Real estate data company CoStar (NASDAQ:CSGP) recently announced it had agreed to acquire real estate technology company Homesnap, whose broker and agent-focused tools put it in more direct competition with Zillow (NASDAQ:Z)(NASDAQ:ZG)

In this Dec. 1 Fool Live video clip, two experts from The Motley Fool's Millionacres real estate subsidiary, Deidre Woollard and Matt Frankel, CFP, discuss whether Zillow should be worried about this move. 

Deidre Woollard: I want to pivot into talking about CoStar, which I'm newly fascinated by lately and I've been following it for a while just because they're a very interesting company. What CoStar does is they started off as real estate data. They have large news teams and they mostly do commercial real estate data. But over the past few years, they've bought, they own LoopNet, which is the default Zillow of commercial. They're making some other big acquisitions that are really interesting. The biggest one that came out recently was that they're buying Homesnap. I'm not sure how many people are familiar with Homesnap, but it started off as like a Shazam for real estate where you were able to take a picture of the house and then learn more about it. But as Homesnap grew as a privately traded company, it started to deal with all of the multiple listing services, the MLSs in different places. Now it's used by hundreds of thousands of agents. For CoStar to get into the residential space, I think is really interesting. Inman News has been covering it a lot this week. They had an interview with the CEO of CoStar, Andy Florance. Because I think they might be really trying to take aim at Zillow's rulership of residential real estate.

Matthew Frankel: I agree with that. Well, they're definitely trying to be a competitor. Whether Zillow should worry about it or not, there's a different matter.

Woollard: [laughs] True.

Frankel: Here's an interesting fact in why I think Zillow doesn't have a whole lot to worry about. When you're starting your home search, what do you think is the number 1 term type into Google (Alphabet) (NASDAQ: GOOGL)(NASDAQ: GOOG)?

Woollard: I don't know. I would assume home for sale.

Frankel: It's Zillow.

Woollard: There you go. It is a verb now.

Frankel: Zillow has more google searches per month than the term real estate. That's a pretty impressive brand recognition. Zillow has over 197 million unique users per month. It's the brand when it comes to the Premier Agent service when you are looking for a home. It's just synonymous with residential real estate in America at this point. Now, having said that there is room for everybody here. Zillow has estimated that it's Premier Agent market, meaning that they're agent services, is an $18 billion annual market. In 2019, the revenue they got from that was less than a billion dollars. They have about five percent of their addressable market, so there's room for others to grow right alongside Zillow. It's worth mentioning that Zillow isn't focusing on this area of the business really that much anymore. They're considering that the mature part of their business and are focusing on Zillow Offers, the iBuying business. Their homes division as they call it in their financial statements. They refer to it as their legacy business. But it's not that big of a market share when it comes to what they think they could get from agents using all of these services to list homes and stuff like that. Now if you're realtor, you can't not be on Zillow these days. You just can't. But CoStar is definitely making moves, and I don't know. Do you agree with me that Zillow doesn't have that much to worry about?

Woollard: Well, here's the thing that I find really interesting. This is going to be like data, nerd, real estate all of the information comes from the MLSes, when I worked at, we had agreements with 800 MLSes and so CoStar at Homesnap has been serving these MLSes. I'm wondering if there's a way that the MLSes might try to get out of their relationships with Zillow and if there is a way for CoStar to have control over the actual sources of data. That's the thing that makes me wonder if there is a way that they could get power over that. That's the other thing that really is fascinating to me about residential real estate data, is that it is not coming from one source. So it's coming from all of these hundred of MLSes and over time, we're starting to see more of them consolidate because some of them can be really small. They can have a couple of hundred agents. The other problem is that they all put the data in slightly differently, which doesn't sound like a big deal, but then you have these little disagreements over what makes up a three-quarter bath versus a half-bath and it's all entered in differently. So when it's all entered it differently, it's really hard for it to be updated fast, and efficiently, and accurately, and that's been a problem in the real estate industry for years. There is a couple of different groups that have tried to put together data standards. So Homesnap was actually the public face for something called the Broker Public Portal. The Broker Public Portal has been this idea to create not necessarily a national MLS, but something close to it, where all of the different MLSes had the same data standards, put all of the information in the same way. A lot of the real estate companies that were part of it saw it as a way to take back control from Zillow. But the thing is, is that it never quite launched. For whatever reason, it never became a thing that people ended up using, it never became a thing that the public ended up using, and it started to seem like it was just impossible, that Zillow would just always have that power, and a lot of people in the real estate industry resent the fact that Zillow came in from the outside and managed to have all of that power. It's really interesting to me that CoStar has made this move. We've seen what they've done with apartment listings with, but that's a very different type of industry versus residential real estate.

Frankel: Yeah. The biggest differentiator between them and Zillow as a competitor is Zillow's homes division. If Zillow's iBuying ends up being successful, they don't care how much market share CoStar takes in their legacy business. As of yet, they haven't figured out how to make it profitable by the way. Zillow bought and sold over 2,300 homes in one quarter this year. They lost an average of $4,500 per home fixing and flipping that house. So they haven't figured out how to scale this yet. But this is a two trillion dollar market, not at e18 billion dollar one like their premier agent business. So that's where they're seeing dollar sides in their eyes, in that two trillion dollar market. You know CoStar a lot better than I do. I don't believe they're planning on doing any type of iBuying anytime soon.

Woollard: No. Their goal always is to control data as much as possible. In the past, they've been famously litigious, suing a variety of other companies. They basically sued Excelligent out of business. Once they get data, they throw up a moat around it and they really go after anyone who uses their data. They've accused other companies of stealing their data. So that's one of the things I find really interesting about this grab.

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