I suggested a while back that the National Association of Realtors start a PR campaign because they were looking so bad. Well, the $25 million campaign has begun.
As for Zillow (a company with $25 million in investment thus far), my take is this: predicting real estate values is a clever and successful (and expensive!) starting point for them. When they say that their model will be entirely based on advertisements (zads?), I predict a very broad interpretation of advertisement. You could say that homevalues is all advertisements, right? What if Zillow charged $10 (initially) to list a home and $200 to make it a “featured home” – those would be advertisements, right? Same goes for advertising agents (a la this very promising site). All they’re saying is, for now, they aren’t going to take on RedFin for the 0.5% of the market that wants to buy a house entirely unaided.
It’s a clever model because consumers will go to the site to check the value of their home before they sell and to check the estimated value of a home when they buy (even for a laugh if it’s wrong) – this was money very well spent and is worth 10 times more than advertising. If (when) Zillow starts showing listings on their site, that seller will go to an agent to list it (until they find one through Zillow) and they’ll say “lets list it on Zillow for $10,” or, “I’ll list it on Zillow for $10 if you don’t want to.” Zillow will not make it in the long run without houses that are for sale on the site. According to Rich Barton, CEO and founder, working with the approximately 900 MLS in the United States would be “a Herculean task” that they’re not willing to take on. So they get the eyeballs that every MLS-alternative has been clamoring for now, and they get the revenues in the future. See? Clever.
I think Keith Castonguay (perhaps melodramatically) hit the nail on the head, but he was wrong about the eyeballs: they will come from features and word of mouth, not primarily advertising. He’s also wrong about the absolute nature of Zillow; just as there are competitors for online travel booking, there will be competitors for this. Don’t think Zillow’s undertaking is without risk; they have to get a lot of listings (and features) on there before someone with an alternate model gets computer generated house values next to MLS listings. It’s a pain to search for property when only half of what’s available shows up. If Zillow prices listings too high or people just don’t sign up fast enough, other giants will stomp on it.
I also expect Zillow to make money from other ventures too – mortgage ads, home staging recommendations, what-have-you.
Galen
ShackPrices.com
If they do it right, they could be the new/next Realtor.com Not many have been happy with the changes there in the last 5 years.
Hey Galen, great post… how about this… realtors have farm areas that they spend money on to mail monthly postcards, just listed, calendars, etc. Now, Zillow could tell the local realtor that they could sponsor a “home” in their farm area or should I say 60 million of them for $.50 a month (less than the cost of mailing & piece). So any time the owner looks at the house he see’s a nice ad of his favorite realtor, maybe a nice private chat feature direct to agent.. voila… 30,000,000 million a month without breaking a sweat. Then this same agent receives an offer to provide an idx feed of his listings for said territory at $.50 a per home per month… wow, another 30,000,000 million. I’m not worried about them making money… (Just in case Mr. Barton is reading this… if you need help figuring out various ways to cash-flow your site… call me, I’m available :)… hence “Zillow” zillons of dollars in his pillow. Let’s see here’s another… the Zillow could sell a “notification – Your home owner at 123 abc just checked his / her value” lead to the realtor who is sponsoring the area for say $5 a piece (warm lead cost higher)… more millions. Lastly, long term just like “housevalues / homepages” they can “brand the hell” of Zillow with the money they are making… what, REALTOR.com is spending 25 million to fight off FSBO’s… that’s not going to really help the real estate community fend this off… hey BTW… thanks for the link!
Several Zobservations:
1. Re: Zillow taking listings–no way
I don’t see the advantage to listing on Zillow unless your Zestimate is the price you want to get. It would not make sense to list any property whose zestimate was below what the seller wanted to get for the house. No one would take the time to watch you plug in all your improvements with your inflated costs and say “Ok I’ll pay more than the Zestimate”.
2. People do not want to pay what a house is worth or sell at its value
I see Zillow failing for one simple reason—no one wants to pay what a house is worth–they want to pay LESS. And a seller doesnt want the market value–he wants a little MORE. That’s why brokers are indispensible—for negotiation and to argue why the machine is full of hooey. For now it’s a fun toy to see what your neighbor’s house is worth. play with it for a while and then set the toy aside.
3. Houses are not cars– Zillow is no Kelley
Zillow’s comparison to Kelley Blue Book is a nice marketing pitch but seriously flawed. Cars dont change much in components–when did you last time you added a granite dashboard to your Taurus? And car values are very much tied to mileage because engines have a “useful life”. How do you measure mileage of a house–age? no good. Houses don’t not have “useful lives” . But here’s the kicker—cars are “depreciating assets” and real estate is an ‘appreciating asset”. Past performance is no indication of future performance–remember reading that in your stock market mutual fund disclosure–there’s a reason for that.
Great post and comments. Zillow is yet more evidence of the rapidly changing nature of the industry. Look for more ahead.
I’ll modify my original hypothesis: Zillow would be very daring (crazy?) to charge for individual listings right away. Instead, I wager that they’ll try to get the big brokerages to sign on to upload their databases directly into Zillow’s database. This may be free or very low cost. Individuals and small brokerages will be allowed to add their houses for a low cost. Perhaps they’ll aim to make real money right away from agent comparison – I’m not entirely sure.
Told ya. The new Realtor.com.
First free. Then free to major brokerages. Free to put broker name, but cost to agent who wants their own name. Then bronze, silver and gold packages sold to agents. Then screw the agents and go straight to lending tree and sell the leads to agents who are not paying for the packages, but instead are paying for the lead under the table off the site…
And so on and so on.
To those who think Realtor.com is “our” site…incorrectomundo! as the Fonz would say 🙂
Free or not free. Why would I list a property on a site that says my house isn’t worth the price I’m listing it for? Free does not cure this problem with the Zestimator.
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no, because it does not mesh with its valuation model. think about it or see comment 7.
Besides Zillow wants to be a kelley blue book and kelley does not list cars.
I think the problems we have all seen with the Zestimator and the high cost of maintaining it will lead Zillow to move to other parts of the business. Adding houses that are for sale is an easy way to go. You wouldn’t need to list your house there – they have the MLS data – you would only need to look to buy houses there.
KBB is a much less expensive proposition than Zillow is in it’s current form. Maybe Zillow has a shot at being the KBB of real estate because there’s more money to be made on each transaction, but if that’s all they do, I’ll be underwhelmed by them too, 3 cents.
I agree with you Galen that access to mls data will allow Z to list houses but I think having listings on a valuation site has a fundamental problem–any homes listed above the Z wont get a look see by those who are buying into the zillow mystique. This will keep buyers from looking at houses above the Z even though those houses may be great buys. A true loss for buyers (and sellers). And even if buyers are skeptical of the Z they will still have to look at all the houses in the Z range and then ask a person, likely a broker, is this Zestimate accurate for this house? So, as I see it, Z does not save time or energy, it adds more work, time and effort becasue it creates “doubt” and doubt has to be dispelled with human energy.
If Barton wasn’t behind it, Z would be dismissed out of hand or laughed out of town.
As for KBB, I’ve commented on this before. The comparison is flawed for several reasons:
1. excluding exotics and antiques, a car’s value is very much tied to its mileage because engines have a “useful life.” How do you measure mileage on a house? Age? No good. Houses do not have useful lives.
2. car components are not usually upgraded. When was the last time you put a granite dashboard in your volvo?
3. cars are depreciating assets while houses are usually appreciating
4. and finally, I have met Kelley, and Barton, sir, is no Kelley.
Great post, 3 cents. I was trying to put into words why the KBB comparison is flawed, but you did it quite well. So the question is, if they never hit a home run with the KBB model, how long will it take them to figure out that they might make some money listing houses – 1 year? 2 years? After the DOJ suit is settled? I’m not saying they’ll find success, but they’ll certainly try it, right?
I have a different way of explaining why I think the Kelley Blue Book comparison is flawed, and it is really quite simple. The KBB doesn’t try to value individual vehicles, while Zillow is attempting to value individual properties.
In other words, if KKB does not try to associate a value with each VIN in America, but rather says, for this type of car, with these features and with this type of mileage, here is the value you can expect. The analogy to housing would be if Zillow’s output was something closer to “the market value of a 3-bedroom, brick Tudor in Ballard in “mint” condition with a 1/4 acre is $400,000″.
Conceptually, this tells the user that the actual value they will get is likely very different from the “quoted” price. In Zillow’s current presentation, it is easy to forget that it is just an estimate as they are tracking the “value” of your individual property!
Thanks Galen.
As I mentioned, I just don’t see them listing homes so long as they want people to buy into their Zestimate. I would hesitate to PAY to list my house on zillow if the zestimate is substantially lower than my asking price. Then i have to negotiate/argue with buyers who come to Z believing in the Zestimate (ZZombies).
If they did list houses they would be better off using a different brokering model–something Redfinnish perhaps.
Dustin: Yes! However you slice it, the KBB analogy is flawed and I think we will not hear the term leave Barton’s lips much longer. The naked emperor has to put some pants on 🙂