The much-anticipated Zillow.com launched yesterday. The Segway of real estate portals is about to roll over the pedestrian real estate agent. Say good-bye to appraisers and possibly real estate agents, blared CNN Money.
Turns out the site is launching with a consumer hook that isn't even new -- automated home valuations. That's been around since Microsoft's HomeAdvisor tried to take over the online real estate world, and ended up yelping its way back to its parent. It's a standard genesis of companies like HomeGain, Realestate.com and others, as ubiquitous as a mortgage calculator.
Remember Domania.com? It was folded into Realestate.com. Zillow is Domania five years later.
The difference is that some companies use the automated home valuation tool as a means to deliver leads to real estate agents. Zillow makes no effort to do so. They just want the advertising dollars of real estate agents. In fact their plan is to build a real estate consumer service center that is so robust, consumers will be able to gather information and then hire an agent at a reduced price because they will have already done most of the work.
While agents are still fat, Zillow.com wants their advertising money.
"There will be several ways agents can advertise on Zillow.com," says Amy Bohutinsky, director of communications for Zillow.
The sex appeal comes in with the amount of data that Zillow is providing free of charge to consumers -- information on over 60 million homes and counting. "We will have valuations and data on all houses, ultimately," says Rich Barton, CEO on Zillow.com "beta" news.
Key in an address and the site spits out a "Zestimate" of the home's value. Offered free of charge to consumers, no doubt to appease the prickly appraiser lobby which has been effective in inhibiting real estate agents to charge for similar valuations called comparable market analysis (CMAs), the reports are enhanced by histories and rooftop satellite neighborhood photos which assign a value to homes whether or not they are for sale. Just to keep it real, the site allows consumers to add information such as updates that may not be reflected in the tax roll data. That's helpful if they're selling ... and telling the truth.
It's a Kelly's Blue Book for homes, says the company. And that just might be its undoing -- pricing inaccuracy. When cars are introduced to the market, they have a calculated depreciation that can be regionalized. Homes are more subjective because they are unique, even in a rowhouse or condominium because of views, corner lots, updates, the owner's taste and more. Unless you can put a price on esthetics, homes that are "butt-ugly" will be priced the same as beauties. The problem is -- will the butt-uglies pull down the value of the beauties or vice versa?
Zillow told BusinessWeek that its "estimates are typically on target, falling within 10 percent of the actual home-sale prices 62 percent of the time."
Sounds impressive -- if you're not in the real estate industry. Walt Molony, senior associate of the National Association of Realtors says, "Our new Home Buyer & Seller Profiles shows the median selling price is 99 percent of the asking price."
The real estate industry may relax now that it knows what Zillow is going to be in the short term. What had it scared to death was that Zillow would be a listings site with some new transaction tool. Currently, Zillow doesn't even highlight homes for sale or rent right now. That's where the real estate industry comes in to save the day! By advertising on the site!
Again, no new ground is being broken here -- Zillow plans a pay-per-click model in which prices will begin at $1 per click until an auction model resets prices, according to the BusinessWeek article. Once again, the sex appeal is in the drill-down. Advertisers can advertise on specific neighborhoods, zip codes, or other means.
By concentrating on advertising, Zillow neatly sidesteps direct competition from other companies like Realestate.com in how to get a piece of the $60 billion the nation's real estate agents make in commissions. If "referral fees" average 35 percent, that would be about $21 billion. But there are a lot of players after that market -- from relocation companies to online referral services. Instead, Zillow is going after the $11 billion the real estate industry spends on advertising, an area that is less picked over -- if you ignore a little company called Google. But wait. Google's a partner -- Zillow will have Google AdSense ads and sell banner ads to, you guessed it, real estate agents.
It's very clear who Zillow's target market is -- Wall Street, with maybe Google or Microsoft as it's intended buyer. Real estate agents are simply a means to an end. It's not an invasion; it's an extermination. How do we know? CEO Rich Barton just can't seem to keep his mouth shut on the subject of agents' commissions, even when no one else brings it up, which indicates this is something he clearly wants to happen. If consumers use his tools and don't get a break on commissions what's the point of doing all that work themselves? He wants them coming to Zillow.com so they will feel empowered, and empowered consumers want to pay less for commissions.
Take his video interview on Inman News. He was specifically asked by the interviewer if he was worried about starting Zillow.com up in a slowing market. Barton suggests that when buyers don't have to act in an hour to buy a home, they have more time to shop and gather information, so information needs will be greater. Then, uninvited, he inserts that sellers wont be making as much money off their homes, so "people will be more discriminating," and that "Realtors' services will be unbundled."
Barton also told Inman News that consumer behavior leads to business model change. "I'm not implying that we have some new commission model figured out, but it feels to us like ... realtor services are going to be unbundled a bit."
In an interview with The New York Times yesterday, Barton is more direct. He said, "People want Realtors. But is it rational to pay Realtors what they are paid?"
"He says he thinks they are overpaid because customers are doing more of the work themselves," says the Times. "Zillow, for instance, has a number of other features that do the work of the agent. Someone wanting to compare properties can use pull-down menus to estimate the value of remodeling projects that are not reflected in the price. Because of the Internet, agents are spending less time with clients, Mr. Barton said. "Agents have to ask, What kind of value am I adding?"
Well, a lot. Realtors manage the housing market by smoothing to closing approximately 85 percent of housing transactions. That means that they supply most of the groovy housing data that's mined by Zillow's engineers.
When a locale proves stubborn about giving up its data, Zillow simply pretends to be a broker and joins the reluctant MLS that has the data it wants.
When Realty Times asked why Zillow hired a broker of record to join a California MLS, an unapologetic Bohutinsky responded, "To get some of the data. One of the ways to get that data is to become a registered broker to have access to data."
Really? It's that easy? All you have to do is pretend to be a brokerage? And the Department of Justice wonders why the real estate industry is so paranoid about MLS listings.
"But we are not subscribing to MLS feeds on our sites and offering listings," says a pious Bohutinsky.
Oh. That makes it all right.
A lot of questions have been answered, save one. What happens to Zillow when value-impaired agents don't have the money to advertise?
There's no choice but to charge consumers.
Welcome to the American Airlines world of paying for blankets and pillows.
Zillow's press release says it all: "Until now, finding out a current market value of any home -- whether it's yours or one you want to bid on -- has been quite difficult," said Rich Barton, Zillow chairman and CEO. "We believe you shouldn't need a computer science degree or a real estate license to find out what a home is worth. That's why we created Zestimate values, providing free and instant valuations for millions of homes in America. This beta is just the beginning … . Zillow will continue adding tools and services to empower consumers to make smarter real estate decisions."
CNN Money reported yesterday, "New tools like the ones being offered by his company are going to make real estate agents less important, and quite possibly lower the fees homebuyers and sellers pay."
"Realtors currently sit at the middle of the transaction," said Barton. "I think in the future they will sit more on the outside offering specific services."
