Zillow 'humbled' by real estate industry

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Submitted by sdrealtor on August 1, 2006 - 11:49am

Seems like our friends at Zillow have quickly realized that selling airline tickets is very different than selling houses. They basically have given up getting involved in the real estate transaction and are simply interested in advertising revenue. They realized what many others have before them. RE brokerage is not very profitable and discount RE brokerages are not sustainable business models. Read for yourself and dont be surpriZed to see Zillow diZappear in a few years having burned $100M of VC money a la WebVan! I wonder what their burn rate is and how they expect to make any money once the eyeballs are no longer so focussed on RE?

http://news.yahoo.com/s/sddt/20060731/lo...

Submitted by lamoneyguy on August 1, 2006 - 11:57am.

That's too bad. Their valuations are all over the place, and I never thought they would replace realtors, but they are an interesting and sometimes useful tool. I would hate to see them dizappear.

~lamoneyguy

Submitted by anxvariety on August 1, 2006 - 12:36pm.

"discount RE brokerages are not sustainable business models"

I like most of your opinions sdrealtor.. but I'd like to see proof of that.

IMO realtors are very little value added.. they are mostly marketing.. something as simple as making a more public accessible listing service eliminates almost all the need and footwork of agents. 6% is way too high.. it doesn't cost anywhere near 20k to sell a 300k home... lots of profit there.

Submitted by sdrealtor on August 1, 2006 - 12:37pm.

I just spoke with a manager at one of the largest and most succesful companies in SD. In July, only 1 office out of more than 30 showed a profit! This is a full service company with a Top 3 market share position in SD charging full service commissions. If they arent making money, who is besides a couple of small independents with very low costs.

Submitted by anxvariety on August 1, 2006 - 12:38pm.

Are you saying HelpUSell isn't profiting? They are opening offices everywhere, maybe they are reinvesting the profits.. but they have to be profitable.

Submitted by sdrealtor on August 1, 2006 - 12:42pm.

HelpUSell is a franchise company and how many offices they are open is irrelevant. It has more to do with how good they are at selling franchises than houses. Ask your local Subway owner or MailBoxes Etc. owner how much money they are making. It's not pretty. Most franchise owners buy a job not a business.

For example, I believe the local HelpUSell office in Encinitas has turned over twice in the last couple years.

Submitted by lindismith on August 1, 2006 - 12:47pm.

Still, it's interesting they secured another $25 mil, and people are getting instant Zestimates sent to their phones while out in the field.

Who knows how it will all shake out.

I remember thinking no one would buy a car or a couch online. Members of my own family did both in the last 3 years.

Interesting times for real estate.

Submitted by sdrealtor on August 1, 2006 - 12:49pm.

Perhaps they found a greater fool!

The reality is there is a ton of venture capital floating around looking for a home.

Submitted by an on August 1, 2006 - 1:24pm.

Recently, Zillow just had a deal with Yahoo, so I don't think they're going anywhere. If anything, Yahoo will buy them out. Yahoo is currently dealing with Prudential I think. But I'm sure one day, we will be able to buy and sell real estate online as well. If you can picture something like Zillow, then if you sign up to sell, they'll send you a device that will scan your house and create a 3D virtual tour. All that without much cost to either side. Yahoo and such already have huge servers that can store these data quite easily. So I don't see much cost to them. They can also share the same technology with their other services such as mapping, etc. So, it might not be ready for prime time at its current state (that's why it's still in beta), one day, I don't see why it can't be.

Submitted by rankandfile on August 1, 2006 - 2:02pm.

The RE industry in my opinion is akin to a cartel in that they are in control, or trying to gain/maintain control, of the entire sales process of a home. They are currently trying to pass legislation in Michigan to make discount brokerages completely illegal...you MUST pay the full 6% commission! 10 or 11 states already have this legislation in place. Now how's that for killing competition! I'm sure they are doing it to "protect" the consumer though.

The cold truth is that the times are changing and it's not a matter of if, but rather when, a home owner or buyer will be more able to purchase a home independently online. Cut out the middleman. Sure, there will still be service providers available for those that don't want to do the legwork. But make no mistake, the hay days of earning 6% commissions are numbered.

Submitted by PerryChase on August 1, 2006 - 4:00pm.

I'm rooting for Zillow. I don't put much credence in their valuation. But I love how they give information such as sales and taxes that was previously hard to obtain.

It think that the more information consumers can obtain on their own, the more they'll be able to make good decisions.

I remember the days when the only way to obtain info was to contact a realtor who would drive you around and pressure you to buy. Psychology is that buyers feel they owe it to give a realtor business just for driving them around. With Internet technology, a potential buyer can get to know a neighborhood and look around for years before he ever buys anything.

I don't know about you guys, but when I look to buy anything online, if an items has been on for while, I would not even give it a second look. The same goes for something that is over-the-top in terms of price. I love to see Craigslist items with "make me offer." Sometimes I get great deals by making a low-ball offer. Most other times, the seller will get offended and say that he has other offers already. But then I see the same item listed again and again with an eventual price reduction back to reality. Internet technology allows the consumer to get a better feel of the market.

Also looking at RE, online listing lets buyers know how much choices there are out there. In the past, the realtor would just show you one sheet of 12 houses and that was it.

I also love ziprealty. Since I signed up on zip realty there were only several properties in my location/price range. Now, I get several emails per week telling me of new listings. The ziprealty agent also doesn't bother me with useless phone calls. Just the number of ziprealty emails I get lately tells me that the market is down.

I believe you still need a good agent to sell your house, but I would use ziprealty to buy my next home.

We are only at the beginning of changes in how RE is bought and sold. Also my feeling is that coming downturn will be more severe than 1990s because buyers now have access to inventory and information.

Submitted by bob007 on August 1, 2006 - 5:19pm.

why do we need real estate agents if you are familiar with the area ? I think the govt has to enforce rules that allow the public same access to information that realtors enjoy ?

Submitted by FormerOwner on August 1, 2006 - 5:57pm.

It seems to me that to sell a house the main thing you need is to get it on the MLS at the right price, with a good description and good photos. If you could get it on the MLS at a low flat fee the only other things remaining would be staging the house, screening potential buyers, showing the house, and filling out the offer/counter-offer forms. The escrow company handles most of the rest anyway. Actually, the buyer's agent would be doing the showing in many cases so the seller wouldn't have to be there. You'd still have a lock box. Maybe a company could provide a flat fee service that get's you on the MLS and gives you a DVD and some software and/or forms to guide you through the process. There could also be a 1-900 line that you could call with questions. Maybe there could also be a flat fee up front for providing you with comps and an unbiased appraisal. It could be a la carte. Under the above scenario the seller would be their own listing agent but the buyer could still have an agent, in which case that agent would get whatever percentage commission you specified in the MLS. I'm sure the NAR would try to prevent this from ever happening but I think it's just a matter of time.

Submitted by PerryChase on August 1, 2006 - 5:58pm.

Having the government require competition in RE is not a bad idea. We do that for other industries so why not real estate?

I hope the Consumer Federation lawsuit against the RE industry is successful.

Submitted by sdrealtor on August 1, 2006 - 7:57pm.

I love to hear all the comments about how simple it could be. It just shows how naive you are. The MLS is not a public utility it costs alot of money to support and depends on the fees paid by realtors and other members. I would love to see what would happen when you got sued for non-disclosure of an item and had to defend yourself in a court of law or were ready to move and had closed on a new house only to find out that you didnt fill the contract out properly and your buyer just walked with his deposit and you are screwed. If I wrote an offer on your FSBO house I could take your pants off w/o you even knowing it while setting you up to get sued by the buyer down the road. I wouldnt do it but it's certainly a risk you take. Is it worth it? To some yes, to others no.

How about getting a book on brain surgery and doing it yourself to save a few bucks? The liability involved in the biggest financial transaction of our lives is huge. Why someone would do it themselves w/o proper guidance or hire an incompetent realtor constantly surprises. Sure there are some who are capable of doing it themselves or who just get lucky, but to believe in the disintermediation of Realtors is rather naive in my book. Zillow with $50M of VC money quickly realized they couldnt do it.

Submitted by FormerOwner on August 1, 2006 - 8:11pm.

Looking back, our realtor WAS incompetent (although the person was a great talker in the beginning). I actually found a number of mistakes/omissions in various forms the realtor generated and had to tell the REALTOR to fix them. It was pretty bad. I wasn't even sure that the buyer was seeing all of the stuff I was signing - I had to insist on a signed copy (by buyer and seller) of everything. I don't think I would have ever gotten these copies if I hadn't asked. Also, some of the info the broker and realtor told me, I later found out, was factually incorrect. Fortunately, I didn't believe them and sought other advice. This person actually caused the whole process to be dragged out and caused my wife and I a lot of undue stress. We could have easily done a better job on our own. However, I see your point that a realtor who really knew what they were doing would add value, no doubt.

Submitted by PerryChase on August 1, 2006 - 9:42pm.

I'd love to see ZipRealty and Zillow merge. All the information could be integrated into a single report. For example if a buyer knew that a seller was underwater and the house's been sitting for 180 days, he could make a better educated guess on what to offer. Also, if a person could see all the listings as well as all the sales in a neighborhood, that person could better determine the value of a home.

I understand that this information is available now, but an inexperience lay person may not know how to access it all. A single source of info would be great for the consumer.

Submitted by sdrealtor on August 1, 2006 - 9:54pm.

That single source of information already exists.

BTW, I dont think its brain surgery, just wanted to see if I could get anyone to jump on that one ;)

Submitted by an on August 2, 2006 - 1:20am.

I never said it was easy, I'm just saying it's doable. Just like developing such a system would not be easy technologically speaking, but it's doable. What if a real estate company such as prudential had a deal w/ Yahoo & Zillow, to create a site that has all the info ZipRealty and Zillow have, as well as other more in depth information about the area you're interested in at a click of a mouse. People will be able to do their own research in the area they want in the middle of the nite or when ever they feel comfortable. Knowing all the data a real estate agent have is right in front of you with out anyone there to bother you. Then when you're ready to buy/sell, you can contact that prudential agent, and they'll just handle all the process for a flat fee. Like many said, an a la cart type of service. So you're not skipping any step that you're not comfortable doing yourself.

Most great sites and products were not easy to create or maintain. But it's definitely doable if you really want to. So yes, sdrealtor, I agree that there are many things that make this not an easy task to do. However, it's inevitable that the internet revolution will take over the real estate industry just like other. You can either embrace it or die trying to fight it like the RIAA.

Submitted by sdrealtor on August 2, 2006 - 9:03am.

AN
I have no reason to fight it. I do what I do because I enjoy it and it allows me to help people with something very important in their lives. I have plenty of other skills and could do alot of other things if I wanted to.

What you just described is very similar to whats already available just a little more robust data. I don't believe its on the scale of the the disintermediation that you previously referenced. The problem with what you propose is money. There isn't enough of it in RE transaction fees to pay everyone you are adding to the mix especially when you are proposing to dramatically reduce the size of the pie. I've said it before and i'll say it again, the general public's perception of the profitability of RE is brokerage is DRAMATICALLY higher than it really is.

Submitted by SD Realtor on August 2, 2006 - 4:42pm.

The post was to juicy... don't mean to piss other realtors off but....

I don't want to generalize here but I have found my dealings with other Realtors fascinating. I have only been licensed a little over two years and the business I own is run by me as a second profession. It does okay and if I put more time into it I could probably live on it. I am sure that most brokers/agents would call me a discount brokerage because of the listing fee I charge which is WAY below the industry norm. The same holds true for buyers sides, my buyers enjoy large rebates from me.

I come from an engineering background and dealing with engineers all of my adult life has left me with expectations that peers in my professions are well educated. This is not the case in real estate. Frequently I am very frustrated with the lack of professionalism with other realtors in my field.

I feel that the main problem that people have with realtors is the justification of thier salaries. Now the bottom line here is that the vast majority of realtors make nowhere near what most people think they make. Your listing agent doesn't get 3% of your homesale. He gets a fraction of that and there are many other fingers in that pie. However, we have all agreed that the cost of housing has gone up at least 100% in a short timeframe. So that implies that realtors are taking home 100% more then they used to.

Are they working harder now then they did a few years ago? If they are does it justify that salary increase?

I think not.

In engineering there have been YEARs where I averaged 50-60 hours a week. I feel that if you break down the hourly wage for a Realtor you would see that it is quite lucrative.

Hey I entered the biz because of many reasons, one of them being if I spent half the time in real estate as I do on my engineering projects I could make as much if not more money. Which so far has held true.

sdrealtor is correct in the statement that the profitability perception is DRAMATICALLY higher then it really is. I agree. HOWEVER, I contend that a well educated person can offer consumers VERY EFFECTIVE service in the real estate industry at a much lower commission IF that person can keep the overhead down. Understanding the rules, providing customer service, and being able to interpret the real estate market are part of the essentials here.

I owned a Help U Sell as my first foray into the market. It was successful but as a second business it was TO BUSY for me. So I scaled down and run my own little business and do just fine. My clients save a ton on commissions and are very thankful for my services and professionalism.

I have gone to MANY a listing appointment where the client asks if they would save money doing a FSBO. The answer is ABSOLUTELY YES! However do it right! Get an attorney who is familiar with California RE law and make sure you follow the process to the letter of the law. You will find that this will cost you approximately 1% of the sales price. Get an ad in the paper, call Jeff Karchin to put you on the MLS for 500 bucks and there you go.

Again, I agree with some of sdrealtors points, especially about if you were doing a FSBO and he bought the home off of you, that he could "sue the pants off of you". Well yeah he probably could. However, again, I entered the industry for this because my analysis showed that there was alot of room for competition. Rather then fight against the traditionalists and do a Help U Sell or I Pay 1, I choose to lay low and fly under the radar...

BTW my sister in law works for Coldwell Banker. She like many other realtors holds Help U Sells and I Pay ones in contempt of the profession. There is this ...bitterness that I hear from other realtors about these companies. I have no such angst. I think that if they are successful and provide quality of service then so be it. I have dealt with smart Realtors and idiot Realtors from full service and discount brokerages.

Again, I just have such a distaste with these sorts of terms. Where is the HARD DATA that shows open houses and brokers tours provide x percent of sales. They may, they may not. Where is the HARD DATA that shows an advertisement in the San Diego Union Homes section provides x percent of sales? When sales agents make the pitches at listing appointments that these two tools effectively justify the commission they should receive as opposed to a "discount" commission, all I ask is to show me the hard data.

I would advise that all sellers do the same.

I am not trying to disrespect Realtors. Really I am not. Being in the industry I ABSOLUTELY know the overhead costs and such. I also know the misconceptions the public has.

Still... I think that there is room to run a business in this industry, charge less in commissions and still be successful.

Submitted by bob007 on August 2, 2006 - 5:05pm.

What service did Zillow offer ? Estimating the worth of a house is always tricky. You can list prices of similar homes that have been sold in the neighborhood. Taking county records of sales and putting it with Google Maps is not difficult. I do not know how much it costs to update the records. Google, Yahoo and Microsoft have the financial heft to pursue such a venture.

From a layman's perspective Brain surgery is hard for an average or smart person (who is not a brain surgeon) because it requires practice and a lot is at stake. Most brain surgeons are above average individuals. From a doctor's perspective it is harder to diagnose illnesses than it is to perform surgery.

Putting all the houses on sale on a single database and making it query-able on the basis of neighborhood, zip code, asking range and other factors is feasible from the technical standpoint. Look no further than EBAY.

Let us break down real estate transactions. I find the whole deal with real estate loans like points, closing costs stupid. I hope the govt puts a ban on such features. When was the last time you had closing costs on a car loan ? If you qualify for a loan the bank ought to loan you the money. The bank can charge a higher interest rate to offset all the silly fees.

Houses on the beach in Southern California sell because of location. House in middle of Kansas is hard to move because of location. Real estate agents have nothing to do with value. I frankly think real estate agents are a product of over-ligitious society and over-reliance on our homes as financial assets. When Americans have to duke it out China, India and other Asian powers for their livelihoods look for real estate agents to get slaughtered as a profession.

What is the level of skill required for an average real estate agent ? Basic Mathematics, good communication skills, good business skills. A high school graduate can take the realty license exams and pass it. The hours are primarily 8-5. Any reason why realtors have to be highly compensated ??

Hope I am not offending any real estate agent.

Submitted by PerryChase on August 2, 2006 - 6:01pm.

I agree with you bob007. Let's get rid of all the fees. The lender should pay all the fees and the consumer just sees 1 number and 1 interest rate.

Likewise doctor should tell patients in advance how much the charge will be. I hate getting a bill after the fact (even though insurance pays for most of it).

Submitted by SD Realtor on August 3, 2006 - 10:45pm.

bob007 no offense taken at all!

Essentially I do agree with you. I would say however that many industries in our country exist as a product of our society.

If our tax roll was more simplistic I could do my own taxes and would not have to hire a CPA.

I also agree with your statement about the level of skill required for a real estate agent. Sometimes I feel like a broken record because I am consistently complaining about peer in my industry.

However even with all that said, and even though my brokerage is a second business, I do feel I provide a useful service to my clients. I also recieve gracious compliments on my service which does give me faith that what I do is helpful.

So lets dive into some of yoru suggestions. Getting a database together to provide all of the sold information and making it public would be useful. However would it include market time? Would it include cancelled, expired, and withdrawn listings as well? As a Realtor those are other factors that are important to me. When I sit down with clients I think it is important for them to know that sort of stuff. For instance, today a guy that works for a mortgage broker called me to list his house. He showed me a 6 month sales record he obtained from a title company. He wanted to use these comps to price his home. I agreed it was useful but I showed him that for the same 6 month period the sum of expired, cancelled, and withdrawns exceeded the number of sales by almost twice as much. I also showed him that the pending to active ratio was 2 to 9!

Now interpretation of these numbers is not rocket science either. It is very basic. However, it should be pointed out that just posting the solds is (in my humble opinion) not sufficient in determining pricing of your home.

Now when you broke down real estate transactions most of your argument discussed financing. To me one of the biggest problems with real estate today is the close relationship between real estate and financing. I only do real estate and I do not do loans. In fact the transactions that I have the most problems with are the ones where the broker on the other side is a mortgage guy, not a Realtor. I absolutely believe that these industries need much more seperation. However if you look at a closing statement the sellers closing statement has nothing to do with the buyers financing. Sellers fees generally include splitting escrow, purchasing title insurance for the buyer, county transfer tax, (in SD it is 1.10 per 1000 bucks), buyers home warranty, natural hazard and zone disclosure report, pest control report, transaction coordination, and any payoff fees you may have for paying off your lender. Most closing statements on the buyers side indeed are ted by financing charges but the appraisal fee, physical inspection and any other inspections will be in there as well, and dont forget title insurance for the lender.
So all the frustration that you expressed about closing costs is well understood by me, but .... these fees are going to be there even if you do a FSBO.

I ABSOLUTELY AGREE with you about compensation for realtors. I broke it down hourly and it is crazy. (See my previous long post) I will also heartily agree that the industry has made ridiculous amounts of money because of the run up in homes.

However there are those of us out there who do provide a very good service to consumers at a very low cost. You just have to look around.

Again, I was not offended by your post at all. I hear your frustration and agree with you.

Submitted by sdduuuude on August 3, 2006 - 11:23pm.

anxvariety,

I sort of agree, but mostly don't.

I suspect most people on this forum don't have use for a realtor. However, this is the exception, not the rule.

I don't need one. You don't need one, but most do so REs will be around for a long time. The HelpUSell model is not so bad. I think they will be fine, but even with them, you have a realtor working for you and they need to be good at what they do.

REs aren't so helpful for the "do it yourselfer" type but the amount of time a realtor can save a busy professional with limited time is quite significant.

Submitted by sdduuuude on August 3, 2006 - 11:21pm.

"The reality is there is a ton of venture capital floating around looking for a home."

Have them send some my way.

Submitted by rankandfile on August 4, 2006 - 6:58am.

The reason things are so complicated is because there is money to be made in it. A form of job security if you will. Like the government worker that overcomplicates their once simple job functions to the point where only they can do it. Why else would we have a 40,000+ page (and growing) tax code? Yet, as complicated as our idiotic tax code is, there are still programs out there that can walk an average Joe through their taxes for about $50.

Submitted by rankandfile on August 4, 2006 - 6:58am.

The reason things are so complicated is because there is money to be made in it. A form of job security if you will. Like the government worker that overcomplicates their once simple job functions to the point where only they can do it. Why else would we have a 40,000+ page (and growing) tax code? Yet, as complicated as our idiotic tax code is, there are still programs out there that can walk an average Joe through their taxes for about $50.

Submitted by rankandfile on August 4, 2006 - 6:58am.

The reason things are so complicated is because there is money to be made in it. A form of job security if you will. Like the government worker that overcomplicates their once simple job functions to the point where only they can do it. Why else would we have a 40,000+ page (and growing) tax code? Yet, as complicated as our idiotic tax code is, there are still programs out there that can walk an average Joe through their taxes for about $50.

Submitted by JJGittes on August 4, 2006 - 8:23am.

If they put the effort into it, I'd bet that craigslist could come up with a replacement for the MLS pretty quickly. That, combined with the tax records currently accessible on-line already, could change the re industry. The average person would be armed with plenty of info to strike a reasonable deal. Regarding the paperwork, lawyers for a flat fee could handle the purchase agreement and disclusore, and then the escrow company takes over. Zone disclosure reports are mandatory.

Basically its a wal-martization of the re industry. I think it is inevitable...but it could take a few more years.

Submitted by PerryChase on August 4, 2006 - 9:04am.

I'm all for Wal-Mart. The low prices have contributed to our higher standard of living. Imagine who much our standard of living would increase if RE were wal-martized.

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