Transcript: CoStar Founder and CEO Andy Florance at Inman Connect Las Vegas

Hi All,

Below is the transcript of CoStar Founder and CEO Andy Florance being interviewed by Brad Inman at Inman Connect Las Vegas 2024 on Tuesday, 30 July 2024.

Note: There is no mention of CoStar's pending acquisition of Matterport.

According to ChatGPT-4o, that's likely because:

"The combination of Regulation FD and the HSR Act creates a regulatory environment where public companies must be very cautious about discussing acquisitions. They need to ensure that any disclosures are made in compliance with these regulations to avoid legal repercussions and ensure fair and orderly dissemination of information."

Any helpful takeaways for you?

Best,

Dan

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Transcript

Brad Inman (00:00):
[Andy Florence] come in and disrupted the portals and created a lot of noise. And what I love about him, he likes drama like I like drama, so he's really an amazing guy. Welcome to the stage Andy Florance, the founder of CoStar.

Andy Florance (00:13):
As you know, I've had some [inaudible 00:00:27].

Brad Inman (00:34):
They always say when you do this, you should [inaudible 00:00:37]. I have become a little bit of a fan because you're extraordinarily successful. You came into an industry that's kind of firm and in place, and you are disrupting things. So I'd like to begin [inaudible 00:00:55] two years now.

I still think of you as a newbie. You don't try to answer complicated real estate questions you don't understand, which I appreciate. But we're going to talk about your strategy and all of that, but let me ask you this. There are real estate people here and entrepreneurs who are going through really, really tough times and you've been through the ups and downs of business.

You know it's not honest work. It's like life, right? What's your advice, before we get started, to people who are just either struggling to thrive or struggling to even survive? And I don't know if you know about realtors, but it's commission based, so some folks in this room may not have transactions for a few months, which I always compare to my mom being a farm girl back in the day. They had seven [inaudible 00:01:44] in a row. It's like that.

Andy Florance (01:45):
Right.

Brad Inman (01:45):
It's tough for some of these folks, so give them some advice how you got through and I'm sure [inaudible 00:01:51] the tough times.

Andy Florance (01:55):
Sure. So as I mentioned, my mom was a real estate agent for 40 years, 50 years, something like that, so I got to see that.

Brad Inman (02:01):
I remember.

Andy Florance (02:02):
And then just to supplement her income, dad was an architect and they don't make anything [inaudible 00:02:07], so I've seen the ups and downs. And honestly, with CoStar, we see the cycles quite clearly because we experience them and you experience the difficulties that your clients go through. Having been through, I think mentioned earlier, I think the fourth longest serving CEO S&P 500 company-

Brad Inman (02:32):
Wait, wait. Fourth long-

Andy Florance (02:33):
Longest serving CEO with a S&P 500-

Brad Inman (02:33):
Do you get a plaque for that?

Andy Florance (02:33):
I'm trying to outlive Warren Buffet. I think I've got a shot. I will never achieve what he's achieved, but-

Brad Inman (02:42):
You never know. Dang.

Andy Florance (02:43):
[inaudible 00:02:43] just a participation award. Anyhow, what I've seen-

Brad Inman (02:47):
What's the average?

Andy Florance (02:48):
It's two years.

Brad Inman (02:50):
Two years?

Andy Florance (02:51):
Yeah.

Brad Inman (02:51):
Well, we got a couple in this business [inaudible 00:02:54].

Andy Florance (02:56):
I've been through four or five really dramatic cycles and for sure, you see people go through stress. You see people suffer, and people who are not 100% committed... We all know there's different variations of committed to the real estate business, but for sure, each time you go through a cycle and survive, you are stronger and stronger and stronger.

And so it's easy for me to say for this, it's like, "Okay, this too shall pass." And I would say of all the things that are happening with it with dropping lines, but being quite aware of what's happening with the commission thing and the Department of Justice. That one, I feel highly confident that we come out of that whole situation with a different situation, but still more than ample compensation for the industry and the people will thrive.

Brad Inman (03:58):
So the commission bucket's not going to be empty.

Andy Florance (03:58):
For sure not.

Brad Inman (03:58):
Yeah.

Andy Florance (04:03):
For sure not. It is kind of sticky or tricky, or it's tricky when the government gets involved in running a business. Sometimes they need to and they need to interject themselves, so I think maybe that is what we're doing here. How they're doing it we may disagree with, but that's always been the challenge in America at least because the government's [inaudible 00:04:23].

Brad Inman (04:23):
Yeah, they do like to govern.

Andy Florance (04:23):
Yeah, they like to govern.

Brad Inman (04:23):
[inaudible 00:04:29].

Andy Florance (04:29):
Yeah.

Brad Inman (04:30):
So you've been involved, we call it the portal wars because we're a news company. We got to get the fancy name.

Andy Florance (04:35):
Yeah, that's good.

Brad Inman (04:36):
But traffic update, we've heard all kinds of things. You spent, I guess, hundreds of millions of dollars in marketing and promotion. How is that going in terms of competing, not only with Realtor.com, which is being feisty, but also the big dog, Zillow? Can you catch up with the big cat?

Andy Florance (05:01):
For sure.

Brad Inman (05:01):
Oh, the dog and cat.

Andy Florance (05:02):
So we have competed with Zillow in the past where they were in the rental space and then we actually went from number five to number one on Apartments.com. So we've done it before.

Brad Inman (05:16):
You kind of killed Zillow then. I mean, the inside story back a few years ago was Andy is the one they were afraid of, ruthless Andy who really murdered in the apartment world. And so they're nervous about you.

Andy Florance (05:33):
Well, it's simple. The reason we're in the residential real estate space is we see a huge and obvious opportunity. When you can talk to the constituents, when you can talk to agents, the brokers, the sellers, and the buyers and you find that people are significantly, consistently dissatisfied with the solution being provided and you can clearly see what a better business model would look like, then that's something worth going for and investing in.

Brad Inman (06:08):
What is that business model, for the new people so they understand?

Andy Florance (06:11):
Sure. So the existing portals in the United States which no one else in the world does this, what happens in the United States only happens in United States and it only happens in residential real estate. It doesn't happen anywhere else, so the existing portals focus on taking... They do put homes for sale on the internet, but they're not about selling homes. They are about basically taking the leads from all listing agents and then sell them down to about 5% of the buyer agents who then monetize them for some split.

(06:45):
So at the beginning of the day, the core function there is to generate buyer agency off a listing agent's leads. This is not popular with sellers. They want the person they hire to be taking the calls, the first point of contact. It's not popular with agents.

No remember, agents, 97% of agents with three years of experience or more are going to list for both buyer and seller agencies, for it's really agent, not buyer, seller agent. And agents historically have relied on having their name out there in the sign on the lawn. It's their primary branding opportunity and gets people to call them up and say, "Hey, is that house in Giant school district?"

And the agent says, "No, it's not, but I do a lot of work in that school district and I can represent you for buyer agency." Or if it is the right house for them, they can refer them to someone else now for [inaudible 00:07:39] closing. But that listing sign in the physical work has been the most important thing for generating buyer agency for listing agents, referral feels, and also frankly for sellers selling the home.

(07:51):
Now that we're in a world where it doesn't matter what you have on your front yard, 100% of buyers are shopping online. And 52% select the home they actually buy online. Having your name [inaudible 00:08:06] as a successful, accomplished agent isn't critical, but that's all there. What we're focusing on is selling the house. That's new and completely different in the United States.

When I say that, nobody understands me, but it's working because the point is I can take a consumer coming into the site and they're looking for a house and I can prioritize through sort some houses over other houses. I can also prompt people in the alerts.

When they're looking in Cleveland Park, I can remind them about these couple houses more often when they're looking at neighborhood information. So we can remind them about certain houses more often. And when they leave the site, we can represent houses repeatedly. This is marketing 101. We're the only people doing it.

Brad Inman (08:54):
Tell you this story. This kind of goes back to the days when realtors [inaudible 00:09:02] to run an ad, but they weren't in the middle of transaction like you just described.

You just write a check to the LA Times. And by the way, having literal centuries, during that period, realtors complained about having to pay LA Times so much money. So in your case, you're going to ask to be paid up front to market and to help sell the house. Correct? Just so we're clear on it. [inaudible 00:09:31].

Andy Florance (09:31):
Didn't you sell the portals at LA Times?

Brad Inman (09:33):
I did sell.

Andy Florance (09:33):
Okay.

Brad Inman (09:35):
Well, the collection of newspapers.

Andy Florance (09:39):
Yeah, so if you think about it, if you can remember, go back to the old classified adds. And what the current portals are is every single classified's exactly the same size and none of the classified have the actual location's number on it. It has some random lead agent's number on it. Back in the day, that would've been considered insane.

Brad Inman (10:05):
Yeah.

Andy Florance (10:05):
No one would've thought it so, and it is insane.

Brad Inman (10:07):
Yeah.

Andy Florance (10:08):
But people just got used to their listings being hijacked, and so they've come to accept the thing they should not accept. So if you go back to LA Times thing, we have the ability to put even bigger ads in the classifieds and have it on top of the front page.

And then with the miracle [inaudible 00:10:27] of the internet, we can put on the front page your ad for proper front page. And literally, when someone comes to our site, a buyer comes to our site and engages in a property, they will then see that same property and agent above the fold in the New York Times very often or in the top of CNN or major publications. So now-

Brad Inman (10:49):
[inaudible 00:10:53].

Andy Florance (10:55):
that's the miracle and genius of digital advertising. This is where you design the product to help sell homes instead of small group of buyer agents.

Brad Inman (11:04):
Now, I'm here for them, not you. I want you to spread some awareness, but I love these people more because they pay me. The one question I had is realtors have worked on referral fees and success fees forever, and they pay it begrudgingly, but it's worse for them because I would say they're the last to be paid. Like my father was a small-town retailer and he was the last to be paid.

He paid the whole seller. He paid the shipping cut. He paid the salesperson. He paid everybody and then he sold it. He was the last. And I watched that as a kid and I thought went from $5 for a dress to 50 cents. Last to be paid.

(11:45):
You are now asking them to pay you up front, which is hard for a realtor who is commission based and is the last to be paid. I mean, that's a tough one, right? They don't know if they pay you whether they're going to sell the house and they're going to get paid.

Andy Florance (12:02):
Not really. It depends what the ROI is. And right now, we designed the site to put the agent center and front and give tools to the agent so that they could demonstrate to the seller that they're adding more value wen they're in our listing presentation. S

o go to list as a selling agent, go in the listing presentation and I say, "See, my listing sorts [inaudible 00:12:29], but competing listings are down here on page two or three. See the way a million people looked at my listing and a thousand people looked at this listing on page three? That's why you should hire me. Now, here's the thing is you can see this clearly and our member agents are being hired 50%... They're getting 50% more listings than-

Brad Inman (12:51):
From the advertising.

Andy Florance (12:52):
From this ability to show the sellers that they have-

Brad Inman (12:55):
Which realtors love that. [inaudible 00:12:56].

Andy Florance (12:56):
It equates to six extra listings a year per agent right now for member agents. That's about $100,000 a year. So if you're paying us 2, 300 dollars a months, you're paying us a couple thousand dollars a year, 100,000's a great deal. We don't want to be in the business of following up sand saying, "Hey, you need to split some of your commission fee." We don't want to be at the closing table.

(13:21):
And the other thing is, we're not trying to sell to 4, 5% of agents. We want to sell to half of agents. And by doing that, you can bring your cost way down. It's what we do with all of our other product areas we sell to. Everyone participates, everyone benefits. And in that environment [inaudible 00:13:38] still working.

Brad Inman (13:40):
So you're a marking partner? [inaudible 00:13:42].

Andy Florance (13:41):
We're a marketing partner.

Brad Inman (13:46):
Did y'all see the Super Bowl ad with these-

Andy Florance (13:48):
Yeah.

Brad Inman (13:48):
It looks really amazing. You spent a boat load of money. Did that pay off?

Andy Florance (13:58):
Yeah. So we started here in Vegas with four Super Bowl ads and a couple hundred million impressions off of that, and that was just the beginning. We've now run 25,000 more ads. We've gotten 12 billion impressions last night. We're at 140 spots running in the Olympics.

We had swimming, surfing, skateboarding, and gymnastics last night. All that, these athletes are perfect for real estate [inaudible 00:14:26]. But we've gone from 4% [inaudible 00:14:26] to 27% [inaudible 00:14:37] awareness in six months or four months. That's phenomenal.

Brad Inman (14:39):
By the way, do you get this fortune personally [inaudible 00:14:42]?

Andy Florance (14:41):
I have no idea what's happened there.

Brad Inman (14:51):
Oh, good.

Andy Florance (14:51):
But then it comes down to audience we're delivering to the agents and the realtors, what audience we're delivering to the agents. And we invested 1,000 people on content building out the site, so we have-

Brad Inman (15:03):
Yeah, wait. Tell them about his. He's got an army of 1,000 people creating localized content to put on people's listings. Is that correct?

Andy Florance (15:13):
Yeah. We have [inaudible 00:15:14] at the schools, elementary schools, high schools. We've got the parks, condominium buildings, neighborhoods. We have-

Brad Inman (15:21):
Not just data. It's qualitative.

Andy Florance (15:22):
Qualitative.

Brad Inman (15:23):
Yeah.

Andy Florance (15:23):
It's got video. So the net impression is when a buyer comes in, they're like, "There is dramatically more information on this site than there is on the other site."

Brad Inman (15:32):
[inaudible 00:15:33] is competition. So good. I hate [inaudible 00:15:37] monopolies. I hate any kind of monopolies. I'm in favor of the FTC going after monopolies. We're built from competition in this country, unlike other parts of the world. And what I'm seeing, I'm looking for a house.

I won't tell you were. And I love real estate. My life loves it. We buy as much as we can, and I hadn't been on the search engines lately and I was blown away. The quality is really just so much more data, information, from weather, to as you say, neighborhoods and schools.

And that was always there a little bit, but it's been integrated [inaudible 00:16:11] are better. And you want to know the history here, internet, I don't even know what happened. People resisted. The internet helps sell more houses because we all became a habit instead of, "Oh, I'm going to buy a house that [inaudible 00:16:25] for seven years." So you bring in competition. [inaudible 00:16:30].

Andy Florance (16:30):
So my father's an architect. When he retired at 85, he got a lifetime achievement award. His acceptance speech, he thanked his competitors. He said, "I would not be near as good an architect as I believe I tried to be if it weren't for the competitors who kept pushing me." No different in the portal wars. So all investment has taken us to 148 million visitors a month.

Brad Inman (16:56):
148 million.

Andy Florance (16:57):
Yes.

Brad Inman (16:57):
You compare that to [inaudible 00:17:00].

Andy Florance (17:07):
In a prior recorded quarter, Zillow was 195, and then they were 217 last quarter. And then Realtor was 72, so we're running now two-

Brad Inman (17:17):
[inaudible 00:17:15] would they agree with those stats?

Andy Florance (17:19):
I would hope they would because there'd be something-

Brad Inman (17:21):
If they just had nothing to say, that'd be a problem.

Andy Florance (17:23):
But they're clear as day. We use Google Analytics which is the gold standard. That is a site-centric measurement tool. It's recorded with SEC documents, so it is real. [inaudible 00:17:37] and then there's also things like Comscore [inaudible 00:17:40]. Those are samplings of .003 of users in order to try to guess [inaudible 00:17:47].

Brad Inman (17:45):
And that's where they show you the numbers?

Andy Florance (17:50):
Yeah, because those kind of lag because they don't want [inaudible 00:17:56]. So the Comscore is like [inaudible 00:18:01] Harris or Trump. It's a hole. Google Analytics is the election. Another way to say it, Comscore, it's like a Zestimate and Google Analytics is the sold price. One is right and one is maybe this is it. So that [inaudible 00:18:21].

Brad Inman (18:24):
Smart guy. That's another great thing about having you here. You're very wicked smart [inaudible 00:18:33]. You guys are getting a little down and dirty, like the name calling lawsuits. Is that just a part of business? We all know it is, most of us. And if there's competition, you're going to see some of the cutthroat activity, but you're being sued. I mean, what's that about?

Andy Florance (18:51):
Just to be clear, we haven't sued anybody.

Brad Inman (18:52):
Yeah.

Andy Florance (18:52):
And to be clear, we've not been going into the gutter as quickly. I learned about it from you, actually. I read about it [inaudible 00:18:53].

Brad Inman (18:52):
Okay. We all knew first.

Andy Florance (18:52):
Not the biggest thing in the world, but I guess-

Brad Inman (18:52):
To you it's not the biggest thing?

Andy Florance (19:19):
No, no, no. [inaudible 00:19:23]. So there was a guy who was a writer over at [inaudible 00:19:29] came to work for us. I don't know, an editor. And Realtor sued this poor guy for [inaudible 00:19:39]. He's not designing Homes.com. I am. I never met him. In fact, [inaudible 00:19:45] never met him.

Brad Inman (19:45):
He's right over there.

Andy Florance (19:47):
Yeah. He's a writer. He's got two special needs children. He needed a job. He had a noncompete. [inaudible 00:20:02]. We have not seen any evidence that we hit anything from Realtor. I frankly think it's just a PR stunt. If you go back a number of years ago, News Corp, so Realtor has nothing to do [inaudible 00:20:11]. Realtor's owned by the Murdochs at News Corp. So years ago, News Corp did the same thing. They sewed Zillow, if you remember.

Brad Inman (20:19):
Oh, we know well.

Andy Florance (20:20):
Yeah.

Brad Inman (20:20):
Traffic went through the ceiling just like this lawsuit.

Andy Florance (20:23):
Yeah. I guess the president of Realtor and the VP of strategy went over to Zillow and News Corp sued.

Brad Inman (20:30):
Yeah.

Andy Florance (20:33):
[inaudible 00:20:32] this guy's not a president. This dude is a writer, writing about condominiums. [inaudible 00:20:38]. You wrote a good article about it today where you had this guy's story. It's kind of like shame on these guys for a billionaire suing some dude with two special needs kids.

Brad Inman (20:48):
You didn't fire him though. You kept him.

Andy Florance (20:50):
Oh no, we-

Brad Inman (20:51):
You don't fel like you did anything wrong.

Andy Florance (20:51):
He didn't do anything wrong. He had his personal stuff on his computer and he was just taking his personal stuff. No, we have paid for his counsel and we have put him on leave indefinitely to deal with his defense. We're not going to let him be the fall guy for this.

Brad Inman (21:11):
That's good. It's like a subprime mortgage scandal. No one goes to jail for fraud, which really pisses me off. [inaudible 00:21:27]. Subprime is [inaudible 00:21:34].

Andy Florance (21:11):
Right.

Brad Inman (21:39):
Let's end on this, we also have entrepreneurs here who we love. We love the realtors and we love the entrepreneurs. To me they're the same. They're out there scrapping, trying to make a living. They use their personal credit card to go to this conference. Which the corporate fat cats didn't. They used a corporate card. So what advice would you give the entrepreneur, which whatever advice you give would also work for the realtors? [inaudible 00:22:06].

Andy Florance (22:05):
Well, I do identify with it. I love the entrepreneurial nature of a realtor. I mean, they're business people and I love interacting with them.

And I love their ingenuity and being entrepreneurs for sure. I don't know. I hate to say it, but a professor I was just [inaudible 00:22:29] I loved his advice for his students. Call them back.

Brad Inman (22:34):
There you go.

Andy Florance (22:38):
yeah, for sure. I don't know. I'd say that if you believe in define your niche being different than something, what we do is basically find a niche, there's clearly a demand. There's definitely not anyone else who's doing it and we're willing to work harder than the last person and with more resolve and commitment and someday get a paycheck, someday don't. Someday get a really big paycheck. So I think the stick-to-it-ness, sticking to it kind of a thing.

And obviously I know a lot of real estate people, family. Gosh, I have 4 or 500,000 real estate clients, but the folks who stick with it beyond a certain point just begin to learn how to surf. And getting through those early days that place where it's a natural skill.

Brad Inman (23:33):
Well, congratulations on your success and thank you for running this industry and making so much news, but also creating a healthy competitive environment.

Andy Florance (23:42):
You for having us.

Brad Inman (23:43):
Keep coming back, okay?

Andy Florance (23:43):
Thank you.