I’m in San Francisco for the week and have been stopping into Inman News’ ConnectSF conference sporadically. I did make a point of attending Zillow’s main session, “Zillow Gets Educated: 10 Things This Industry Taught Us,” and saw Rich Barton and Lloyd Frink give a crowd-pleasing presentation that ultimately left me a little disappointed. The talk was half promotion of their business model – ad-supported, with easy data syndication to drive free traffic – and half mea cupla for the pre-launch hype surrounding the company. Back then, many real estate agents feared the high-profile start-up, believing they would try a for-sale-by-owner model which would disintermediate the real estate agents entirely, or at least automate the process and cut into their commissions. Which I was all for. Real estate agents should be paid for the true value of the services they provide, not a fixed percentage of the home price. Fees should correlate with effort and performance, not the cost of the house.
Yesterday, Zillow’s founders reassured the audience that commissions were not their business, and they would never so much as speculate on the direction of commission amounts in the future. They were humble – bordering on contrite – and the audience took very well to this. They did a great job setting themselves up to sell ads to lead generators, mortgage brokers, real estate agents, and anyone else interested in Zillow’s audience. And don’t get me wrong, that’s a terrific business model. They’re really going to have to smoke to get a decent return on investment for the $57 million in venture capital they’ve taken, but with the organic traffic they’re generating, the Yahoo deal they’ve signed, and the open API they’ve announced, they’re off to a good start. I wish them a lot of luck; there’s nothing wrong with making money. And I understand completely – it’s a lot harder to change an established market than most people think. But still – how boring. And while Zillow’s rudimentary home value estimates have some use, it’s much less useful to the individual than it could have been!
For truly paradigm-shifting real-estate business, I still like Redfin, which is offering buyers a 2/3rds commission refund and sellers a flat fee of $2,000. Savings for the individual can easily be over $10,000. If a company like Redfin can offer that type of benefit, there’s definitely no reason to fork over 6% of the value of your home. I wouldn’t pay that much for a service for anything short of a manslaughter defence.
{ 6 comments… read them below or add one }
Greg, I couldn’t agree with you more. I’ve discussed this before, the real estate market desperatly needs something disruptive like Redfin, not just a “novelty” type of service like Zillow. And yes, I do agree they have great positioning, etc… – But as you mentioned based on your reactions from what you heard, they are being careful not to alienate the existing model, which is great, but time will show that something more disruptive will win the long run.
I couldn’t agree with you more actually. Zillow has missed the mark on being the truly earth-shattering change that the industry needs. Redfin is much closer to that model, proven by the hostility that they provoke among real estate professionals.
What I love about Redfin is that they’re taking the industry head on. It’s certainly not easy, but in a couple years time I think we’ll find they are a very wealthy company. They only need a small percentage of buyers to feel comfortable going through the web to buy their house.
It takes balls to do what they’re doing, and you have to respect them for doing it.
I’d like to integrate Zillow into our multilingual local search system. Hopefully, Zillow could support muliti-languages as well.
In general agreement with the tone here. Success in real estate should be the same as any business, superior service at reasonable price. Fee structures and business models have to change. The enormous profits of traditional models cause a zealous orchestrated resistance to change from percentage based fees, so maybe like a sculptor beginning on a large chunk of marble Zillow is taking the first small chips that have not yet revealed the finished beauty. They are a parallel venture to Redfin and complementary.
Zillow may not have gone far enough, but any steps to transparency and increased benefits to consumers should be applauded. I wish them well.
Yardley’s comments are confusing! Does he mean making money is great as long as it is not made by real estate professionals? Certainly no one in real estate today will make the windfall that Zillow’s founders, employees and investors will make if they are able to execute their plans. And good for them if they do.
Zillow or anyone else could not raise their venture money if they promised returns that the average real estate company receives. Also, they probably couldn’t get anyone to work for them if they paid their employees the average compensation that agents make. I don’t pay lawyers or any other service provider fees that I don’t believe are fair. Mr. Yardley should not either.
The business model, like it or not, that will succeed is the one where the customer is best served. From their presentation at the Inman conference, it sounds to me that the Zillow folks have it right