This review is focused on the Zillow Flex Program program only. Two separate reviews are assigned to Zillow Instant Offers and Zillow MLS aggregator programs. Since Zillow was first founded, it has idolized itself as a real estate Internet company. However, with an introduction of Zillow Flex Program in 2018, this is no longer the case.
Today, Zillow acts as a "paper" real estate broker. This fact allows Zillow to receive referral fees from real estate agents across the United States.
Zillow operates under the following real estate brokerage license in the following States:
North Carolina C30388
Real estate agents are allowed to pay one another referral fees with a narrow RESPA provision that is needed to allow individual agents to refer business to other individual agents outside their service area.
Despite being registered as a broker, Zillow does not perform real estate services, it simply sends leads to specific agents within its network and uses a real estate license to collect a back-loaded referral fee in the process.
Referral fee revenue is 32x that of a regular advertisement revenue because it results in an economic process called reverse competition, where consumers suffer from elevated costs and lower service as a result. A referral network is anything but free.
The following are some telling quotes from Zillow itself and a Premier Broker program participants. These words speak for themselves.
"We receive listing and buyer referrals directly from Zillow's Premier Broker concierge services. These leads have been scrubbed and vetted before they are directly handed off to you." Source: Sonoma County RE/MAX Marketplace, Zillow Flex Program participant.
"We will validate all leads first, then send agent-ready buyers to you." Source: Zillow website.
"What happens if you miss a call? Don't worry. You won't lose your place in the queue and we will call you with the next connection we validate." Source: Zillow website.
Zillow Group does not disclose the exact amount in referral fees it collects from Premier Brokers, aside from stating that it is an "industry standard." Similar referral fee networks typically receive 25%-40% of the agent's total commission. This is a good reference for the amount in commissions consumers can expect to overpay for their real estate services with a Premier Broker.
Zillow Flex Program is a pay-to-play process that harms the industry as a whole and makes buying and selling homes more expensive.
Why does the Zillow allow for such poor UX?
There are thousands and sometimes tens of thousands in fees collected from each transaction effectively hidden in consumer’s commission.
Consumers in the United States have been systematically conditioned to a 6% "standard" commission structure, a non-negotiable fact that needs no justification.
Unfortunately, this inefficiency alone breeds uncompetitive behavior where real estate agents can easily pay tens of thousands in fees because they are recoverable with a high commission.
Consumers are truly forgotten in this model as an afterthought. When these exigent commissions are amortized over the first five years of homeownership, these fees are the highest single expense line-item - more than the insurance, more than the interest, more than utilities. Clearly, real estate agents only sign-up with Premier Broker because the price of the referral fee can be easily incorporated into their client's agreement with excessive commissions.
RESPA allows for an exception for real estate agents if and only if “all parties are acting in a real estate brokerage capacity" so that individual agents can refer each other when they are out of the local area. This exception has now been turned up-side-down where a referral network does not act in the capacity of a real estate broker. Zillow Group simply uses a license to collect fees without any tangible services done as defined by said license.
Consumers looking to work with a legitimate real estate agent on fair terms should absolutely avoid Zillow Flex Program and never release their full name, email and a phone number to Zillow Group.
The issue of having all US residential real estate markets heavily subjected to these schemes results in noncompetitive behavior, higher costs to consumers and lower quality of service. Having agents "commonly" pay networks 25%-45% of their commission is the true reason why real estate is broken.
Zillow Group matches consumers with "great, amazing, top-producing, perfect agents" based on who first picks up the phone and who is willing to kick in a chunk of their commission, this is the main basis for this process.
What happens when this flawed revenue model is no longer sustainable due to competitive commissions entering the market? The next stage of real estate innovation will have to account for this reality. In play are now competitive open rates, flat fees and buyer’s refunds from highly qualified real estate agents.
Transparent commission rates will eventually bring and end to a pay-to-play phenomenon in the real estate process where programs like Premier Broker simply cannot exist.
Today, consumers should be careful and only negotiate with agents that have no referral fee agreements signed, this is the only way to negotiate for full service at a market rate.