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Regulators may be weighing impact of Zillow-Trulia merger on small brokers

By January 16, 2015 One Comment

Much of the discussion about the Federal Trade Commission’s review of the pending Zillow-Trulia merger has centered around the share of advertising dollars that the portal giants command and the percentage of consumer traffic they represent.

But another factor may play into the FTC’s analysis on whether the merger might harm competition in the real estate portal space.

Zillow, Trulia and routinely cut deals with many of the nation’s largest brokerages and franchisors to purchase advertising at favorable prices that helps them capture more leads from the popular popular search portals. These arrangements, which give larger real estate companies an advantage, may complicate the FTC’s review.

When examining possible adverse competitive effects, the FTC considers whether those effects vary significantly for different customers purchasing the same or similar products. Such differential impacts are possible when sellers can discriminate by raising prices for certain targeted customers, but not to others.

The possibility of price discrimination could weigh on the FTC approval of the merger — or lead it to impose specific conditions before agreeing to sign off on the deal. The FTC’s “Horizontal Merger Guidelines” lay out an interesting example that could apply to the ongoing review of the Zillow-Trulia merger.

Suppliers can distinguish large buyers from small buyers. Large buyers are more likely than small buyers to self-supply in response to a significant price increase. The merger may lead to price discrimination against small buyers, harming them, even if large buyers are not harmed. Such discrimination can occur even if there is no discrete gap in size between the classes of large and small buyers. In other cases, suppliers may be unable to distinguish among different types of customers but can offer multiple products that sort customers based on their purchase decisions.

Applied to real estate, the FTC may be considering whether big brokers and companies affiliated with franchisors will be in a better position than small ones to resist any price increases or negotiate more favorable terms for their agents. The independent broker segment of the industry has been growing in recent years, and more than half of U.S. agents are now with indie brokers.

If the merger is approved, Zillow will decide how to price advertising not only for the sites it owns (Zillow, Trulia and HotPads) but the sites that it “powers” — Yahoo Homes, AOL Real Estate, HGTV’s FrontDoor and MSN Real Estate.

In the past, big brokerages and franchisors have negotiated volume discounts with top portals that may put smaller players and individual agents at other firms at a disadvantage.

In 2013, when Century 21 inadvertently made a memo to brokers public, Inman reported on just how dramatic these discounts can be. Under the terms of deals Century 21 forged with five top search portals —, Zillow, Trulia, and — the franchisors’ brokers were paying $1 per listing to “enhance” listings on Zillow, an 85 percent discount.

Century 21 brokers could enhance listings on Trulia for $1.13, or 70 percent off, the memo said. was charging Century 21 brokers $54.95 per month per office to enhance all of their listings, a discount of 72 percent, and charged them $65 per month, or 67 percent off. The memo did not provide pricing for enhanced listings.

The nation’s biggest real estate brokerage, Realogy-owned NRT, and Realogy franchise brands like Better Homes and Gardens Real Estate have signed similar deals in the past. So has Re/Max.

In June 2011, NRT announced it had signed agreements to add advertising enhancements to 100,000 property listings on Trulia, Zillow, and Yahoo Real Estate. Realogy’s 2012 IPO prospectus noted that the company has “attractive financial arrangements with third-party websites such as Google, Yahoo, Trulia, Zillow, and others that significantly advantage our agents and franchisees.”

In addition to providing a direct feed of all of its listings to the big three portals — Zillow, Trulia and — Re/Max currently has marketing agreements with each that give all of its agents a discount on advertising.

Large independent brokerages also play in the portal big leagues.

Last summer, Zillow signed a marketing agreement with New York City-based brokerage giant Douglas Elliman Real Estate, the fourth-largest brokerage in the U.S. by 2013 sales volume. Douglas Elliman listing agents will get exclusive placement next to their listings on Zillow under the deal.

All of this could factor into the FTC’s analysis of the potential for the Zillow-Trulia merger to stunt competition and if so, whether small companies might be hurt more than big ones.

Word from the FTC is expected very soon. While the FTC is not expected to put the brakes on the merger, it could attempt to impose conditions aimed at preserving competition.

When real estate data aggregator CoreLogic wanted to acquire DataQuick Information Systems Inc., for example, it had to agree to feed national assessor and recorder bulk data to RealtyTrac before the FTC would sign off on the deal.

In the wake of that decision — which made RealtyTrac the first new entrant in the tax, deed and mortgage data licensing business since 2001 — Zillow asked to be released from its long-term contract with CoreLogic so it could negotiate a better deal with RealtyTrac. The FTC rejected the request.

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