Damon Darlin recently did a badass article
on how everyone in the real estate industry is holding their nuts trying to protect themselves from the repeated 100 mile an hour crotch shots coming from Zillow and Redfin.
Below are the juicy bits along with my witilicious commentary.
February 8, 2006
2 Web Sites Push Further Into Services Real Estate Agents Offer
By DAMON DARLIN
Two real estate Web sites are starting to offer services that could change the way real estate is bought and sold online.
One site, Zillow.com, which will be introduced today, will help consumers obtain more accurate real estate sales information — to the consternation of some real estate agents.
A smaller site, Redfin.com, introduced an unusual new service last week that might be even more disruptive to the real estate industry: the feature automates the process of bidding on a house online. Eventually Zillow will have this feature. And when that it happens, it will be all she wrote for the real estate brokerage industry since people will realize how much money they can save by doing their transactions online.
Zillow is attracting a lot of attention because it obtained $32 million in venture capital financing and its chief executive, Rich Barton, was a creator of Expedia, the online travel agency. Once that revenue starts to roll in investors will lob bails of money to get a piece of that action. Also there will most likely be a ton of copy cats who will try to utilize the Zillow formula.
The new site provides data like previous sales prices and the prices of similar properties on 60 million residential properties, information that real estate agents do not display in the public multiple listing service. The site also includes price appreciation (or depreciation) data in a form that resembles stock charts. "It's a lot of data to make you smarter," Mr. Barton said. One of the key points of utilizig a broker is the information they possess. That is why alot of brokers specialize in a particular area because it makes them more valuable and it makes things alot easier for them instead of running around like a chicken with their head cut off.
In addition, Zillow uses software to offer a free home-value estimator. The "Zestimate" service tries to do what has been a primary function of the real estate agent. And in contrast to many other real estate Web sites, like Realtor.com, run by the National Association of Realtors, or Home Pages.com, owned by Housevalues Inc., Zillow does not try to connect its users with agents.Do you see what is going on here? Do you see what they are doing? Their focus is on the customer. Not the broker. They don't want anything to interfere with relationship because Zillow is setting up the foundation when they implement their e-commerce solution.The most important thing that Zillow needs to do is create a brand and instill brand loyalty into their consumers and they are on a great start. Then Zillow will be able to go further in their efforts in providing more services for the consumer.
Many real estate agents worry that Zillow could be a first step in an online evolution that could threaten their $60 billion commission-based business, just as Expedia, Travelocity and other online sites disrupted the business of travel agents.
Mr. Barton said it was not his intent to take part of the agent's commission, which averages slightly less than 6 percent and is split between the buyer's and seller's agents. Instead, Zillow is an advertising-supported site.Yeah. Mr. Barton is really going to ignore a $60 billion business. The only reason why Mr. Barton hasn't implemented anything is because they haven't perfected it as of yet. It may not be his intent but it will become a reality.
Mr. Barton said he expected to sell advertising on the site because the information there will create in nearly every American city a community of people interested in real estate. New York City will be the notable exclusion, because of the complexity of mapping multistory multiowner condominiums.
Zillow's sizable capitalization is already causing anxiety among online companies that match real estate listings with interactive maps and other data. PropertyShark.com, a site that began with New York City listings and has since expanded to 15 other cities, for instance, is wary of Zillow because of its venture backing.
PropertyShark has no outside financing. "It is scary, and frustrating and nerve-racking," said Matthew Haines, the site's founder. "It made it quite clear that we are underfunded."Propertyshark has nothing to worry about. As long as they stay true to their brand they should be alright. For all we know Zillow might make an alliance with Property Shark since they have pretty much established a beach head in the area. Why make more work for themselves? In fact if I was Zillow I would be in talks to buy out Propertyshark.
Redfin, though less well financed than Zillow, is perhaps even more ambitious in its aim to take on the work of agents. The site, which maps listings with other sources of real estate data for Seattle, added a feature last week that allows a visitor to buy a property online.
A real estate agent is not cut out of the process; in fact, Redfin is itself a real estate brokerage company. But the site automates the paperwork of making a bid and then rebates to the buyer two-thirds of the buyer's agent's commission, which is usually 3 percent. Redfin, as the buyer's agent, takes only a 1 percent commission.
Redfin shows the potential savings on every listing. For instance, the "direct savings" on a $699,000 house currently for sale in the Queen Anne district in Seattle is $13,980. The buyer gets the money at closing so it can be used for the down payment or to pass to the seller if it was used to sweeten an offer.
Right below the description of that property are two buttons, one to "see it" and the other to "buy it." A click on the see button helps the potential buyer arrange a tour of the property. Clicking on the buy button leads the visitor through online forms that generate the paperwork for an offer.
"We won't replace the agent," said Glenn Kelman, Redfin's chief executive. "We let people who are self-reliant do the legwork and gain 2 percent." Redfin has been financed with $1.25 million, with most of that coming from the Madrona Venture Group of Seattle. The company said it was seeking additional financing to expand to other cities.This is the future. NAR and REBNY should be looking at Redfin very, very closely and figure how to adapt to this new business model instead if engaging in anti-competeive practices and dismissing new trends in real estate.
All of these real estate sites are chipping away at the agent's business of matching clients with a property and then negotiating a deal. The Web is already displacing the initial contact that agents have with customers. A recent National Association of Realtors survey found that 77 percent of home buyers use the Internet to search for a home. About 24 percent said they first learned of a home from the Internet, up from 15 percent in a 2004 survey.
Mr. Barton does not exclude the possibility that the role of the agent, and his site, may change.
"People want Realtors," he said. "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.
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?"
Still, Mr. Barton said, "it is not our intent to dislocate the agent."
Mr. Kelman of Redfin said he recognized that change might be difficult. "We are like the penguins on the edge of an iceberg when no one wants to jump in first. Redfin is going in first," he said. "Maybe that isn't such a good analogy. The first penguin in usually gets eaten by sharks or something."Whatever happens, I think these new advances in real estate media and technology will only serve to help the consumer by educating them and forcing the real estate industry to reinvent itself. These advances will accelerate if we ecounter the big R and people need to liquidate ASAP and want to cut their overheard which means reducing the broker's commission.