CoStar CEO says competitors are ‘going to adopt our model’ 

Editor's note: Real Estate News presents "Deuces Wild," a three-part series on the high-stakes battle to be the second-largest home search portal, featuring exclusive conversations with Realtor.com CEO Damian Eales and CoStar CEO Andy Florance.

Never one to back down from a fight, CoStar CEO Andy Florance is putting his money where his mouth is. In the battle among top home search sites for consumer attention and agent loyalty, not only is Florance spending a billion dollars on marketing Homes.com, his company is spending another $1.6 billion to acquire 3D virtual touring platform Matterport. 

But perhaps more important than CoStar's war chest is Florance's unwavering belief that the market will move in a direction that favors Homes.com's "your listing, your lead" model. Florance boldly predicts that his top competitors will eventually follow suit. He discussed these themes and more in an exclusive interview with Real Estate News. 

This interview has been edited for length and clarity. 

Homes.com advertising ate into CoStar profits this last quarter. Will that marketing investment continue?

The way the marketing works is you launch it, and you go from 4% unaided awareness directly to 25% awareness. But in order to get into the 50s and 60s, that takes consistent creative over the course of two to three years. I am very pleasantly surprised by the traffic numbers. And we actually remained profitable in the quarter. With Apartments.com we went from negative to the tens of millions [in revenue]. So we've done it before. 

Do you think online buyer leads will be worth it after the settlement rule changes go into effect?

I think the whole discussion around buyer agents is completely disingenuous. Functionally speaking, there's no such thing as a buyer agent. So, keep talking about what happens to buyer agents. Well, it was a unicorn to begin with. It was mythical.

Now, a bunch of people entering the industry will do buyer agency off of Zillow leads or Realtor.com leads. Oh, and by the way, lead diversion just got knee-capped.

So we'll never see Homes.com sell buyer agent leads?

Never. I have a conviction here that the purpose is to sell the home. On a transaction, the seller is paying the buyer agent. The seller is paying the listing agent and the seller is the client, right? The seller is not interested in who gets 1.5% for the buyer agency. The seller's position is "sell my goddamn house."

Every real estate portal in the world uses "your listing, your lead" and it's not because of the MLS, or free listings, or scarcity, or anything like that. It's because it's the point! And so Zillow will move to "your listing, your lead" and they're already doing it — 12% of their revenue is now "your listing, your lead" and 48% is lead diversion. I think they're going to adopt our model. 

Offers of compensation will be taken off the MLS, but NAR's agreement doesn't address the portals. What will the portals do?

So to be operating under the rules of the MLS, and then taking the IDX feed and becoming the compensation-sharing vehicle, is a little bit like getting in the bathtub and throwing the toaster in with you. 

You're gonna get a billion-dollar judgment against you if you do that. I wouldn't touch it with a ten-foot pole. The plaintiff attorneys would love nothing better than to go after a Zillow's bank account or a CoStar Group's bank account.

Realtor.com and Zillow recently showed mutual support for buyer representation. What is your response to people who say that "your listing, your lead" is a slippery slope to dual agency?

It's intellectually vacuous. It doesn't work. And in fact, I'm sort of surprised that people can't figure that out. 

When my mom put a sign out in front of her listing, saying, you know, Betty Florance, W.C. and A.N. Miller, and our phone number, was that anti-buyer agent? Of course it wasn't — it's a goddamn real estate sign! It's true transparency. 

The number one source of buyer agency leads is having a listing. That's how agents get buyer agency leads. So when you take that away from them, that's anti-buyer agent. 

What will agents do to avoid dual agency?

You're going to see more people referring inside their own office. The lead comes in, I send it to my colleague down the way, and then they send me a lead down the road. And the brokerage firms are going to make more money. The folks that do a lot of business are gonna get more. And the brokerage firms will get more sides of the deal. It has nothing to do with dual agency as you can easily just refer to your colleague who refers back to you.

How is Homes.com friendlier to agents?

If I think about lead redirection or lead diversion as a business model, that is clearly not agent-friendly. The agent has earned the listing and has a reputation, then has their name removed and the lead comes in and goes to a competitor — how is that friendly? It's not. 

The other thing that is our corollary to "your listing, your lead" is "your buyer, your business." We're actually the only site that protects the buyer agency agreement. If I'm an agent and have an agreement with a buyer, I all of a sudden become the primary contact on every listing that buyer views on Homes.com. We act like the brokerage sites on behalf of them. 

Do you have everything you need now for Homes.com or will we see more acquisitions?

I'm sure there's something else. Some people have speculated if Homes.com is going to reignite the Realtor.com deal. I don't see us doing anything like that because we are committed to Homes.com and we are convinced that the results show that "your listing, your lead" is the better way to approach the industry and lead diversion is yesterday's model that will fade away.  

So, we're not going to be buying any portals or anything like that, but cool technology like Matterport that facilitates things? Quite possibly.