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Realty Executives International mega franchise in turmoil – speculation looms

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Realty Executives brand in turmoil?

Realty Executives International (REI) has been riddled with quiet troubles in recent years with little to no media attention or even knowledge by REI agents of the turmoil. Executives have been let go, headquarters have been dramatically downsized, a major REI office defected to KW, while others have stopped paying franchise fees.

International headquarters moves. Again.

REI is headquartered in Arizona and claims 10,000 agents across 600 franchises in 24 countries, with 10 new franchises signed recently. International headquarters moved in 2007 out of their multi-story corporate high rise and in 2009 moved in with a local franchisee. Our source says that in a letter to franchisee owners, REI noted that the move was because times were tough, therefore, they needed to have ears on the ground.

One franchise operator told AGBeat that they were not buying “ears on the ground” as REI’s reason for moving. The only word franchise operators received at this point was to send franchise fees to what the operator equated to a strip mall location, leaving room for franchisee speculation.

Major REI exodus

The REI brand was dealt a major blow in spring of 2010 when 13 year franchise owner Anthony Azar defected to Keller Williams overnight, allegedly taking REI executives by surprise. Azar left with most of his 375 Tucson agents while some chose to stay with REI. Azar said in a statement that research and other observations convinced him to make the transition and one of our sources said they believe this conversion to be a sign of things to come.

Where are all of the corporate executives?

In spring of 2010, after over 20 years with REI, Realty Executives Phoenix President John Foltz’s allegedly nasty departure from the company was indicative of how one of our sources feels is becoming the culture of REI. Before Foltz left, his title was changed and he was replaced as President by Dominic Scappaticci recruited from Sotheby’s.

REI President and CEO Rich Rector filed a lawsuit accusing Foltz of misappropriating corporate assets, Foltz countersued for libel, claiming REI failed to pay him and when he complained, they sued him and accused him of fraud. Franchisees, brokers and agents were aware of this battle as the continuing volley of lawsuits has been quite public.

But what most of REI agents were not aware of is the company letting go of a large number of executives in December 2010 which did not get the same press as the Foltz/Rector battle. One source says thirteen people were let go at corporate headquarters, nearly half of the executive team including the COO and CFO due to REI’s claim of budget problems, with claims that no one at corporate was offering answers to the agents and brokers in the field.

Blackout – “we’ll get back to you”

Public relations begins internally, with all parts of the body being prepared to handle any inquiries- be they from consumers or journalists. A source close to the corporation says the only notices being sent to brokers, agents or franchisee owners are good news emails with only mentions of positive news and no arming of franchisees to handle the bad news of executives getting cut or battles between leaders. Some franchisees believe that REI corporate has a black out of information, often stating that they “will get back to you” to their agents and brokers; sources say REI is refusing to address any negative speculation, leading some inside the network to believe the company is in real trouble and potentially incapable of handling the fallout.

Mega franchise locked out of offices

Bloggers went wild this April when multiple Phoenix REI agents arrived at their offices and were shocked that the doors were locked by the landlords. Realty Executives Phoenix is where roughly 10% of REI corporate executives hang their license, and the franchise’s filing for bankruptcy has made waves in the industry. The lockouts occurred when lease negotiations failed, but executives told press that they were surprised by any lockout, while our sources tell us that some franchisee owners knew the threat of a lockout loomed over them.

Because of the financial troubles of REI’s flagship franchise, they are no longer paying franchise fees which has deeply upset other franchise owners.

In response to Realty Executives Phoenix’s franchise fees allegedly no longer being paid, several franchisees have halted payments of their franchise fees in response. A source told us that “brokers are dropping like flies” and that some are planning on leaving as their franchise contract ends while others are rumored to be considering dropping the REI name and paying the contract breach fee.

The crux of the issue is that franchise owners and brokers are opting out and in their own small network discussing how to jump ship. Of the agents (not brokers) we spoke with, none were aware of anything going on which means agents across America could be in for a big surprise in the coming year as their franchise owners change gears.

Ousted executives start new franchise

REI boasts technology and a superior referral network, but one franchise owner we spoke with said they feel nickled and dimed by conventions, meetings and cost per head. Rather than tuck tail, several former REI executives that were ousted have banded together to form an alternative brokerage model that contrasts REI and is likely based on the feelings of the franchise owner who feels nickled and dimed.

The competitor is called Professionals Realty Group USA (PRG) which they brought over from Australia. The company’s President is Glenn Melton, ousted CEO of REI, and their Director of Member Services is Meghan Hartman, former Director of Franchise Growth at REI. Scott Hurlock is PRG’s SVP of Franchise Development, formerly REI’s VP of International Franchise Development, and Mark Vost is now PRG’s Executive VP Membership & Business Development and was ousted as a well known Regional Developer at REI. These four are just a few of the handful of former REI leaders now at PRG.

The group offers a twist on the flat fee brokerage model that gets away from the traditional real estate split. Although franchisees tell us there is bad blood, they say the PRG team is focusing on their growth and looking forward rather than backward. Given the series of lawsuits between Foltz and Rector, it is possible other lawsuits could be forthcoming, but we were unable to locate any currently filed suits and REI has not responded to our request for information or comment.

Portrait of a franchise in turmoil

Nasty legal brawls, ousting executives with no warning, franchisees not paying franchise fees, a corporation in a communications blackout with the largest franchise filing bankruptcy and agents arriving to locked offices does not indicate a franchise in good health. One of our sources says their biggest frustration is that no one is seeing what is going on at REI, no one is putting the pieces together, and people are just assuming that the isolated incident they might be aware of is a sign of a down economy, but from a macro perspective, this is indicative of a franchise in turmoil.

Lani is the Chief Operating Officer at The American Genius and sister news outlet, The Real Daily, and has been named in the Inman 100 Most Influential Real Estate Leaders several times, co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

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52 Comments

52 Comments

  1. Mike Stefonick

    July 24, 2011 at 12:08 pm

    They should call me, I can reinvent the company. I was one of the original Regional Owners of RE/MAX.

  2. Gene Urban

    July 24, 2011 at 5:08 pm

    I am perplexed at the one sided spin of this article. Much of the Article is based on data that is well over 6 months old. Nothing is mentioned about the over 10 new Realty Executives franchisedbopened in 2011. Nothing is said about the incredible success the new http://www.RealtyExecutives.com website is experiencing.

    You call Realty Executives International a company in trouble and no-one knows what's really going on. I have an office in the same building REI is located, yet am not an eployee. Every day I see excited employees delighted to be part of anthriving, energized company. I see franchise owners in the halls and lunch room and they are excited brokers who are passionate about the REAX brand.

    I have to wonder who is paying you to write such an unbalanced, error-filled article? It is certainly not the work of an unbiased journalist.

    • Mike Stefonick

      July 25, 2011 at 4:30 am

      Good Point Gene Urban.

    • Marc Girolimetti

      July 25, 2011 at 11:37 am

      Wait a second Gene, you're going after Lani for being biased, but you're basing your opinion on surface observations of what you see in the hallway or break room. Can you really decipher truth from that? We're talking about realtors here. They are professional smilers who are hopped up on Tony Robbins and Zig Ziglar. It's in their DNA to look happy at all times. At least Lani is attempting to bring some clarity to an obviously cloudy situation. You can't say they're not in trouble because their employees look happy in the lunch room. Maybe they're excited over the burrito they just microwaved. It is lunch after all. Who isn't happy during lunch?

      • Gene Urban

        July 25, 2011 at 6:11 pm

        Thanks for the comment Marc. My real concern is that Loni, who I strongly respect, has been used. The information her "sources" provided is largely inaccurate. I sent her a personal email where I outlined just a few mis-truths her sources offered including:

        • Only Glenn Melton and Mark Vost were let go.

        • Meghan quit her job… by the way she is Mark Vost’s girlfriend.

        • Scott Hurlock got a nice salary boost and with triplets the extra money was important. He quit as well.

        • Kelly Zegars, who is a close friend of mine, is also Glenn Melton’s step daughter. She left Realty Executives when her dad was ready for her to work at his new company. She did not leave because she was disgruntled. She is an amazing marketing person and PRG is very lucky to have her.

        • Did your source tell you that it was Glenn Melton who orchestrated the ousting of John Foltz… probably not. John told me this himself as recently as last week and it is common knowledge here in Phoenix.

        • Someone told you Realty Executives International has sold a dozen franchises recently. The truth is they have sold 36 franchises in the past 6 months. REAX International is actually kicking butt, operating in the black and growing. Opps… I bet your source forgot to tell you that one too.

        • Not sure who told you Realty Executives International moved into a strip mall. They moved into a large space co-occupied by the Realty Executives Phoenix Center Pointe office, one of the top 3 performing offices of all REI franchises. Bringing Realty Executives International here was fiscally responsible, plus, the energy of REI and the Center Pointe office has proven to be very motivating. By the way, we are not in a strip mall, we are in a Tuscan styled office complex with fountains, a Koi pond, views of the Phoenix Mountain Preserve and situated across the street from a Hilton resort where REI clients stay.

        I am concerned that Loni was knowingly misled to write an article that is factually inaccurate. It is interesting that the new franchising firm mentioned in the article had their launch party, which I attended, just days before a scathing article is written about one of their competitors. That sincerely disturbs me. How about you Marc?

        • Marc Girolimetti

          July 25, 2011 at 11:07 pm

          What truly disturbs me is repeatedly calling Lani, somebody you "strongly respect", Loni. Worse, the theme to "WKRP in Cincinnati" is stuck in my head. The rest of it doesn't disturb me at all. I have no vested interest in the subject. I despise most realtors. As I like to say a realtor is just a failed recruiter, but I love a controversial post, which is why I jumped in. Believe me, if I started writing about my experiences with realtors it would be a bloody mess with lots of bodies strewn across the Internet.

          • Gene Urban

            July 26, 2011 at 8:28 am

            I just saw the Loni verses Lani typo… Sorry Lani.

      • Tressa Ellis

        July 26, 2011 at 11:55 am

        If you hate REALTORS so much maybe you should stop trolling real estate industry websites!

    • Grant Hammond

      July 25, 2011 at 1:12 pm

      Gene – I share you concern in the seemingly one sided report, but I also have to tell you that our Nashville office dropped Realty Executives almost a year ago now as a result of REI issues. We were the largest REI office in Nashville with over 100 agents.

    • Bob LeDrew

      July 25, 2011 at 6:46 pm

      Dear Mr. Urban:

      Aren't you the Gene Urban of Urban Connection Realty, which is part of REI? You seem to know a great deal about the inner workings of the organization. urbanconnectionrealty.com/about-2/

      • Gene Urban

        July 25, 2011 at 11:33 pm

        Evening Bob, it's nice to have dialog with the guy behind Flacklife… You have a wonderful honesty in your prose.

        UrbanConnectionRealty is my downtown Phoenix blog site… I love writing about our urban core… May have to do with my birth name. My brother and I are Realtors and our brokerage is Realty Executives Phoenix, a franchise of Realty Executives International aka REI. Hope that explanation helps.

        As far as knowing a lot… I am pretty thirsty for information. Like you, I write a bit… Just not as well. I ask a lot of questions and spend time watching and listening.

        Hope to meet you in person some day, maybe at PAB. You make it sound like a lot of fun.

  3. Franchisee

    July 24, 2011 at 9:07 pm

    Sorry, but citing 'sources' 7 times in this article makes it nothing more than hearsay. If you can't get someone to go on record for all the alleged mis-deeds, then I really wonder if the problems are that big?

    Not to mention – was this written by a 3rd grader?

    If this was grade school homework, it would be filled with punctuation 'red marks'. Deep breaths here – slow down, use short sentences so we can follow your thoughts. A genius you are NOT.

  4. Joe Loomer

    July 25, 2011 at 7:41 am

    10,000 agents at over 600 offices? 16.66 agents per office? There's your "alleged" overhead problem.

    Navy Chief, Navy Pride

  5. Mavis Brown

    July 25, 2011 at 10:24 am

    Why such a "hack job" on Realty Executives? Sounds like your sources were company enemies. I think your research is very shallow. You should find out more about your remarks before you put your reputation on it. Before you make such comments on offices closing, perhaps you should also include how many offices with other major franchises have closed in the same time period. You try to give truth to rumors and to comments from disgruntled employees who are trying to build their own company. Shame on you.

  6. Milan Cole

    July 25, 2011 at 12:39 pm

    Definitely a sign of the times. They are not the first company to underestimate the cost of failing to communicate and address what is going on and certainly not the last.

  7. Candace Cormier

    July 25, 2011 at 5:01 pm

    Interestingly enough, the President/Owner of REI was never contacted for any information regarding these allegations. Sour grapes on the part of ex REI employees. It would be nice if the people who write articles would check their facts. Rich Rector, President, would gladly grant you an interview if you want to know the truth.

    What was the reason for this biased attack on REI?

  8. Mark Story

    July 25, 2011 at 5:37 pm

    Wow.

    It's just amazing how people have ripped this article to shreds without considering a few important points.

    First, if what it stated is true, than a culture of dysfunction, fear and intimidation is probably going on in some places. Do you honestly think that an employee would go on the record with his/her name at a time in which lawsuits and accusations are flying? Please.

    Second, for whomever criticized the writing style, I find it to be short and to the point. And oh – there are some incontrovertible facts in the article that have been reported elsewhere.

    And finally, form the guy who does not work with with them yet works in the same office building and sees shiny happy people having fun, do you really consider yourself to be more of an expert than someone who is heavily involved in the industry and researched this story? I smell a plant.

    Back off, guys. Rather than attacking the message carrier, why not offer some of the proof that you claim is missing from the article.

    Mark

    • Mavis Brown

      July 26, 2011 at 3:08 pm

      Just like many "journalists" these days, Lani did not check the facts before writing her slanted story. Yes there are some shreds of fact, but they are spun in such a way that the truth is hard to see. I still say "Shame on You' for spreading gossip about a respected company. It says a lot about someone who will try to wreck another company in order to get business.

  9. Greg Traynor

    July 26, 2011 at 11:47 am

    I am the Regional Developer for Ohio, Kentucky, and West Virginia. REI has always been completely transparent on any points contained in this article. From my very close and clear view, nobody from REI was asked to contribute to or rebut any allegations contained in this article. REI has been very pro-active in communicating with its Developers, our Broker Owners, and our entire Executive family. That is, quite simply, our culture. All spectrums of realty (and business in general) have been touched by adversity in this economic environment. We are no exception. Where we do excel as a brand is in having the inner strength and ability to view this as an opportunity to become more streamlined, focused, and efficient at delivering our brand message and culture. As we have in the past 45 years, we will continue to succeed by the same appraoch.
    This is, however, simply a blog and as such borders on editorial so, a certain level of "journalistic freedom" is apparent and granted. If you wish to expand your horizons into true unbiased journalism I would encourage you to reach out to Marissa Leon at REI to get their input and/or rebuttal. You and gain a clearer picture of what has transpired and will give your readers/followers an opportunity to judge with all the facts present. To all your success!

    • Nick Bastian

      July 27, 2011 at 4:03 pm

      Lani contacted me a couple of weeks ago with some questions about the "turmoil at REI." I returned the call and let her know that I would be happy to discuss my knowledge of the company, the brokers and anything else she had questions about. I also offered to put her in direct contact with Rich Rector ( President and CEO of REI ) and Dominic Scappaticci ( President and designated broker in Phoenix) apparently, she didn't have the time for those "sources."

  10. Scott Mallard

    July 27, 2011 at 5:13 pm

    Lots of mis-information here. One has to ask… Is there an agenda?

  11. S. Tripp

    July 27, 2011 at 5:38 pm

    “Speculation Looms” – what a nice, sensational headline. Is this agentgenius.com or National Enquirer? I will agree with Mavis Brown and her “shame on you” comment. As both a journalist and former employee of the company in question, I am appalled by the misinformation and lack of integrity found in this article. I hope that readers consume it for what it is and not as a legitimate news source.

    That said, I feel compelled to clarify a few items. First, the company did move out of a multi-story office building and into one of its franchisee’s offices. That move was in 2009 and not 2007, as reported. What was not reported was that both REI and the franchise are owned by the same family. It was a consolidation into a low-rise office building and nothing remotely similar to a strip mall. Further, it was during a period in which one of the nation’s worst real estate markets (Phoenix) was in an unprecedented downward spiral. No leases were broken, it was simply a smart move given the current health of the real estate industry.

    Second, while many agents did stay with the former franchisee in Tucson, as he moved to Keller-Williams, I don’t believe that it could accurately be reported as “most.” Many remained with Realty Executives. Due to the referenced litigation, I will not make any comments on the Foltz issue. If 13 people were let go from corporate headquarters in December 2010, there would have only been one or two left. The company is pretty lean already and since the “executives” in question were the CEO and the CFO – they could not possibly have constituted “half” of the company’s executive team. Yes, there were several lockouts this spring in Phoenix offices, due to disputes with landlords. However, it is blatantly incorrect to state that 10% of REI corporate executives are licensed to the Phoenix franchise. I believe only one “REI corporate executive” holds his license there and it is owner and President Rich Rector. I also believe that the writer’s (I hesitate to refer to her as a journalist) continuous use of “a source says” references weakens the integrity of the article since it borders on hearsay in many instances.

    While Professionals Realty Group may be of Australian origin, the notion that several ousted executives “brought it over” is a stretch. Again, the only REI executives ousted here were the CEO and the CFO, and the latter is in no way apparently involved. Meghan Hartman and Scott Hurlock both resigned of their own accord. I have been told that the same was true of Mark Vost. As Gene Urban referenced, there were also personal relationships at play about which I choose not to write in any detail here. In an article on Australia’s Real Estate Business website, Professionals Real Estate Group CEO Glyn Morgan is quoted as saying that the Australian company will retain a controlling stake in “the US membership group.” And, while the former CEO is continually referred to as “ousted,” perhaps suggesting a victim, one would ask if our current national budget woes were all created under President Obama’s watch – or might the former administration have had a hand in them as well?

    In my opinion, many, if not most, sources for this extremely slanted piece were either disgruntled former REI employees or executives. And, finally, as a former employee, the commenter’s post about a current culture of “dysfunction, fear and intimidation” made me laugh uncontrollably for a number of extremely valid reasons.

  12. John Lasher

    July 27, 2011 at 9:38 pm

    Apparently, to receive any attention in today's media world you need to find negative news, and if you can't find it, you create it. In the age of Murdoch you can say or do anything to get people to read what you write.

    In this current article the author takes some old news about a couple of local brokerage problems, recycles it and then mixes it with statements of some very questionable "sources" to draw the unfounded conclusion that "Realty Executives International mega franchise in turmoil – speculation looms". You would expect that the information that follows such a sweeping headline would present some significant new information to support its headline. Unfortunately, there was nothing of substance really new other than the statements from some unidentified "sources" and the authors own personal speculation. None of which gives any credibility to the headline.

    To me, this type of writing is as irresponsible as someone yelling fire in a theater, when there is no fire. The article showed little concern or effort to get at the truth of the matter or to present a fair and unbiased report. If the author really wanted to give an objective viewpoint about the current status of Realty Realty Executives International she could have contacted REI or checked with more objective sources. She actually had to look no further than the July/August 2011 edition of "Realtor", our national trade magazine. It gave the 2011 Franchise Report which showed that Realty Executives International is more than holding its own in this challenging market. The report includes a comparison of the number of franchise offices in 2009 and 2011. Like most other national franchises REI did show that from 2009-2011 it had a 15% loss in the number of offices. However, most other major national franchise companies experienced similar or even greater losses. Century 21 lost over 24% of its offices, Coldwell Banker lost over 50%, Weichert lost over 24%, Re/Max lost over 10% and Real Living lost over 62% of its offices. In a market where almost all real estate companies are struggling and where everyone is having to restructure to become as efficient as possible, why did the author target one of the strongest real estate companies in our industry? This was obviously a one sided article where the author appeared to either have her own agenda or where the "sources" feed her the bait and she ran with it without giving REI an opportunity to present any facts of their own. It is articles like this that create a need for a "Fact Check" website to evaluate the accuracy of real estate articles and blogs.

    Unfortunately, once you put out a negative in print it is very difficult to undo it or repair the damage done by it. No one can underestimate the power of the printed word, no matter if it is in newsprint or on the internet. We have all heard of people using the internet to successfully bully or disparage the reputation of others. That is sad and it makes irresponsible articles and postings one of the most serious negative side affects of the internet. Not wanting to have censorship imposed on the internet we need to hold each other accountable. Simply put, this article does not present news. This article is simply a news "story" that should not be taken seriously.

  13. Sue Smith

    September 16, 2011 at 1:00 am

    you are missing much of the facts of the demise of the CORE & inner workings, & internal problems.When Rich Rector decided to come and Save the Day !! he changed the very thing that made REAX work. They also did not take the advice that many people were sugggesting-to update and expand the Monthly plans and Fees to save the Bleeding … look at how many Agts got tired of paying the Big Fees and Went to HomeSmart John Hall and Keller Wms. The branches were run with a Voted in Manager, and had Company paid Admin. Staff. they were the eyes and ears for the Agts and they were the Messengers for the Corp.Office . Rich Came in and decided to change the dynamics, the Staff and then the Biggest Mistake -the Broker One by One and 10 by 10 they started leaving…They brought in someone they didn't respect, they fired someone they REALLY liked, and they Fired many GOOD Support Staff that kept the offices chirping…They tried to push this BIG Idea About Marketing Assitants =They Cut the Weekend Staff (this is a WEEKEND business folks) and they kept changing the VERY things that the Agts LIKED. So the Agents Left. Don't believe me ? Go on the AZ Dept. of RE and look up how many AGts are now at HomeSmart- Each Office has lost close to 50-60 %of there AGTS and the Energy and Dynamics Change. I guess when you are having to PAY your DBA 30K @ M You have to start elimanating the Staff that make 30K a YEAR ! BRILLANT SO THEY AGTS HAD TO PAY THE SAME AMOUNT TO GET LESS SERVICES AND LESS ATTENTION……Thats a win win …NO Not

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