While franchises, brokerages and agents fume and plot how to regain control of the listing data, Zillow Group (ZG), realtor.com, CoreLogic and others are sucking down the MLS-style sold data — that’s what is going to kill you.
Think back to the industry’s golden age of full monopoly status on the MLS systems and all active and sold home information. Aside from a few for-sale-by-owner sellers, everyone had to hire a broker to get their home valued, “listed” in the MLS, or homes searched on behalf of a buyer. The MLS, along with some classified ads and an open house, was the entire advertising platform for the real estate industry.
Then one day the industry launched “reciprocity” and Internet data exchange (IDX) feeds. A few brokers ran with this opportunity to create new business models. Other brokerages attacked and boycotted them. MLSs cut data to them. The U.S. Department of Justice eventually stepped in, sued NAR for antitrust, and we ended up with the VOW agreement and 2 million IDX sites, which all look and function the same. Whew, innovation averted by the industry!
But the public display of previously secret MLS information pulled a couple of supports right out from the very bottom of the broker model — but nobody really noticed. It seemed like as long as all 2 million brokers had the same boring IDX websites that no one could gain an advantage in the marketplace, everything would continue as it always had, and most importantly, brokers could move their heads from their business cards and signs over to their websites.
However, along came portals, including Zillow and Trulia — and realtor.com, but NAR made sure realtor.com didn’t do anything to please the marketplace.
The portals snagged a bunch of county record data, and a bunch of demographic data, and crime data, and value trend data, and anything else they felt would attract the eyes of the marketplace, and jammed it all up on public access websites. Oh, no — a twinge of innovation in the marketplace.
Then the biggie: Zillow launched home value estimates and the ability to stare at your neighbors’ values, backyards and rooftops. What fun! And the best part was that the marketplace could do it all without a broker. The marketplace loved the Zestimate, but many brokers hated it and argued it was too inaccurate.
The brokerage industry is now running scared because the four main portals capture about 50 percent of all real estate-related Internet traffic, with ZG owning most of it.
ZG is better at marketing the industry’s own information than brokers are. It snags and publishes active listing data, and both Zillow Group and its investors love the profits they make through advertising fees paid by brokers for a shot at the business that those same brokers weren’t skilled enough to attract on their own.
But published listing data is not your real problem.
The fees earned through advertising paid on actively for-sale homes is simply the short-term cash flow to keep the ZG machine running in order to capture the full transaction processes of selling and buying real estate.
You see, portals have survived off dusty old county record data for a decade. But with each property displayed at these sites — and eventually sold — they have slowly built up a national database of rich sales information, and this is accelerating exponentially today.
The grungy old county records data barely offered them a style, size, bed and bath count, lot size and some government-conjured tax valuation for creating their Zestimate. But, oh, that rich MLS-style data with text descriptions, pictures and lists of inclusions, which comes as each active property becomes a sold property — that’s gold, or will be before long.
The Zestimate will soon integrate all of the luxurious text descriptions and inclusions from all of those sold properties into its valuation model — another huge chunk removed from the broker model’s foundation. Other companies with access to this kind of data will do the same.
From analyzing all of that sold data, the ZG sites could shortly integrate keyword-matching algorithms into their buyer search tools — another chunk out of the broker model’s foundation. Buyers will flock to ZG, thus more sellers will demand to be there, and more brokers will have to advertise there — and on and on.
Currently the Zestimate claims a median error rate of 8 percent, and brokers scream that’s not good enough. It will get much more accurate with a decade of rich sold data — and you have another problem.
Brokers’ own estimates of value have a median error rate of 5 percent of actual sale price. I evaluated 4,802 recently sold properties from all areas and all price ranges from the MLS, and guess what? The original list price was within a median 5 percent of actual sale price. Zillow is within three points of brokers’ own estimate of values, and it’s just now getting ready to use MLS-style data to improve that.
Here are the stats: 4,802 MLS homes analyzed (all areas, all price ranges), compared original list price to actual sale price, and the median difference was 5 percent. The breakdown is: 609 properties sold for list price; 710 properties were undervalued by an average of 5 percent; 3,483 were overvalued by an average of 8 percent.
I hear the arguments now.
- You’re thinking I did the analysis wrong. Maybe; I’m not a statistician; here’s the spreadsheet. All data came directly from MLS records downloaded on April 19, 2015. I invite you to investigate it. I further encourage you to pull a few thousand records yourself or have your MLS do it. Pull all price ranges and locations of both attached and detached residential properties and compare original list price to actual sold price.
- You’re thinking, “Hey, those aren’t the real broker estimates; the original list prices are what the sellers demanded.”
You don’t want to go there because if that’s the case, then sellers don’t need you or your estimates of value, as apparently their homes will sell for market value whether they initially price them a bit high or low. That makes the Zestimate and no commission paid look shiny to them.
Another massive piece of the broker model foundation was just removed, and it’s about to get worse.
Now that ZG is making money on listing data, and now that it can improve the buyer search tools and value estimates with a decade of accumulated MLS-style sale data — it can turn its efforts toward controlling the entire sale process.
Every time a potential buyer visits a ZG site, there is also an opportunity to track that buyer. It would be a smart business move for ZG to create learning algorithms and artificial intelligence to understand what actions buyers take just before becoming serious. ZG has all of the active properties, a decade of sold properties, and it gets to witness every action a potential buyer takes. ZG knows who’s about to buy — what’s that list of leads worth to you? Oh, it’s going to be more than what it costs to paste your picture next to somebody else’s listing — place your bid.
Every time a potential seller touches a ZG site, it’s tracked. You get the idea: ZG knows the seller’s address; it now has high-quality sold data offering superior valuations and can tell when a potential seller is about to get really serious and put their home on the market — if you want in on this action, prepare to place your bid.
Reiterate the same processes above using the “By Owner” and the “Make Me Move” people. ZG can tell when these guys are ready to hire out some help — place your bid.
Renters — every move tracked — when they are about to get serious and become buyers, ZG knows; place your bid.
Eventually, you drop 40 percent of your commission on getting one of these hot leads. Guess what: You’ll be using the ZG transaction platform software. Now guess who’s being tracked and analyzed as part of this entire process?
A few years later, buyers become sellers, and ZG’s CRM software has kept them well-informed of everything going on in the marketplace, and guess who’s once again being tracked and analyzed as a probable seller? Place your bid.
Everyone demanded ZG’s data become more accurate. You now have what you desired.
Disclosure: Creed Smith created and owns the QValue AVM, which can value properties and search homes as described in this article; patent pending. Creed Smith has no affiliation with ZG or any other company mentioned in this article as of the publication date of this article.
Creed Smith is living the creation and implementation of innovation via QValue.net and DemonOfMarketing.com.