To improve a business, it is common to focus on customer expansion, or delivering a wider array of services that your customers will pay for. For the last three years, Multiple Listing Service has been focused on consolidation (more customers) as a way of improving the MLS. Before that, the focus was on non-dues revenue. Three untapped areas for growth where most MLSs have not been successful are rentals, new home marketing, and commercial real estate. These are enormous categories in the real estate industry that have been asymmetrical because of the MLS core basis of cooperation and offer of compensation.
Incorporating an asymmetrical business like new home marketing, rentals, or commercial real estate into an MLS is absolutely possible. It simply requires the company to think differently about itself. Your company can offer an MLS, and offer a solution to these different industry segments by creating a division or separate subsidiary.
When considering a new business growth opportunity, companies need to answer their “Why?” Why now? Why should we? Out of the three growth opportunities, WAV Group research has pointed to commercial real estate as the most significant opportunity of 2019 for MLSs. The leader in commercial real estate is CoStar™.
If you do not know much about CoStar, put them on your watch list. The company has a market cap of just over $12 Billion today – about double the $6 Billion of Zillow. CoStar is driven by commercial real estate with their CoStar and LoopNet™, but has diversified into rentals with Apartments.com™ (and ForRent) and new home with Lands of America™. In essence, they occupy the space that WAV Group believes that MLSs are well positioned to serve. Their earnings growth has been about 44% over the past 5 years, but it has slowed to 38% recently.
The revenue at CoStar is slightly above Zillow’s revenue at about $300 Million a quarter. The difference is that CoStar is producing significant income whereas Zillow Group® runs the business slightly above break even. If you have ever wondered why Zillow® is worth so much – you need to look not much further than CoStar.
Most MLSs understand how agents and brokers feel about Zillow. There is a single digit percentage of agents who adore the company, but over 90% do not. WAV Group research indicates the same for CoStar. The difference here is that CoStar has been increasing their prices to customers at a much more accelerated rate than Zillow. As the price of CoStar goes up, the sentiment among commercial real estate professionals goes down. Commercial real estate agents feel like they are being held hostage by CoStar and really want an alternative.
There are many MLSs across the nation that have commercial solutions today. They typically reside in metropolitan areas like Las Vegas. At the end of last year, GLVAR extended their center of excellence in commercial real estate with the deployment of RealNex. Truthfully, I had never heard of the company, so I reached out to RealNex CEO Jeff Finn. The RealNex suite includes listing management, contact management, sales and lease comps, transaction management, mobile app, property marketing, and API integrations. They have partnered with other MLSs before Las Vegas and seem to have a strategy that lends itself well to being a vendor as much as it does to being a direct service provider. In their model, the MLS pays a set-up fee and agents get access to the solution to list and search for free. Client portal, eMarketing and other solutions are premium.
For many MLSs, the success in Commercial is not necessarily tied to software. MLS systems like CoreLogic Matrix and others have commercial configurations that are pretty good when an MLS puts the effort into configuring, training, and marketing (MFRMLS does a particularly good job if you are looking for a benchmark – contact Merri Jo Cowen, CEO). I would need to dig in a little to see how Rapattoni, FlexMLS, Paragon, Stratus, and others deploy Commercial. The biggest question for MLS leaders is the strategy to split out Commercial from Residential, or try to make a Residential system work for Commercial.
If your Association or MLS board is reconsidering its strategy for commercial in 2019, WAV Group research can help by assisting you in developing a full picture of the opportunity.