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January 13, 2006

Zillow.com: How Scared Should Brokers Be?

Peter Coy

In the 1990s, Rich Barton founded Expedia, the hugely successful travel website that wiped out the jobs of untold thousands of travel agents. Now he's starting up a real estate website called Zillow.com Inc. that he hopes will be equally revolutionary.

But this time, Barton says, he's not out to wipe out the jobs of real estate agents and brokers. The "flashing-in-neon-lights difference" between travel and real estate, says Barton, is that lots of travel agents are/were just order takers. In contrast, he says, "human advice-giving is absolutely fundamental in real estate." Brokers are hoping that he's not just buttering them up before the kill.

I caught Barton speaking this morning at a highly entertaining meeting called The Real Estate Connect NYC Conference run by Bradley Inman, publisher of Inman News Features. (I recommend Brad's conferences to anyone who wants to stay abreast of what's new in residential real estate brokerage. Here's a link to his blog.)

Most of the people in the audience had heard about Zillow and hoped that Barton would finally spell out exactly what he had in mind for the company, which still hasn't launched any product or service. But Barton kept mum except to make a few points:

--He's hoping brokers will be Zillow's customers, not its competitors. "If we succeed," he said, "brokers will use Zillow as a marketing vehicle."

--"We're not going to be like Expedia." That is, Zillow won't act as an agent by earning commissions from sales. One reason: It would require too much skilled staff. "I can't hire enough professionals. It doesn't scale."

--Zillow won't be some kind of national Multiple Listing Service of homes for sale. In fact, Barton said he thinks anyone trying to create such a list is wasting time. The reason: "The Web is the national MLS already. It's happened. You're arguing over yesterday's news."

--It will make its money from advertising on the site (presumably lots of it from brokers)

--Lots of its information will come from users of the site--a model that has been proven highly successful by real estate blogs like curbed.com.

--Zillow will launch as a beta site--i.e., with kinks--within the next six months. Barton promised to shave his head if he hadn't launched Zillow by the next Inman conference, which is in July.

In an email to me and my colleague Tim Mullaney, Barton added two other tidbits:

--employee count: 75, majority engineers

--we??e raised $32m

As near as I can figure from listening between the lines, Zillow.com will provide lots of information to help people buy homes more intelligently. That does sound like a threat to brokers, because one of the key things a broker provides to buyers and sellers is information. Already the headlock that brokers have on the market is being loosened by the availability of all kinds of information on the Web. (One company that goes super-deep into the data: Property Shark, which started in New York City and is expanding to Florida, Los Angeles, and eventually--it hopes--all the major cities.)

Barton says the best brokers will be able to build on what Zillow offers. The bad ones could get squeezed out. He cited a California Association of Realtors study that found that buyers who searched on the Internet spent an average of 1.94 weeks with an agent before buying, while traditional buyers spent an average of seven weeks.

Said Barton: "It's very easy to think, 'Great, he's done all the work and I can earn a big, fat commission on 1.94 weeks of work.' You have to rethink that."

Scary words for brokers. The winds of change are blowing.

03:49 PM

Selling

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REALTORS, read this carefully again... "It's very easy to think, 'Great, he's done all the work and I can earn a big, fat commission on 1.94 weeks of work.' You have to rethink that."

I think the most real estate agents need to really need to understand what is being stated here. Traditional "Buyers Agents", REALTORS who work with buyers almost exclusively (who also tend to be the newer agents because easier to sell a ??ree?service) are in big trouble. Homebuyers don’t expect to pay for the buyers’ agents’ services of showing houses and negotiation. Home sellers are tried of paying a big fat commission towards hiring the team that is negotiating against them. Listing agents (usually more seasoned and experience) who basically drive the commission structure of a real estate deal are competing on price and this will continue to do so… especially if Zillow creates a reverse bidding auction format for real estate services. The commission this is being cut is the "buyers agent". These agents in turn will show only houses that are offering a bigger commission. Buyers on the internet will become frustrated at the fact that they are not being shown all homes by these buyers agents and will start contacting the listing agents directly, thuss allowing listing agents to further discount their prices. As this downward pressure on the commission structure continues the weaker agents and real estate companies will be forced out of business. With this, you will see a continued growth in alternate business models, such as discount brokers, ala carte and the “for sale by owner”. Additionally, the major real estate franchises are too busy trying to keep their “franchisers” happy, so they are not focusing on this growing threat. The NAR is pretty busy with the DOJ and the sheer financial resources of the companies working at addressing the opportunity (or problem dependant on your point of view) far exceeds the investments being made by the NAR & traditional brokers.

Posted by: Jessie B at January 13, 2006 07:48 PM

Property Shark looks like an amazing service! I poked around the site a bit.

Is there a comparable service in Chicago that you know about?

Posted by: Dan Green at January 15, 2006 06:25 PM

As a NYC broker and a blogger, I'm thinking that Zillow has to be some sort of combination of NY Times style of property search and a Craigslist style of brokers adding content (free at first, then for a fee).

Makes the most sense to me.

I wonder if they'll use the same approach as Trulia.com or Streeteasy.com to gather listings for buyers to find. Whatever it is, with that management team and money raised, it's sure to be big and get big headlines and publicity. That in itself will make it valuable.

I still think there are many buyers out there that will prefer the hands on advice/service that an experienced broker can offer, as there is so much more to evaluing, negotiating, and closing a NYC real estate transaction than just finding the listing.

Posted by: UrbanDigs at January 16, 2006 05:08 PM

Two other things that Rich mentioned that may shed light on his plans:

-- "Lots of cool tools"

-- Nationwide coverage

Rich also described having a variety of tools by which a broker could market to potential buyers. An example he gave was a tool by which a broker could send informative emails every 2-3 days to active buyers.

When Rich said that the web was already the national MLS, I did not interpret that as a denial that Zillow would aggregate listings in the way that realtor.com currently does. Given everything else that Zillow has said, I think it's a given that they'll have to aggregate listings much like realtor.com and trulia.com.

From my experiences in building PropertyShark.com, I can say that aggregating the data on a national scale will be a truly daunting task. The problem that Zillow will face is that real estate is highly localized. His investment in developing tools can be leveraged nationwide, but local competitors who provide data specialized to local markets will always be able to provide better service than a national competitor.

At least, that's the premise of PropertyShark. We welcome the competition. We think Zillow will greatly increase home-buyer's reliance on data in the buying process, and we hope that the savvy segment of those buyers will gravitate toward services with deeper and more localized data.

Posted by: Matthew Haines at January 16, 2006 05:51 PM

Matthew,

Thanks very much for your thoughts about the future of competition in real estate. It's great to have a genuine player joining the conversation at Hot Property.

Peter Coy

Posted by: Peter Coy at January 17, 2006 10:06 AM

It is hard to get excited about a business which des not exist yet and who's premise is untested, by the admission of the CEO.

It did seem clear at the Inman conference that Zillow is seeking to introduce economies into the search process and use those savings (in time and effort) to reduce the fees paid to brokers -- buyers or seller's brokers).

The thing for brokers to fear in this picture would be the "Googlization" of the search process whereby by co-opting the maket into contributing data, Zillow is able to become the defact listing engine for real estate while silmultaneously controlling the distribution of leads using a for-profit algorithm wich it fails to disclose...In this scenario, brokers will be forced to bid against each other, impacting their profitablilty AND will feel they need to continue to bid versus each other or risk losing out to the market...(sound like Google AdSense or AdWords :-?)

It would take a stroe of genius for Zillow to pull this off...and we know that the VC's backing Zillow are looking for "the Next Google."

Posted by: james haft , Director, The US Condo Exchange at January 17, 2006 11:37 AM

Curbed.com linked to my item on Zillow.com and someone wrote in* to point out that Dr. Seuss coined the word "zillow" in 1974 in "There's a Wocket in My Pocket!" The line: "And the zillow on my pillow always helps me fall asleep"

Could that coinage cause copyright issues for Rich Barton and team? Probably not, but you wonder if Barton saw this coming. He says Zillow is their own invention and is supposed to evoke big numbers (zillions) as well as comfort (pillow).

Memo to entrepreneurs: Make sure to go home and consult your "Unabridged Works of Dr. Seuss" before you settle on a name for your company.

*URL for Curbed.com comment: http://www.curbed.com/archives/2006/01/16/monday_pm_linkage_mlk_day_edition.php#6073

Posted by: Peter Coy at January 17, 2006 02:54 PM

Travel and Real Estate are two completely different industries and with exception of data requirements, I don't see any solid comparisons. Searching for a home is just a small part of an actual home buying process. Let's not forget negotiating the deal, managing the transaction and acting as an advisor through the biggest purchase that a person will make in their lifetime. Until vacations cost $975,000 with no parking, let's compare the same fruit!

Welcome Zillow...

Posted by: ReyEstate at January 18, 2006 01:22 AM

Zillow. One of my favorite topics… Although I could agree with much said in the above comments, the overwhelming uncertainty is what forces us to keep quiet on the topic. We fortunately got to meet with Zillow while at the Connect in NY last week, hoping (as we all are) to get a pulse on what they are trying to do – but they really didn’t speak into any details. One thing they did note is that they will be very much consumer-centric.

Our market up here (Boston) is extremely conservative. I am anxious to see how the Boston brokers respond to Zillow. My team and I are fortunate to have a great reach into the marketplace from previous ventures. We operate a broker/developer-centric site which promotes general brokerage listings & new developments and we do not host private for-sale-by-owner listings….so in essence we are very much supporting and in some way strengthening the “professional” online real estate community in local downtown Boston – and believe it or not it was an easy task or sell. We are now about 8 weeks into our launch here in Boston and like PropertyShark we hope to expand to multiple markets with specialization in localization (for condos). Feel free to visit the site at www.condoDomain.com to get a better feel for what we are about. Also – per Mr. Inman…we will be starting our own blog and hope to join in more often. Thx!

Posted by: T. Longo - condoDomain.com at January 18, 2006 09:27 AM

As a frontline participant in the MLS "problem" (as it was called at the Inman conference), I see 2006 as the year this thing finally blows up and the consumer sees the truth behind the MLS curtain.

Our Propsmart.com real estate search site is getting kudos from consumers, agents, and small brokers, but getting attacked by big brokers and MLS organizations. They claim "illegal copyright infringement," but where's the injury? This isn't a Napster situation. Yes, we're displaying photos and property descriptions that MLSs can lay copyright claim to. But our displaying them only *helps* consumers, and is virtually the same as Google crawling and caching the listings.

The only "illegal" thing happening here is the breakdown of fiduciary duty between brokers and their clients/homesellers when they actively restrict the widespread display of the listings. Who is thinking about the consumer? I guarantee you it's not the brokers controlling the MLSs. They're thinking about one thing: the preservation of their antiquated, yet highly profitable, business model.

If *you* were a home seller, how would you feel if you found our your broker (or your broker's trade association) was *actively* preventing your listing from being displayed on real estate search sites? IMO, this is only a small step removed from the "selective opt-out" and "pocket listing" practices currently being examined by the DOJ.

Trulia, Oodle, and us at Propsmart are the pioneers here getting the arrows, and who knows - it may be Zillow as the settler getting the land. One thing's for sure - this is shaping up to be a very interesting year for real estate on the Web.

Posted by: Ron Hornbaker at January 18, 2006 12:44 PM

Hey Ron - Interesting point. I dont really have my arms around the issue yet. If your a broker and do not want to expose the listing (or try to sell it direct) then why would you put it in the MLS system, right? Correct me if I am wrong, but PropSmart is not profiting (via commissions) from the sale of property right? I think you have a very vaild argument and look to see how propsmart, trulia & oodle handle the issue.

PS - Sorry I missed you at the Inman conference. I will make sure to reach out to you this week.

Posted by: T. Longo at January 18, 2006 02:14 PM

The 6% Commission is already under assault, first by the growth of non-traditional real estate sites charging for less, HelpUSell, flat-fee service sites, etc. When I sold my home in Las Vegas in May, I put my name out on a website (can't remember which one) and described my house, what I thought it might sell for, details, etc. I got over 20 replies from realtors who offered mostly 6-7% commission services, who then described how they market the house, which sites they post on, Realtor.com, local MLS, national websites, etc. I ignored all the 6%+ realtors and settled for a lady broker who offered full service at 4.5%. She sold my house in two days. Of course the Las Vegas market was in a frenzy in May 05. The DOM is now over 60 days I believe. However, dents are being made in the near monopoly of real estate businesses:

The U.S. Department of Justice sued the National Association of Realtors last year over its policy of limiting Internet sites’ access to MLS information. The government said the restriction is anti-competitive and undercuts online and discount brokers’ ability to gain a foothold in the market…

I don't know the outcome of this suit, but with the market falling nationwide, and half a million or more fledgling realtors all trying to avoid working for McDonalds, it's a matter of time before the shakout occurs and people with dropping values force more realtors to lower commissions, or have no work.

Posted by: MoMark at January 19, 2006 02:01 AM

This is an interesting debate indeed.

As a pro-consumer and pro-industry real estate community our fundamental beliefs at Sellsius are:

1. That consumers, real estate specialits and other professionals need a more efficient way to search, list & compare any type of real estate.

2. Consumers need the services offered by qualified real estate professionals whether a licensed real estate agent, experienced attorney, competitive lender, certified home inspector, etc...

3. We are a community where ideas and information are exchanged in an open marketplace.

If something can be improved or enhanced, shouldn't it? Sellsius supports any product or service that helps consumers and industry professionals communicate more efficiently.

-rdb

Posted by: rudolph d. bachraty III - Co-Founder Sellsius at January 19, 2006 09:13 AM

Brokers who have unique expertise and experience in particular niches will always be in demand and are in fact indispensible in the real estate transaction. The problem has been that consumers have not been properly informed as to the unique value of these local experts. I would never hesitate using a real estate professional in the purchase or sale of real estate. In fact, brokers know what properties are about to come on the market and I am aware of no other source for this unique information.

Brokers shouldn't fear change, they should embrace it. As long as they continue to provide personal service and local expertise, they will shine.

Posted by: Joseph G. Ferrara - Co-Founder Sellsius at January 19, 2006 11:53 AM

Zillow.com's meat'n'potatoe product seems to be an online property evaluation tool. That's great. Proper pricing is one of the most important, as well as most difficult to ascertain tasks in the process of selling a home. I provide my potential and actual clients with tedious market analyses for their homes already (and they're probably way more accurate than zillow's would ever be.) But what about the rest? There are exactly 93 tasks in my checklist of things to do when I offer a seller's property for sale in my real estate market (Chicago). How scared should brokers be? How many tasks are in their checklists, and how well do they accomplish them?

Posted by: Markus Azadeh at February 8, 2006 02:50 PM

THIS IS FOR ALL THE GEEKS THAT WANT TO RE-CREATE THE MLS AND SHAKE UP THE REAL ESTATE INDUSTRY.

I'm a real estate appraiser and was a mortgage broker for a number of years prior and can't make sense of anything you are trying to acheive. yes, i believe real estate agents are charging excessive commissions given the new technologies on the market, but your ideas are going to breed corruption and more regulations. also, you obviously have no idea what goes into an appraisal report because the AVM is never, never, never worth a stinking shit. its a hinderance to the profession and creates false preceptions. An appraisal report is based on conservative standards and uses old sales to support a futuristic value.

Get a job.. and quit wasting peoples time!

Posted by: Todd Grier at February 8, 2006 11:27 PM

I just tried Zillow. Their valuation of houses in my neighborhood were WAY off. This is based on my personal knowledge of selling prices during the last year or so. If this is typical of their database, it is worthless....

Posted by: T Thornton at February 9, 2006 01:03 AM

I am an agent with Coldwell Banker and for this reason am interested in all things real estate. I put my own property to the Zillow model and was thrilled with the result, about $50,000 more than I know, with absolute certainty, I can get for my home. I only wish Zillow could produce the buyer that would be willing to pay me this premium.

As an agent I have the ability to allow an internal system to assign a value to property. I do not know any agents that rely upon this because property is not fungible. You have to know the subject property and you have to know the closed sales and you have to know the competition and the only way you know is to see it. And I see about 100 properties a week, every week. The man on the street cannot possibly compete because buying and selling property is not their full time job.

What I found most interesting about a career in this business is that less than 10% of the agents make 80 % of the commissions. Some of these Power House Agents do nothing other than take listings, plant a sign in the yard,submit it to the MLS and maybe they will advertize it on occasion. They wait for a buyer's agent to sell it and when it gets sold, the Power House claims they sell X homes a day/week/month/year. In reality the only thing they have sold is the owner. And some of them are very, very good at this.

The way to change this business is for the consumer to ask better questions of their agent BEFORE listing their property. The consumer should know what he/she is buying and what exactly this agent is going to do or not do to earn the commission. The consumer should not simply buy into the agent's facts about selling a home every 3 days or that they have won awards or are in the Grand Poo-ba circle. None of this has anything to do with the job they are going to do for this particular client.

Here are some of the things a listing agent should be doing for all their clients:

Bring in someone to stage the home, if desired

Have a professional floor plan created and available to all prospective buyers

Bring in a professional photographer to shoot pictures for brochueres and internet release

Encourage a professional pre sale home inspection so that surprises do not kill the deal down the road

Become the expert on the homes features

Personally host Broker Tours

Personally host a Neighbors Open House

Create a brochure that will make a visit to this property memorable

Walk away from the table if the owner's price is inconsistent with the market

Defend appropriate pricing to any and all challengers

Meet weekly to discuss new competition and impact upon price ( nothing sells a home faster than a neighbor's overpriced FSBO home because it makes the subject propety look like a bargain)

Provide buyer and agent feedback after every showing

This is only the tip of the iceberg in terms of services that every owner should expect to get to obtain a better bang for the buck. Again, when consumers start demanding more, the service providers will deliver.

Posted by: Lynn Dougas at February 9, 2006 09:50 PM

Don,t worry be happy. 30 years in real estate. Just zillowed the house I am in and the house across the street that just sold. The estimates are low by a factor of 35% to 50%..Realtors earn every dime they are paid and this site just re-inforces the argument.

Posted by: james harrison at February 9, 2006 11:20 PM

I think real estate search engines are they way to go, that gather the data themselves, rather than relying on brokers. Check out www.extate.com for an example of that, although it seems UK only for now.

Posted by: Artemi at February 11, 2006 09:20 AM

"Hey everyone, I got a great play-on-words URL from Network Solutions. Let's make up an online real estate community."

Posted by: Jerkstore at February 13, 2006 09:26 AM

So as far as I see nothing revolutional is going to happen. It's just another mass media. Of course realtor's job includes much more + "human factor".

Posted by: Claw at March 14, 2006 01:39 AM

Anonymous is obviously a fraud. They stated in the last paragraph that their broker fired them. There's not a single state in the country where a licensed agent in an employee/employer relationship. No broker can "fire" an agent. Your just a low life lier, fraud.

Posted by: tc at March 17, 2006 02:29 AM

I love it! I see fear in all of the agents' postings above! Your days are numbered.

Posted by: PowerToThePeople at April 4, 2006 01:45 AM

what happened to the Zillow site. I keep getting a message "We're sorry. We encountered a problem performing this search. Please wait a few seconds, then refresh the page or search again."

does anybody know if the site is crashed by the realtors?

Posted by: bob at May 14, 2006 09:40 AM

I think vertical search engines for real estate are great, they bring users a great time saving (especially if like me you are a professional and spend a lot of time looking at real estate sites). I've been using a new search engine for the UK and I am fascinated by it, it is called Trovit, check it out at http://homes.trovit.co.uk

Posted by: Nick at May 30, 2006 06:52 AM

Way off in my neighborhood, too (Est. 600k when it's more like 2mil). Seems pretty worthless.

Posted by: Cuse at June 22, 2006 04:33 PM

Nationwide services can only be so accurate. Realtors like myself should not be scared of technology but embrace the power it gives us to serve peoples needs better.

My clients love the "new listings alerts" but its only the start. The local agent can replicate whatever Zillow offers on a local level to greater detail and with deeper knowledge.

I am not shivering like Aspen

Posted by: Toby Munk at October 6, 2006 11:50 PM

The damage done by fraudulent appraisals ordered by realtors (or whatever)is now rearing it's ugly head and appraisers are history.

Posted by: Stephen G. at October 30, 2006 02:24 AM

It's been quite some time since Zillow launched, and we've had the opportunity to look over some of the data available on the site in multiple markets, and from a general swag perspective, the data is relatively "decent", but not great.

We saw inaccuracies in some of the listing data, however, the valuations were in-line with comparable properties.

Bottom line, this is a tool for both buyers and sellers to leverage, but it paints a picture with very broad brush strokes, and fine detail and intricacies still need to be honed via other reliable information sources (be that a realtor, or verifiable market data, etc.).

Posted by: Boston Condo Guy at April 21, 2007 11:41 PM


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