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Online real estate portal Zillow announced on Monday that it has reached a deal to acquire rival company Trulia for $3.5 billion in stock. Both sites aggregate information from multiple-listing services and generate revenue from real estate agents who pay for their contact information to be displayed with listings. We look into what the merger could mean for the No. 1 and No. 2 real estate websites in the US.

Zillow
Leadership: Founded by Rich Barton and Lloyd Frink, former Microsoft executives and founders of Microsoft spin-off Expedia. Current CEO is Spencer Rascoff.
Headquarters: Seattle, WA.
Founded: 2005. Went public in 2011.
Traffic: 83 million users across web and mobile Internet use in June 2014, according to comScore.
First-Quarter Revenue: $66.2 million, a 70 percent year-over-year increase.
In a nutshell: Zillow’s “Zestimate” feature determines the value for a property based on a range of public information, including sales of comparable houses in a neighborhood. The site claims that the Zestimate has a 6.9 percent median error rate. Users can compare the accuracy of Zestimates in their own region with actual sales, making Zillow particularly popular among existing homeowners.

Trulia
Leadership: Founded by Pete Flint and Sami Inkinen, who met at Stanford Graduate School of Business. Current CEO is Pete Flint.
Headquarters: San Francisco.
Founded: 2005. Went public in 2012.
Traffic: 54 million users across web and mobile Internet use in June 2014, according to comScore.
First-Quarter Revenue: $54.5 million, more than double what it made in the first quarter from the previous year.
In a nutshell: Trulia promotes its “smart real estate search experience,” which brings together local information, community insights, market data and national listings for home buyers or renters. The site provides price trend information, crime maps and interactive commuter and transit maps. Trulia also sells software to help manage the real estate transaction process.

What happens next: The deal, approved by the boards of both companies, is anticipated to close next year. The two companies will continue to run under their individual names. Trulia CEO Pete Flint will remain in his position and report to Zillow CEO Spencer Rascoff. Flint will join the Board of Directors of the combined company, along with a second member of Trulia’s Board of Directors.

Under the terms of the deal, Trulia shareholders will receive 0.444 shares of Class A Common Stock of Zillow for every Trulia share they own. Trulia shareholders will own approximately a third of the combined company, and Zillow shareholders will represent the remaining two thirds.

What both companies get: The newer, larger Zillow will enjoy a bigger platform for sellers and real estate agents to list properties. In a press release, the companies laid out five anticipated benefits of the deal — faster innovation, greater access to free real estate market data, broader distribution, enhanced value and ROI for advertisers and corporate cost savings (the companies expect to realize about $100 million in cost savings by 2016, the New York Times reported).

The merger will give the companies a better chance at leveraging ad sales, the primary source of revenue for both. The combined revenue of Zillow and Trulia — $341.2 million last year – represents less than 4 percent of the estimated $12 billion that real estate professionals spend on marketing, and the newly combined company is angling for a larger slice of that pie.

Bloomberg Businessweek’s Brad Stone writes, “Over the long run, though, it probably makes little sense to keep the sites separate. Trulia and Zillow are remarkably similar — each lets buyers navigate an online map to find a home’s value, look at available listings, and connect with local real estate agents. They each have strengths in specific geographical areas. Trulia’s website tends to favor home buyers, and half of its monthly visitors don’t visit Zillow, which traditionally favors home sellers.”

What realtors and consumers can expect: Tim Rood, a former Fannie Mae executive who is now partner and managing director of Collingwood Group, told CNBC that the combined company could be a boon to realtors.

“Realtors, they’re independent contractors,” Rood said. “They just want to win more customers. So if Zillow wants to spend all of its money advertising and realtors can get more targeted, pre-qualified buyers, they’re perfectly happy.”

However, Rood added that certain elements of the Zillow-Trulia business model favor high producers, to the disadvantage of realtors who only sell several properties per year. About 80 percent of real estate sales are handled by 20 percent of the producers, Rood said.

San Diego realtor and blogger Jim Klinge predicted that the merger could decrease the number of real estate agents within two years: “The local associations of realtors and the MLS companies who have feasted on having realtors paying dues regardless of production will suffer – and should die off completely if 20 percent of the realtors are doing 80 percent of the business. They can’t survive an 80 percent reduction in dues.

“When consumers see that their agent-friend down the street hasn’t sold a house in six months – they will hesitate. The Zillow advertising will encourage you to select one of their top producers instead (the ones paying for advertising).”

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