip, but on occasion I have kept an eye on them. What I don’t really understand is their website – and how it reported gets so much traffic. I realize its national and all, but really, it does not contain anything of value. The blog is lame, the zip community is basically drivel and there is generally no information on a local level that would be of value to a consumer.

    It just shows that all these big traffic numbers being quoted don’t really mean much on a day to day basis.

    • Jay Thompson says:

      I see ZipRealty come up a LOT in Google’s sponsored search areas (paid advertising). Of course I have no idea what they spend on Pay Per Click, nor what percentage of their traffic comes from PPC vs organic results.

      But in theory, if you have a big enough budget, you can get all the traffic you want from PPC….

  15. Dave Kinkade says:

    All I can say is sooner or later gravity takes hold and once it does all the artifice in the world will not keep a ‘concept’ from crashing to earth. Solid business fundamentals and REAL service for a fee is how (good) business will always be done. There is never something for nothing.

  16. As much as zip realty was web based, I would think that they would show up more in the organic searches. If I go and type in an address of a house I know is for sale they don’t show up that often on page 1. Maybe they just hoped enough people would hear of the “kickback” and get referrals that way.

  17. I checked the PR and they are still hanging out in my market which I find odd. I don’t know one agent who works for them, don’t see their signs, never heard of anyone buying or selling from them.

    Looks like typical implosions that I saw in 2007/2008 from companies who couldn’t make it in a changing market.

  18. You have to be careful when buying a home: its a huge decision and will be with you many years. My advice is to do your research, lots of it, and seek professional help from a financial specialist who will not profit directly or indirectly from you buying a home.

  19. Liz Benitez says:

    Well they have all this traffic from thier discount realty so if they actually follow through with this customer service mindset they might actually do good. Not that I would want to be a zip agent. Happy where I am.

  20. Jean Schreckeis says:

    Ok, speaking as a Zip Agent in Minnesota…we were not a discount brokerage. The only one who was discounted were the REALTORS. That rebate hurt dearly and basically the client never even cared. Corporate did not listen. They took from us for technology and the rebate. But our listings were awesome….for 5.2% we provided a virtual tour, professional photos, a stager, blueprint of home, signage, prof colored brochures…and Zip paid for all. That was good. I sold several Million dollar homes via Zip leads…the leads were great. One woman closed 53 deals in a year. How about you …. how many did you close…all of you. And me…working part time did better than most full time.FULL SERVICE brokerages. When we were Zip Employees…we got $423 for mileage and phone per month…a monthly stipend if we were there over 3 years. 401 K…insurance….Worked for me.

    The website kicked ass and funny the buyer never really knew how he go to it. Says alot for the techys at Zip.

    They should have hung on with Minnesota….After converting to IC … they would have regrouped.

    So close your mouths….everyone that I worked with loved me. I got rave reviews.
    Too bad corporate blows. And we hung on as Realtors when a lot of mainstream got second jobs and quit the industry.

    • Dave Kinkade says:

      Jean, That’s just uncalled-for. I don’t think anyone was attacking you yet you tell everyone here, essentially, they are fools because they weren’t Zippers like you. If it is so wonderful why did the business go in the tank? There’s never something for nothing and from everything I’ve ever seen from Zip, it is a DISCOUNT brokerage (zero, ZIP, nada…) Best of luck to you in your search for a new brokerage.

    • Jay Thompson says:

      Jean –

      I don’t believe I had one single disparaging thing to say about any Zip Realty agent.

      Clearly the employee model didn’t work from a brokerage perspective. If it did, they wouldn’t be converting to an independent contractor model.

      Also clear is the *fact* that Zip offers buyers rebates. Most people find that synonymous with the label “discount brokerage.” But please note, I said, “They (Zip Realty) are usually considered a “discount” or “rebate” brokerage…” Are you gong to claim that they aren’t a rebate brokerage?

      I called out some of what Zip Realty corporate has done — chiefly it seems they weren’t practicing what I consider to be “business 101″. They’re bleeding red ink. They are changing their model, so apparently they are realizing it’s not working.

      You yourself said, “Too bad corporate blows.”

      Jeepers Jean, I even wished Zip Realty success in my article.

      And I wish you success too.

      Coming here and telling all the commenters and readers to “close their mouths” may just make you sound bitter and petty.

  21. I have a friend who works for Zip, so I feel kind of bad/worried for their employees. But in terms of philosophy, I think they’re heading in a much better direction.

  22. Steve Kenway says:

    Jay and co:

    Does anyone know what technical tools “Zip Realty” intends to implement to deliver outstanding and efficient service?

    I apologize if it was mentioned in the comments. I tried to read them all but this is a high activity blog!

    Steve

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