This article by Kary Krismer and Craig Blackmon (and “moderated” by Tim Ellis) has been reposted with permission from Seattle Bubble.
Therefore, I’m happy to present a point-counterpoint on the topic of Zillow’s value in the real estate marketplace. Rather than participating myself, I’ve invited two long-time Seattle Bubble regulars and local real estate professionals to debate the subject for us all.
Presenting the “pro-Zillow” position: Craig Blackmon. Craig is an attorney in Seattle, where he has practiced real estate law for over a decade. He owns and operate his law firm, the FSBO Law Center, where he helps people buy and sell homes without an agent (as well as handle other legal issues relating to owning a home). He is also the founder, designated broker, and managing broker of Quill Realty, a new model real estate firm.
Full disclosure: Craig is a Seattle Bubble advertiser, but no money or other consideration was exchanged for participation in this post.
Point: Zillow is inaccurate and adds no value
by Kary Krismer
People who dislike Zillow probably do so for many different reasons, but my primary complaint regarding Zillow is inaccurate listing information.
Although this is not true for every MLS, Zillow does not receive direct feeds from the NWMLS. This has several drawbacks for buyers using Zillow. Some listings will never appear on Zillow, some will only appear after another buyer is in contract, and some will remain on Zillow weeks or even months after a listing is pending.
There is a simple solution to all of these problems.
Seattle is a tech city where the regional broker sites are significantly better than those of most national firms. Broker sites like redfin.com, johnlscott.com, windermere.com and estately.com will give buyers both better data and better search options. Those sites will be updated multiple times per day and contain every NWMLS listing. As to which site is best, that would largely be personal preference, but it would also likely depend on a buyer’s needs.
This is not to say there are not some things Zillow does well in its search functions. Zillow is certainly better than some of the national brokerage websites, which is probably the reason Zillow even exists! But in the NWMLS area, Zillow is not better than the local options, and thus would not be a likely first choice of informed buyers even if the data was accurate.
I have other complaints regarding Zillow. The most significant is that the reason Zillow exists is not to help buyers find homes and owners sell homes, but instead to provide a medium for agents to advertise. While that is also true to some extent for the broker sites, the broker sites are also trying to sell their clients’ listings. A buyer picking an agent based on advertising on either type of site is hardly desirable, but that is Zillow’s primary purpose.
Does this mean buyers should ignore Zillow? No. Zillow has other uses, including allowing FSBO (for sale by owner) listings (Trulia and realtor.com do not) and has some limited information on foreclosures (although better sources probably exist).
Also, “Zestimates” is a source of automated valuations, although those are of limited use. And clearly sellers should not avoid Zillow — they should pick an agent whose listings appear on Zillow, as well as all the other major sites.
That Zillow is desirable for sellers does not make Zillow good. It just means some buyers are looking in the wrong place!
Zillow Provides an MLS alternative — a very good thing
by Craig Blackmon
The data provided by Zillow is of lower quality than the data available via the NWMLS. Kary is correct on that point. But Zillow is a good thing for a very different reason.
There is widespread recognition that real estate needs innovation. Because of Zillow, new and more efficient business models in real estate are possible.
Here in the Northwest, literally every licensed broker is also a member of the NWMLS (except for one, my firm, Quill Realty). As with any MLS, to list on it, a seller must hire two brokers: one to list the property, and one to “sell” it. This “selling commission,” paid to the buyer’s agent, is inefficient and bad for buyers.
Until the internet, buyers had to hire brokers just to know what was for sale. Today, most buyers search the listings themselves.
As result, there has been price pressure on the listing commission, and today there are lower-cost alternatives. Sellers can list the house themselves on the MLS (essentially paying one broker instead of two) for a few hundred bucks, or get full service from Redfin for 1.5 percent. Yet the typical selling commission remains stuck at 3 percent.
It will remain there as long as brokers maintain their monopoly on market data. Unlike other industries disrupted by the internet, real estate brokers create and maintain the electronic marketplace. This allows brokers to set the rules. The biggest — and unofficial! — rule: Sellers gotta offer the full 3 percent selling commission.
Theoretically, the “buyer rebate” model popularized by Redfin should have led to a reduction. The initial value proposition — rebates well into the thousands of dollars — should have been enough to disrupt real estate. Large numbers of buyers should have turned to Redfin, leading large numbers of sellers to reduce the selling commission accordingly.
But it didn’t happen. Perhaps the rebate model is too complex. Or perhaps market and price pressure must be applied directly by the consumers that actually pay the inefficient fee.
Regardless, the “Redfin Lesson” is clear: Buyer rebates will not lead to widespread innovation or a reduction in the selling commission.
So innovation must be driven on the listing side. Thought-leaders have for a long time believed the MLS would be “replaced” by technology.
Zillow allows both owners and non-MLS member brokers the ability to effectively market a home online. This gives consumers the opportunity to sell without offering a selling commission.
The seller may be asked to pay one by the buyer in the offer. It is then a negotiated term. Because it is negotiated, the commission will be reduced and the seller ends up paying less than 3 percent. Plus, the cost is effectively passed through to where it belongs — the buyer — via the negotiations over price.
Yes, the MLS works well, better than Zillow. At a cost. Specifically, the 3 percent selling commission.
Zillow gives all consumers an alternative. That means Zillow is a good thing.
Response: A false sense of empowerment for buyers
by Kary Krismer
Craig is correct that the internet has allowed buyers to more easily search for listings, but he is mistaken thinking a different form of advertising will somehow drive innovation that impacts commissions.
The internet has merely replaced the Sunday newspaper for real estate advertising. The information available on the internet may make consumers feel more empowered, but for most buyers, that is a false sense of empowerment. Making buyers feel good is the goal of internet sites — because they want viewers to come back to their sites.
Although internet listings are undoubtedly better than newspaper listings, the better information does not allow anyone to adequately judge a house. That requires an on-site visit. Even when a buyer sees a property in person, most buyers generally still need significant help beyond just “opening a door.”
It takes experience to understand the pros and cons of each property, and most non-flipper buyers lack that experience. Buyers need that experience, and it does not come for free. Having buyers deal directly with sellers without expert guidance would only lead to problems.
As to Zillow changing commission structure, the first mistake is thinking finding listings is a significant or difficult part of an agent’s job. That is easy, and many buyers are not good at it, making their agent’s job more difficult.
But Zillow’s underlying purpose is selling advertising to agents, so Zillow is not attempting to change the industry; it is part of the industry. Zillow is merely trying to capture clients for agents.
Response: Zillow allows fundamental change in real estate
by Craig Blackmon
According to Kary, the Internet is just “a different form of advertising.” He could not be more mistaken.
The internet has fundamentally changed the way the world works. As to information-based industries in particular, there are two types: those that have changed fundamentally as result of the internet, and those that will eventually. Real estate falls into the latter category (travel agents and stockbrokers fall into the former). Real estate has yet to see fundamental change driven by the internet.
Today, Zillow allows for that fundamental change to occur. Will change result? I hope so, but it may not.
Maybe it just isn’t time for change, or Zillow for some unknown reason isn’t the right catalyst. Perhaps someone else will find the right combination of data and service that will lead to change.
In the meantime, though, Zillow provides an opportunity for widespread and long-needed improvement.
Do buyers need to tour a home before they buy it? Duh. Of course. Do buyers benefit from having an agent represent them? Again. Duh. Of course. Do agents need to be compensated for this service? Yep, there is a pattern here….
The question is, who should pay the buyer’s agent? The seller-paid commission creates a classic conflict of interest. It is a significant flaw in the traditional model that undermines the modern expectation of representation.
Regardless of Zillow’s income stream, it provides an opportunity for sellers to pay the listing agent, and buyers to pay the buyer’s agent. The terms “selling agent” and “selling commission” can be relegated to where they belong, the dustbin of history.
Zillow is a very good thing.