By Mae Anderson
NEW YORK -- Zillow and Trulia, two companies that changed the way people shop for homes, are combining.
Real estate website operator Zillow is buying its rival in a $3.5 billion deal that will make it the biggest player in the online real estate information market.
Zillow will also become king of real estate listings available on smartphones and tablets -- the fastest growing area for listings. Both Zillow and Trulia were founded nearly a decade ago and have capitalized on Americans' increasing preference for researching purchases, including homes, online, rather than relying solely on a real estate agent.
"It's a very sound business move by Zillow. They wiped out their closest competitor," said Benchmark analyst Daniel Kurnos.
According to Benchmark estimates, Zillow and Trulia are No. 1 and 2 in the online real estate market, followed by No. 3 Move Inc. Zillow reported nearly 83 million monthly unique visitors in June. Trulia reported 54 million.
"We're moving away from word of mouth, or calling an agent to try to find a home," Kurnos said. "Now people realize, 'Hey, I can go look for houses online, and use the Internet to start searching for a home.'"
The merger could be good news for consumers, because the combined companies are likely to offer more features for home shoppers, such as extensive data on communities and improved mobile phone apps, said Brian Boero, who tracks the industry for 1000watt Consulting. And despite concerns among brokers that they might be squeezed out of the business if Zillow and Trulia begin handling real-estate transactions, Boero it appears unlikely that the combined companies would do that.
"I don't think that this is a game changer in the sense that it will change how people ultimately buy and sell homes," he said.
Bradley Safalow of PAA Research agreed, though he said the merged firm might jack up the advertising rates that Zillow and Trulia currently charge real-estate professionals. If that happens, he said, "smaller brokers will suffer" because many of them won't be able to afford it.
Zillow, which debuted in late 2004, became well known for its "Zestimate" housing price estimate for 100 million homes nationwide. The number is based on geographic data, user-submitted information and public records. Zillow says the "Zestimate" has a 6.9 percent median error rate, and should be used as a starting point in determining a home's value.
Both Zillow, which went public in 2011 and Trulia, which had its stock market debut in 2012, offer similar information like neighborhood school and crime reports and mortgage calculators.
Both Zillow and San Francisco-based Trulia generate revenue through advertising and subscription software and services sold to real estate agents.
Trulia shareholders will receive 0.444 shares of Zillow common stock for each share they hold, and will own approximately 33 percent of the combined company. Zillow shareholders will receive one comparable share of the combined company and own the other two-thirds of the business.
The combined company will keep both the Trulia and Zillow brands.
It's not Zillow's first expansion through acquisition. The company bought New York City-focused real estate website StreetEasy in 2013 for $50 million.
Zillow, based in Seattle, plans to save $100 million in cost cutting once the Trulia purchase is complete.
Trulia CEO Pete Flint will stay in his post and join the board of the combined business. He will report to Zillow CEO Spencer Rascoff. Another Trulia director will join the combined company's board after the transaction is finalized.
Both companies' boards approved the deal. Both companies' shareholders still must approve it. The transaction is targeted to close next year.
Shares of Zillow rose $1.46, or nearly one percent, to $160.32 at the close of trading. Shares of Trulia jumped $8.69, or more than 15 percent, to $65.04.
Staff writer Steve Johnson contributed to this story.
Monthly users: 83 million
2013 revenue: $197.5 million
Annual profit: Lost $12.4 million
Headquarters: San Francisco
Monthly users: 54 million
2013 revenue: $143.7 million
2013 profit: Lost $17.8 million