ZipRealty plans to close its one and only Minnesota office in Minneapolis end of Jan affecting 77 agents.

Also tentative plans to idle 129 real estate agents in the Raleigh and Charlotte, N.C. offices.

Most likely the agents will have option of staying with ZipRealty as independent contractors.

Last November the company converted 3,300 agents nationwide from employees to independent contractors.

Interesting news about a member of our industry! I am seeing many interesting changes in my area with companies and agents.

I am not familiar with ZipRealty at all. Is it correct to suspect that it is (was) an alternative model real estate company?

Yes, Zip gives back a percentage of the commission to the buyer or seller. I think it is 30% to the seller, and 20% to the buyer.

Goes to show that it's difficult to operate when you are cutting your rates. the idea of being in business is not to break even. it is to make a profit.

Thanks for the information BK.
It seems that most of these alternative model firms fail or quickly shift there model towards a full service brokerage.

Discount brokerage models seem to be best suited for firms that 1) can maintain low overhead costs and 2) are located in higher-priced areas.

As soon as you start expanding, you start needing substantially more administrative staff, physical facilities, more advanced computer systems, etc., and you lose a great deal of the cost savings.

The bulk of my clients are in the $600-800k range, which isn't all that impressive for L.A., so I can be profitable if I bring in 1% on my deals so long as I keep overhead to a minimum. But if the average sales price in your area is $150k, then it's just not going to be a viable business model.

I never understood how they got away with making the agents employees and requiring a certain number of hours and not paying wages. It was fine for the agents they had that actually sold something but for the newbies it was hours a day on a computer platform with no pay. I kept thinking the labor board would get em. We had a huge furniture company here that had the same model and the labor board slapped them hard. In VA if you are an employee you have to at least make minumum wage.

This is intersting about Zip. If it's true that they give 30% back to the Sellers...are they just reducing their commission rate upfront, or are they actually writing a check to them after closing? Interesting either way. I have helped many clients over the years that tried some of these alternative model real estate brokers, and they came back soliciting help with the full-service types.

I am one of those people that take advantage of Zip resources but not their service. It's interesting to learn the inner workings of Zip.

unfortunately, that's just the nature of the business. I know people who use zip realty's website but work with non zip agents.

another company to watch is redfin

Have you ever done a transaction wit a zip agent? I have - a few of the worst transactions of my life. It is my experience that 99% of their agents know nothing. They dont understand basic real estate, contracts, and have no idea how to bring a deal to close. I've dealt with Zip agents a few times.
In fact I just got another offer from one.
Her logo is (and I quote off of her materials):
"Your Home Is Were Are Heart Is"
In fact my broker recruited a zip agent this year. She looked great on paper - lots of closed buyer side sales...but when she came on board, it became blatatntly clear she knew nothing. Not how to get clients, how to advise clients, she did not even know how to do a CMA. I helped her with a BPO once - it took her 3 DAYS.
She had made 12k off 14 closed transactions the previous year at zip - thats how bad the split is ( and our average sale around here is about 200k).
But they spoon feed leads and I guess they have an automated system for follow up that just tells agents what to do. The agents are just robots that follow the system.
Anyway - we all tried to help her out for about 6 months. It was useless. She couldnt hack it, and just kept whining about "send me leads". She went back to zip.
Thank God - I just couldnt take the endless calls for help anymore. Was like trying to teach a monkey to dance.
Anyway - not to say ALL Zip agents are the same. Ive dealt with many. One was able to get through a transaction and close.

Too Funny!

ROFLMBO Minna!!!

Update

Hiring like crazy in my area.

The problem with Zip, Redfin and most of these "investment-backed" entities is that they are beholden to investors and need to make a profit not only for the office but for wall street.

That is what is holding this segment back - you have to take away from the agents and give to the bankers...which in turn means less $$ for agents, which in turn means a less experienced agent. This will buy them some time but who goes to Zip if everything is equal and you're not saving?

If you own zip stock - get out.

ZipRealty to shutter offices in 11 markets
Company will emphasize agent expertise over discounts
By Matt Carter, Monday, January 10, 2011.

Inman News™

ZipRealty Inc. is closing company owned and operated brokerages in almost a dozen markets, and will begin emphasizing personalized service and the experience of its agents over the commission rebates and discounted listing fees the company was founded on.

The restructuring and organizational changes announced Monday -- which also include a local referral agreement in the Atlanta market, a first for the company -- are aimed at helping the brokerage "achieve positive cash flow" in 2011, the company said.

"It's a tough decision to pull out of any markets," said Charles "Lanny" Baker, who took over as ZipRealty's CEO and president, on Oct. 2. "We loved working with the agents in those markets, but our assumptions for growth in those markets had not been met."

The company says it will close offices in 11 markets that accounted for about 13 percent of the company's revenue in 2010, and which were a collective drag on the company's bottom line.

The brokerage offices to be closed include five in Florida: Naples, Jacksonville, Miami, Palm Beach and Tampa. In addition, ZipRealty is closing brokerage offices in Fresno, Calif.; Charlotte, N.C.; Hartford, Conn.; Minneapolis, Minn., Virginia Beach, Va.; and Tucson, Ariz.

In Atlanta, ZipRealty has entered into a referral agreement with what it described as "a leading local brokerage."

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ZipRealty will power the brokerage's online sales channel, and ZipRealty's Atlanta agents -- the company's website lists more than 90 -- will have the option of moving their licenses over to the unnamed brokerage.

Baker said there was no transaction involved -- the brokerage ZipRealty is partnering with did not acquire ZipRealty's Atlanta office -- but all agents have the opportunity to make the transition. He said the incentive for them to make the switch is that they will benefit from the brokerage's name, heritage, listings and advertising in the Atlanta market, while retaining their acess to ZipRealty's technology platform.
ZipRealty currently operates in 35 markets in 22 states. Once it has completed the restructuring announced Monday -- which is expected to produce $20 million in annual savings -- it will operate in 24 markets if Atlanta is included, and in 20 states. The company will no longer have a presence in Minnesota and Connecticut.

The company also announced plans to shift its marketing approach "to emphasize personalized service, outstanding technology and experienced local agents that together connect consumers to great real estate transactions."

Baker said that's a departure from an emphasis on rebates. In markets where ZipRealty has a leading market share, it will emphasize the experience and connections of its agents rather than the company's reputation as a discounter.

The goal is to change the perception of the company -- for now, the company has no plans to reduce the commission rebates it offers to buyers. Although ZipRealty advertises itself as willing to offer commission discounts to sellers, those discounts are negotiated on a case-by-case basis.

ZipRealty said it will also open up more of the company's website to users without requiring them to register.

The brokerage operates a "virtual office website," or VOW, that allow consumers to access more extensive information than operators of Internet data exchange, or IDX, listing sites are allowed to provide. The trade-off for operators of VOW websites is that multiple listing services typically require consumers to register to use them.

Baker said there's a lot of non-VOW data on the ZipRealty site that consumers should be able to access without registering. ZipRealty will continue to offer more extensive information to users who choose to register, he said.

In announcing a $5.1 million third-quarter loss in November, ZipRealty said it planned to transition all of its agents to independent contractor status by the end of this month as a cost-cutting measure.

In the following weeks, ZipRealty began filing notices with state regulators about the changes, triggering media reports that the company was pulling out of states such as Pennsylvania and Florida altogether.

Although ZipRealty says it will retain a presence in those states, Monday's announcement makes clear that the brokerage is in fact closing some of the offices previously named in filings related to the Worker Adjustment and Retraining Notification (WARN) Act, a federal law requiring notification to state and local governments about employment site shutdowns and employment loss.

Contact Matt Carter:

Consumers want information and sounds like Zip will give it to them. According to their financials they close 10x as many buyer-side deals than listings. Draw them in with info and marketing, lock them in with a buyers agency contract - and control them. Pretty simple. Will work for now.

That's surprising. I thought they would be faring better, especially since the internet plays a much larger roll in real estate now. Last I read, Zillow traffic tripled in the past two years.

MLS seems to be having competition from other information providers for information on seller listings. But controlling the buyers was always the strength of the MLS system, brokers that figure out new ways to get buyers will be successful moving forward.