Dave Marron, a former VP of Sales for Zip Realty, has a fantastic post over the company’s strategy on the BloodhoundBlog.
ZipRealty announced its first quarter results last week. The new strategy is basically to expand rapidly into new areas. Among the reasons were so that overhead can be spread over a bigger footprint. And that firms that invest in down markets tend to be rewarded over the longer term.
Let me first say that I am a huge fan of the company’s model. Not of giving rebates (although that helps) but basically the strategy of creating a central and efficient web site which can produce high quality buy-side leads for its agents. Basically, taking away the online marketing piece for agents and letting them focus on everything else.
During 03-05, that model looked like it was working, with agent productivity above the average. But as the Californian market has dramatically cooled from a transaction volume perspective, the assumption is looking a little more suspect.
Sure, expanding into new markets will mean that the average productivity will be temporarily low as they gain traction. But as Dave points out, the average agent is making $2,200 per month now and there has been significant churn. That’s not to say that amount is bad (real estate is so unevenly distributed that averages don’t hold a lot of value), but it is hardly above average for a real estate brokerage operating in the markets they do.
Dave rightly asks why they have so much overhead for such little returns. Whilst spreading it over a larger geography may be a solution it is a dangerous one if they don’t have the core model under control. As Dave says, Prudential California looks more efficient than ZipRealty at this point in time and has a similar agent count.
I wonder also if Redfin and Movoto are having any impact. Rather than web 2.0, those sites are more ZipRealty 2.0.
Also, although they have a reasonably good web site and online marketing efficiency, ZipRealty hasn’t attempted to go beyond the Internet to try and make the customer service and transaction support components more efficient, which I am sure would have just as dramatic an impact on agent productivity. Letting the agents focus on the core value of advice and counsel should be the company’s core mission.
Either way, it will be interesting to watch Richard Sommer, who is a very sharp mind, put his mark on ZipRealty in the next 12-18months and watch the agent productivity as those markets come online and the dust settles. I’ll hopefully post his progress as the quarters come around.
