Zillow adjusts Premier Agent pay plan with eye toward culling ranks

Zillow on Tuesday announced significant changes to its Premier Agent program in two U.S. markets, saying participants in the program will now shift to a “post pay” model.

The announcement reflects an effort on the company’s part to implement its “Zillow 2.0” vision, but will also see the ranks of Premier Agent culled by hundreds of real estate professionals.

The news has multiple components, but probably the most significant part is that in Denver, Colorado, and Raleigh, North Carolina, Premier Agent will no longer charge real estate professionals upfront for leads. Instead, the program will collect a portion of agents’ commissions when they close deals based on Premier Agent leads. Stephen Capezza, Zillow’s senior vice president over Premier Agent, described the new form of a payment as “post pay” and a “success fee,” saying it will amount to 35 percent of the participating agent’s commission.

So for example, if a real estate contract stipulates a total 6 percent commission with 3 percent going to the agents on each side of the deal, the Premier Agent participant would pay 35 percent of that 3 percent to Zillow.

Capezza framed the shift in payment philosophy as a win for agents.

“They’re not paying up front to meet with customers, they’re only paying if they’re successful,” he told Inman.

The news effectively expands an existing Zillow Premier Agent program known as “Flex” more widely across two entire metro areas. Flex existed before Wednesday’s announcement, but was only available via invitation.

The change goes into effect May 25. After that time, the conventional model in which a real estate professional pays up front to participate in Premier Agent will no longer be available in Raleigh and Denver.

Capezza said all agents continuing with the program in those two markets will be switched over to the new model. However, not all Premier Agent participants in Denver and Raleigh will be invited to continue with the program. In other words, many people who are currently participating in Premier Agent in Denver and Raleigh will not be permitted to do so after May 25.

Inman asked Zillow how many agents use Premier Agent in the two cities and how many would be removed from the program. The company did not provide specific numbers, but said “several hundred” would be leaving Premier Agent while “hundreds” more would continue on in the program.

The criteria for who gets to make the transition will depend on metrics such as customer satisfaction and conversion rates, among other things. Capezza said another determining factor in who gets to continue with Premier Agent is “how excited you are to test new ways to bring this experience forward.”

Capezza overall characterized the move as a kind of experiment driven by the need “to test a bunch of things, sometimes digitally and sometimes from the sales perspective.” And the features that ultimately succeed could be deployed in other markets.

“We are looking to take those learnings and export them elsewhere,” Capezza said.

However, Capezza also said that while the Raleigh and Denver approach may ultimately be replicated in other cities, he doesn’t anticipate the conventional pre pay model of Premier Agent ever completely disappearing in every market. Zillow also has not identified future markets in which it might shift from a pre pay model to a post pay model for Premier Agent.

Aside from shrinking ranks and a change in payment strategy, the pivot includes other facets as well. For example, in the new system consumers who reach out to Zillow about a property will be routed to an advisor. That advisor, who is not a real estate agent, will evaluate the consumer’s real estate needs “top to bottom,” according to Capezza, then route them to a Premier Agent member. Capezza described the difference between the existing approach and the new one as going from “low touch” to “high touch.”

Zillow’s goal is also to plug consumers in to a variety of ancillary services. So for instance, would-be home buyers who reach out to Zillow and speak with an advisor may also ultimately be connected to the company’s mortgage lender, Zillow Home Loans, in order to get financing. A letter Zillow sent Wednesday to Premier Agent participants in the affected markets explained that the goal is “connecting more transaction-ready customers with our partners.”

“Flex gives us the best opportunity to follow and innovate on the customer journey, from connection to close, so we can optimize how our offerings work before expanding them to more customers and more partners,” the letter notes. “As a post-pay model, Flex also minimizes the financial risk to our partners as we introduce, test and refine these new experiences.”

Capezza said the objective is ultimately to give consumers a better and more seamless experience, though participating Premier Agent members who have their own preferred partners — for example a lender they typically refer to clients — will still be allowed to work with whoever they want.

“This is all part of our efforts to create an ecosystem of integrated solutions designed to empower customers and partners throughout the real estate process — from start to finish,” the letter adds.

The experiment with Premier Agent comes as Zillow works to find its way after recently getting out of the iBuying business. The company’s iBuying wing had flipped thousands of homes, but was also quickly burning cash. Company leaders also said they faced obstacles when it came to anticipating the price of homes several months down the road.

IBuying had been a major part of Zillow’s 2.0 vision, which has generally been an effort to move the company beyond its historic strength as a consumer portal and lead generation engine for agents. And while the iBuying exit sent Zillow’s stock price tumbling, some analysts said they anticipated a future pivot that would identify new sources of revenue for the company. Company CEO Rich Barton also alluded to such a pivot when he said that instead of iBuying Zillow would focus on activities that were asset- and cash-light.

The new experiment with pricing and higher touch services within the Premier Agent program seems to be an attempt to deliver on that promise. That said, Inman asked Capezza if the shift in approach to the program could potentially make Raleigh and Denver significantly more profitable Premier Agent markets for Zillow, to which he replied, “no, it’s a pretty even move.”

Capezza also concluded that he is excited about the shift and believes it will benefit both consumers and agents.

“We’re looking to really discover how to make customers who use Zillow and Trulia, and effectively customers of real estate, really happy,” Capezza said. “That’s getting them into their next home with ease. By doing that our partner agents are going to be happy and we’ll be able to build thriving businesses together.”

Email Jim Dalrymple II