The shutdown of Zoocasa should come as no surprise because it was operating with a business model that was unsustainable, say top executives at Canada’s largest real estate brokerages.
“We thought (the closure) was inevitable,” says Gurinder Sandhu, executive vice-president, regional director at Re/Max Integra. “The industry benefits from business models that add value to the home buying and home selling experience. The overall conclusion from everyone involved is that they weren’t adding value.”
Phil Soper, president of Royal LePage, says he told his team last year that Zoocasa would be out of business by the end of this year. “When I looked at the costs associated with their business model, it just seemed to be unsustainable.”
The Rogers-owned brokerage began life in 2009 as a controversial web portal that was successfully sued by Century 21 for scraping listings from its website. It later evolved into a referral network of agents.
“Rogers has made the decision to no longer continue our investment in Zoocasa as the business is no longer a fit with our overall company plan, and core areas of focus,” the company said in a statement announcing its June 22 closure.
In an email to customers, Zoocasa wrote: “We have had the pleasure of matching thousands of customers like you with great Realtors throughout the country. As a result of your support, Zoocasa has grown into a unique business in a traditional space. Although we have had great success, we have made the difficult decision to close down our business.”
Soper says Zoocasa’s referral fee model “was doomed from the outset. Few sophisticated Realtors will pay thousands of dollars for a web-generated lead.”
He says the close rate of generated leads was small – four per cent would be considered high – and paying thousands of dollars for such leads did not make sense.
Zoocasa received 35 per cent of the agent’s commission entitlement as a referral fee, with almost half of this paid back to the consumer as a closing gift in the form of a cash rebate. For example, if the property’s purchase price was $400,000 and the agent’s commission was 2.5 per cent, the agent was entitled to receive $10,000 in commissions. Zoocasa received 35 per cent, or $3,500, of this $10,000 commission, of which 15 per cent, or $1,500, was given back to the consumer.
Sandhu says the referral fee created challenges for Realtors. He says Zoocasa basically stepped in the middle between professionals who help people buy and sell homes and consumers. “The amount of value being added to the transaction did not correlate to the compensation that they were asking for. That was part of the challenge of the business model.”
Re/Max, he adds, offers “quality referrals much of which are generated through the Internet without any other additional costs other than our membership to be part of Re/Max. We believe that that adds a significant amount of value to our Realtors.”
A source says Zoocasa may have been losing as much as $1 million a month for much of the last two years, paying high administrative and technology costs that far outstripped the number of real estate deals.
There were also rumours Zoocasa was being shopped around to companies like Brookfield Real Estate Services, which operates the Royal LePage brand.
Soper says he could not comment on unannounced transactions but he notes: “When you’ve invested a significant amount of money in something and built the initial stages of consumer brand recognition, it would make sense to see if there was a market for it.”
He says the original vision for Rogers was to be able to cross-sell its telecommunications services to homeowners, offering consumers discounted Internet, cable and home security services. This, says Soper, was “a very expensive way to generate potential new cable subscriptions.”
Zoocasa also used to send out a daily newsletter by email that provided the prices of recently sold homes in a bid to attract more traffic to its website. That stopped earlier this year after the Toronto Real Estate Board (TREB) warned its members that those who break the rules about sharing sold data could lose their access to the Multiple Listing Service.
The federal Competition Bureau is determined to break TREB’s policies covering crucial real estate information such as home sales data, which TREB believes will compromise buyer and seller privacy and other matters. A hearing on the matter is scheduled in September.
Comparisons have been made between Zoocasa and U.S. websites like Trulia or Zillow, which offer data on home sales and detailed demographic information about neighbourhoods and price.
Soper says some people wonder why such sites are not operating in Canada when they’ve been successful in the U.S. Differences in how online listings function in the two countries provide an explanation, he says.
While virtually all listings represented by a licensed real estate agent are on the industry-operated cooperative realtor.ca, there is no such equivalent in the U.S., he says, including realtor.com.
As well, websites of the major national brokerages in Canada, such as royallepage.ca or remax.ca, display tens of thousands of listings that aren’t their own. That move stems from a Competition Bureau process from several years ago in which brokerages agreed to share information with one another. “In the U.S., it doesn’t work that way,” Soper says.
Given those differences, “it was difficult for Rogers to create anything with any material difference. They weren’t able to build a better mousetrap.”
Danny Kucharsky is a contributing writer for REM.