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Zillow plans to acquire Trulia: will the FTC approve, will the world end?

Zillow has announced that they will be acquiring Trulia, pending regulatory approval. Does this mean only one place to mail your ad dollar check? Nope, but it’s still a tricky acquisition the SEC will have to analyze before giving the red light.

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After much speculation and leaked details, Zillow and Trulia have announced their commitment to one another, as Zillow has entered into a “definitive agreement to acquire Trulia” for $3.5B in stock. Both companies will remain in tact as brands with Trulia CEO Pete Flint reporting to Zillow CEO Spencer Rascoff, and the deal is on target to close next year.

With this acquisition, two real estate search giants will remain (Zillow, realtor.com), and real estate professionals and industry insiders have mixed feelings on the topic (some believe the world is going to end, others are enthusiastic), but as the two names remain in tact, Zillow would simply own Trulia, not necessarily swallow it. Read: your advertising dollars will still go to two separate locations rather than just Zillow since the world will not be absent a Trulia.

What remains to be seen, however, is whether or not the FTC will approve the acquisition, as both are publicly traded companies and require approval from the regulatory body. This merger is akin to all telecom companies merging except for Sprint, leaving a world of only two large, nationally recognizable options – even if all stores still say “AT&T” or “Verizon” on the signs, in this theoretical example, they’re all still owned by AT&T, so there are only two competitors. The FTC doesn’t always like when there are only two competitors controlling a market.

Zillow will argue before the Commission that there are literally thousands of competitors, and they’re right, but when it comes to the main competitors, as an industry, we’ve long called Zillow, Trulia, and realtor.com the “big three,” and changing that landscape changes control over the market. While most believe the FTC will approve, it is not a guarantee, so we will be watching closely.

Rascoff’s letter to brokerages

The following is a copy of an email sent by Zillow, Inc. to real estate brokerages.

*****
It’s my pleasure to let you know we have just announced that Zillow has entered into a definitive agreement to acquire Trulia. You can read the full press release here .

I’m really excited about this opportunity, but I am sure the news will lead to a number of questions. The most important thing I can stress is that this combination of companies sets the stage for us to offer even more real estate tools and services to empower consumers and thus has the ability to drive even more business to local brokerages and their agents.

We expect to maintain both the Zillow and Trulia consumer brands, as both will continue to offer buyers and sellers access to vital information about homes and real estate, providing an important bridge to local agents across the country. We’ll work hard to make sure the great partnerships we have with brokers nationwide continue to prosper.

This acquisition requires shareholder and regulatory approval, which might take several months. We will provide additional details as they become available. For now, it’s business as usual for both companies. Our daily focus and strong commitment to local agents and professionals in the real estate industry remain unchanged and of the utmost importance to our entire team.
Please contact our team at partners@zillow.com with any questions.

Regards,
Spencer Rascoff
Zillow CEO

Zillow’s press release about the acquisition

Zillow Announces Acquisition of Trulia for $3.5 Billion in Stock

Combination of companies sets stage to offer more real estate tools and services that empower consumers and drive more business for real estate professionals

SEATTLE and SAN FRANCISCO (July 28, 2014) – Zillow, Inc. (NASDAQ:Z) today announced that it has entered into a definitive agreement to acquire Trulia, Inc. (NYSE:TRLA) for $3.5 billion in a stock-for-stock transaction. The Boards of Directors of both companies have approved the transaction, which is expected to close in 2015.

The combined company will maintain both the Zillow and Trulia consumer brands, offering buyers, sellers, homeowners and renters access to vital information about homes and real estate for free, and providing advertising and software solutions that help real estate professionals grow their business. At closing, Trulia CEO Pete Flint will remain as CEO of Trulia reporting to Zillow CEO, Spencer Rascoff, and will join the Board of Directors of the combined company. In addition, at closing, a second member of Trulia’s Board of Directors will join the board of the combined company. Further operational and organizational details will be announced at closing.

“Consumers love using Zillow and Trulia to find vital information about homes and connect with the best local real estate professionals,” Rascoff said. “Both companies have been enormously successful in creating compelling consumer brands and deep industry partnerships, but it’s still early days in the world of real estate advertising on mobile and Web. This is a tremendous opportunity to combine our resources and achieve even more impressive innovation that will benefit consumers and the real estate industry.”

“Trulia and Zillow have a shared mission and vision of empowering consumers while helping real estate agents, brokerages and franchisors benefit from technological innovation,” said Flint. “By working together, we will be able to create even more value for home buyers, sellers, and renters, as well as create a robust marketing platform that will help our industry partners connect with potential clients and grow their businesses even more efficiently. Our two companies share complementary employee cultures with innovative, consumer-first philosophies and a deep commitment to create the best products and services for our industry partners.”

Both Zillow and Trulia are primarily media companies, generating the majority of revenue through advertising sales to real estate professionals. Despite continued growth as public companies, significant opportunities of scale remain as the majority of advertising dollars in the real estate sector have yet to migrate online or to mobile. For example, the two companies’ combined revenue currently represents less than 4 percent of the estimated $12 billion i real estate professionals spend on marketing their services to consumers each year.

Zillow and Trulia are two rapidly growing real estate sites on mobile and the Web, enabling advertisers to reach a large and expanding consumer base. In June, Zillow reported a record 83 million unique users across mobile and Web ii . For the same month, Trulia reported a record 54 million monthly unique users across its sites and mobile apps iii . The two brands have limited consumer overlap – approximately half of Trulia.com’s monthly visitors do not visit Zillow.com, and approximately two-thirds of Zillow.com’s monthly visitors across all devices do not use Trulia.com iv . Maintaining the two distinct consumer brands

will allow the combined company to continue to offer differentiated products and user experiences, attract more users and maximize the distribution of free content across multiple platforms, apps and channels.

A summary of expected benefits of the deal, include:

• Faster Innovation. By combining resources, the companies expect to accelerate innovation on mobile and Web to provide more valuable tools and services to consumers and professionals.

• Greater Access to Free Real Estate Market Data. The companies expect to share real estate market data, housing trend analysis, and forecasts to make more free data available to consumers and real estate professionals to empower people to make more informed decisions.

• Broader Distribution. Home sellers and their agents, brokerages, and participating MLSs will benefit from seamless free distribution of listings across even more platforms to reach an even larger audience of consumers.

• Enhanced Value and ROI for Advertisers. The companies expect to offer shared services and marketing platforms for advertisers that enhance agent productivity and marketing and deliver greater return on their investment.

• Corporate Cost Savings. By operating independent consumer brands through one corporation, the companies expect to realize synergies to improve overall operational efficiency over the long-term. By 2016, management expects to achieve at least $100 million in annualized cost avoidances.

Transaction Details
As part of the agreement, Trulia shareholders will receive 0.444 shares of Class A Common Stock of Zillow, Inc. v for each share of Trulia, and will own approximately 33% of the combined company at closing. Current Zillow holders of Class A Common Stock and Class B Common Stock will receive one comparable share of the combined company at closing, and will represent approximately 67% of the combined company. The transaction assumes Trulia’s convertible notes will be assumed by the combined company at closing. The value of the deal represents a premium of 25% to Trulia’s closing price on July 25, 2014.

The agreement is subject to the satisfaction of customary closing conditions, including the expiration of U.S. antitrust waiting periods and shareholder approval of both companies. Zillow co-founders Rich Barton and Lloyd Frink, who control a majority of the shareholder voting power of Zillow, have agreed to vote in favor of the transaction. In addition, Trulia directors holding 7.4% of Trulia stock have entered into voting agreements with Zillow to vote in favor of the transaction.

Letter to Trulia employees from CEO, Pete Flint

The following is an e-mail sent from Trulia, Inc.’s Chief Executive Officer to Trulia’s employees:

Dear Trulians,

Today, we are embarking on a new and exciting chapter. We’ve signed an agreement to be acquired by Zillow. This was a decision the Board of Directors and I did not take lightly, and I am convinced it is the right one for our company, our employees, our customers and our shareholders. Together, we have successfully built Trulia from the ground up by staying focused on our clear vision. Our mission remains the same – to use technology to drive innovation in the real estate industry. By joining forces, Trulia and Zillow can accelerate our efforts to revolutionize the home search process for consumers, help professionals build their businesses and create additional value in adjacent markets.

This combination is expected to create an even stronger organization by bringing together the shared talent, technology and industry relationships of Trulia and Zillow. Together we can unlock more innovation and align our time, energy and resources into building the best consumer and agent experiences. The combined company will be home to two fast-growing and beloved brands in the online real estate industry.

We expect that Trulia and Zillow will continue to operate as separate and distinct brands once the transaction closes. The multi-brand strategy is common in a variety of industries from travel to household goods and more. For example, Priceline owns Kayak and Booking.com, ensuring they have products that meet a variety of tastes and preferences, while delivering more quickly on their shared mission.

Trulia shareholders will receive shares in the combined company equivalent to 0.444 shares of Zillow, for each share of Trulia. This represents a 25% premium to Trulia’s closing price on July 25, 2014. Trulia shareholders will own about 33% of the combined company. Once the transaction closes, Zillow CEO Spencer Rascoff will be CEO of the combined company. I will continue to run Trulia under the new structure, reporting to Spencer, and will join the Board of the combined company.

This news means new possibilities for our employees and greater value for our shareholders. This also means significant benefits for buyers, sellers, homeowners and real estate and rental agents, such as:

1) Faster Innovation. By combining resources, the companies expect to accelerate innovation on mobile and Web to provide more valuable tools and services to consumers and professionals.

2) Greater Access to Free Real Estate Market Data. The companies expect to share real estate market data, housing trend analysis, and forecasts to make more free data available to consumers and real estate professionals to empower people to make more informed decisions.
3) Broader Distribution. Home sellers and their agents, brokerages and participating MLSs will benefit from seamless free distribution of listings across even more platforms to reach an even larger audience of consumers.

4) Enhanced Value and ROI for Advertisers. The companies expect to offer shared services and marketing platforms for advertisers that enhance productivity and marketing and deliver greater return on their investment.
I know this announcement may come as a surprise for many of you. Trulia was doing great as a standalone company. However, we believe that combining with Zillow will allow us to do much more together than apart. And I can tell you that after working closely with Zillow’s team the past few weeks, it has become apparent to me that Zillow‘s business is highly complementary to Trulia’s, and Zillow’s vision, strategic goals and objectives are closely aligned with ours.

Many of you may have questions about what this will mean for you. Here’s what I can tell you today: First of all, Trulia’s brand and culture are not going away. Zillow admires and respects our culture. It is one of the key reasons they want to combine with us. Additionally, this deal will mark the beginning of a new chapter of growth and opportunity to innovate for our customers and our employees.

Second, we are just beginning what will be a lengthy process, as the proposed transaction will require both customary regulatory and shareholder approvals. We believe these processes could take several months, and we expect the transaction will close in 2015. During this time, despite the many possible distractions, it is absolutely critical that we maintain our focus on delivering the best products and experiences for our customers and partners.

In the months to come, we will share additional operational details, with the bulk of the details announced around the closing of the transaction. As part of this process, we will work with Zillow to form a transition team comprised of employees from both companies, who will focus on integration planning for Trulia and Zillow. I want to assure you that — as always — we intend to be as transparent as possible and will keep you informed as decisions are made and information becomes available.

Business leaders throughout Trulia are setting up meetings with their teams to talk through the transaction, so each of you will have more opportunities to discuss any questions about how this might affect you. For now, it is business as usual, and for the time being, our normal operations are not affected whatsoever by this announcement. Trulia and Zillow are and will remain completely separate companies until the transaction closes. I’ll reiterate the importance of staying focused, even in the face of the many distractions from this announcement.

I am grateful to be part of the talented team we have here, and I thank you for all of your hard work, passion and dedication. We will be holding an employee all hands at 10:00 a.m. PT (details to follow) where we will discuss this further. I look forward to working with you as we prepare for this next step in our journey.

Thanks,
Pete Flint

Full statement from Trulia

On July 28, 2014, the following entry was posted on Trulia, Inc.’s corporate blog:

TODAY MARKS A NEW AND EXCITING CHAPTER FOR TRULIA AS WE AGREE TO BE ACQUIRED BY ZILLOW

Today, we have some exciting news to share https://www.businesswire.com/news/home/20140728005503/en/Zillow-Announces-Acquisition-Trulia-3.5-Billion-Stock, as Trulia is embarking on a new and exciting chapter. We’ve signed an agreement to be acquired by Zillow, which will enable us to accelerate our efforts to revolutionize the home search process for consumers, help professionals build their businesses and create additional value in adjacent markets. I’m excited about the benefits this combination will bring to the consumers, agents, brokers, franchises and data providers we work with every day.

Over the last 10 years, we have successfully built Trulia from the ground up by staying focused on our vision – to fundamentally improve the way that home buyers, sellers, renters and home seekers find a place to live and the way that agents and brokers connect with them to power their businesses. It’s clearly been working and today’s news further validates and invigorates our mission. It is also a reminder that our journey has really just begun.

Zillow will acquire Trulia in a stock-for-stock transaction in which Trulia stockholders will receive shares in the combined company equivalent to 0.444 shares of Zillow for each share of Trulia, and will own approximately 33% of the combined company at closing, on a fully diluted basis. At closing, I will remain as CEO of Trulia reporting to Zillow CEO, Spencer Rascoff, and will join the Board of Directors of the combined company. In addition, a second member of the Trulia board of directors will join the board of the combined company.

Trulia and Zillow will maintain our individual consumer brands and operate as separate companies. The combined company will offer buyers, sellers, homeowners and renters access to vital information about homes and real estate and provide advertising and software solutions that help real estate professionals grow their businesses.

Together, we will create an even stronger organization by bringing together the shared talent, technology and deep industry relationships of Zillow and Trulia. We can align our time, energy and resources into building the best online real estate experience by accelerating innovation on mobile and desktop platforms and providing more valuable tools and services to consumers and professionals. We can also work together and in partnership with the real estate industry to ensure more free data is made available to consumers, which can empower people to make better decisions. With broader and seamless distribution, home sellers, agents, participating brokerages, franchises and MLSs will be able to reach an even larger audience of consumers. Finally, together we can offer shared services and marketing platforms for advertisers to enhance productivity and deliver great return on our customers’ investment with us.

I know this announcement may come as a surprise for some of you. Over the years, in this first chapter, as we have participated in the growth of the industry with Zillow, mutual respect grew. We believe that combining with Zillow will allow us to do much more together than apart.

It has never been a more exciting time to be in the real estate industry. Here’s to the next exciting chapter!

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Lani is the Chief Operating Officer at The Real Daily and sister news outlet, The American Genius, and has been named in the Inman 100 Most Influential Real Estate Leaders several times, co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

Real Estate Corporate

Zillow gets one step closer to practicing real estate

(CORPORATE) Real estate giant, Zillow, has been testing “Instant Offers,” today expanding to include themselves in the mix of buying and selling homes.

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For over a decade, real estate practitioners have worried that their feeding Zillow endless information would empower them to eventually pick up real estate licenses and become their largest competitor. In 2007 and 2008, it was massive blog fodder an an emotional issue for many as agents and brokers rallied against it.

Zillow has always said they will never practice real estate. Ever. They’ve maintained their position that they sell ads, not properties.

But today, the company is one step closer, as SEC filings reveal they will be testing the buying and selling of homes directly in two test markets, Phoenix and Las Vegas.

They’re not the brokers of any of the deals, and this is clearly a play to compete with Opendoor which is already valued at over $1 billion, but it is certainly another inch closer to confirming the fears that caused so many to figuratively flood the internet streets with torches and pitchforks.

The company announced today that they would be expanding their Zillow Instant Offers Program to Phoenix after testing in Vegas and Orlando last year, wherein sellers could solicit cash offers from investors.

In the new test markets, however, they’ll be participants, stating they will be “buying and selling homes with Premier Agent partners.”

Zillow stated that their Instant Offers Program is “an excellent source of seller leads for Premier Agents and brokerage partners,” given that the majority of sellers who requested an offer ended up using an agent from the program.

Fast forward to today, and they’re no longer the matchmakers, they’re also planning to buy and sell investment properties themselves.

In a statement the brand said, “Beginning this spring, home sellers in the Phoenix and Las Vegas real estate markets will be able to compare an agent’s comparative market analysis (CMS) to offers from Zillow or other investors.” Adding, “When Zillow buys a home, it will make necessary repairs and updates and list the home as quickly as possible. A local agent will represent Zillow in the purchase and sale of each home, enabling agents to earn commissions.”

All of this could be one step closer to competing in the real estate market as actual practitioners, or maybe Zillow is just as enchanted with Chip & Joanna Gaines’ house flipping as the rest of us.

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Real Estate Corporate

Zillow challenges federal antitrust allegations

(CORPORATE NEWS) Zillow says they’ll “vigorously defend” themselves against allegations that Zestimates are concealed on partner brokers’ listings.

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Earlier this week, New Jersey broker, EJ MGT LLC filed a lawsuit accusing Zillow of concealing Zestimates on specific listings, implying that paying partners are given an unfair advantage in the marketplace. The suit acknowledges that Zestimates appear somewhere on all listing pages, but alleges that only certain brokerage listings do not have the Zestimate listed prominently under the listing price.

Court documents offer screenshots of listing pages with and without Zestimates as well as documentation of communication with Zillow Group staff explaining that only “certain brokers” receive “certain treatment.”

But not so fast.

Zillow points out that Zestimates simply appear on different parts of the page for different listings.

Emily Heffter, Sr. Manager of Public Relations at Zillow Group tells The Real Daily, “despite the claim in the suit, no listings on Zillow are exempt from having a Zestimate. Some listings have the Zestimate in a different place on the page.”

The lawsuit criticizes the accuracy of Zestimates, a critique the company is quite used to and typically responds by reminding people that they are not appraisals, and not always accurate across the board (some states are non-disclosure states, for example, so home sales data flows differently depending on location).

Heffter reaffirms just that, noting that “the Zestimate is not an appraisal. It’s an estimate created by a sophisticated machine-learning process, and it’s meant to be used as a starting point in determining a home’s value. Zillow is very transparent about its accuracy, and we [sic] our median error rate is about 4.5 percent.”

Typically, in times of active litigation, Zillow and other companies refrain from commenting. Not this time.

Zillow Group’s official statement: “We believe the claims in this case are without merit. The Zestimate is intended to be a starting point for determining a home’s value, which is why we provide it, for free, on more than 100 million homes across the country. As a company, we always seek to create advertising products that add value for consumers and advertisers, and we intend to vigorously defend ourselves against this lawsuit.”

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Real Estate Corporate

Zillow sued for Zestimates violating federal Antitrust laws

(CORPORATE NEWS) Zillow being sued for Zestimates is nothing new, but they’re now being accused of concealing Zestimates on “Co-Conspirator Broker” listings, violating federal Antitrust laws.

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The latest Zillow legal troubles again surround their Zestimates; this time they are being sued for their Zestimates violating federal Antitrust laws. The company has allegedly violated and continues to violate Section 1 of the Sherman Act, 15 U.S.C. § 1 and the New Jersey Antitrust Act, N.J.S.A. 56:9-3.

Plaintiff, EJ MGT LLC, based in New Jersey, filed suit against Zillow Group Inc. and Zillow Inc. today. In a 21-point legal brief outlining their specific violations, two things become immediately clear (assuming of course there is truth in these allegations): Zillow is giving preferential treatment to preferred brokerages (labeled ‘co-conspirator Broker[s] in the lawsuit) and Zestimates are wildly inaccurate (as many have adamantly stated since Zestimates’ conception).

The first few points of the brief explain exactly what Zillow is being accused of doing: “this antitrust action arises from Zillow’s conspiracy with certain real-estate brokerage companies to selectively conceal ‘Zestimates.’ ”Zillow’s estimate of a residential property’s “fair market value” which the lawsuit states they know “to be inaccurate,” have allowed “only select brokers to conceal the display of Zestimates on their listings to the exclusion of the general public.”

The lawsuit goes on to state that “these agreements between Zillow and certain co-conspirator brokers of residential real estate restrain trade (read: the agents/brokers being allowed to conceal unwanted Zestimates, henceforth referred to as ‘Co-conspirator Brokers’) and deprive Plaintiff and the public in general of the benefits of open and robust competition in two markets: the residential real estate market and the residential real estate brokerage market.”

In essence, Zillow and the Co-conspirator Brokers have allegedly made an illegal agreement regarding the display of Zestimates on Zillow’s site.

Zillow has long touted their Zestimates as a “user-friendly format to promote transparent real-estate markets and allow people to make informed decisions;” except Zestimates are often believed to be inaccurate and now they’re allegedly being concealed for a select group of Co-conspirator Brokers – a far cry from making real estate more transparent.

If the lawsuit’s claims have any validity behind them, it seems as though Zillow may be in for a bumpy ride. Item 10 in the suit states, “Zillow has acknowledged that it conceals Zestimates as a result of agreements with only ‘certain brokers’ who receive ‘certain treatment’” and uses a message screenshot from Zillow’s Help Center as proof these words were in fact used to explain why some listings had prominent Zestimates while others did not:

You may be wondering what brought about this lawsuit; Plaintiff, EJ MGT LLC, is marketing a property located in Cresskill, New Jersey, through an agent unaffiliated with Zillow (not a “Co-Conspirator Broker”). Therefore, their listing contains a prominently displayed Zestimate, while a similar listing in nearby Alpine, New Jersey, which is listed through a “Co-conspirator Broker,” conceals the Zestimate:

The above example is not the only one outlined in the case, however. Item 12 of the lawsuit states that further evidence can be seen by comparing a residence page for a property while it was listed with a Co-conspirator Broker versus the same residence page once the property was off the market. One clearly conceals the Zestimate, while the latter displays it clearly underneath the listing price.

For reference, the Co-conspirator Broker listing was captured on December 26, 2017 and the screenshot after it was taken off the market with the Zestimate was taken on January 2, 2018. Merely a week in between images, and yet the difference of how the ad is displayed is quite apparent:

In essence, Zillow has violated the very transparency they claimed to create.

Zillow is allegedly promoting misleading and inaccurate information while using their marketing power to charge brokers to hide this information which could negatively impact a sale, and which Zillow itself has acknowledged is sometimes inaccurate.

Also, general members of the public have no way to prevent Zillow from obtaining and posting information in this way, and it cannot be altered without hiring an alleged Co-conspirator Broker, as Zillow has explicitly refused to offer the option to hide information to individual homeowners, further deepening the dependency on Co-conspirator Brokers.

Because of their alleged refusal to treat everyone equally and “empower homebuyers with information,” they have potentially restrained trade in connection with the exchange of information regarding home valuation, and offered anti-competitive benefits to only those brokers chosen to purchase that ‘special’ service package from Zillow that removes Zestimates from listings.

Therefore, brokers are not on even footing: when a seller attempts to price check; the brokers without it could be losing out to those who have the ‘special’ package and removal of Zestimates alongside listing prices.

So far, each individual Co-conspirator Broker has not been named; they have been named as a group: Sotheby’s International Realty, Inc., Coldwell Banker Real Estate LLC, Century 21 Real Estate LLC, The Corcoran Group ERA, and Weichert Realty, according to court documents. It is unlikely that any action would ever impact the brokerages, rather Zillow Group itself.

Zillow is being sued for five counts: two counts of conspiracy to restrain trade, one count of violating the New Jersey Consumer Fraud Act, one count of slander of title/product disparagement, and one count of interference with prospective economic advantage. A jury trial has been requested.

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