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Zillow Needs More Money and Gets It

Published by Joseph Ferrara September 22nd, 2007 in Sellsius Real Estate Blog and zillow.

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Investors who know Rich Barton, founder of Expedia, have given his valuation website Zillow $87 million so far to figure out how to make money from the real estate industry. Barton, who has no experience in the real estate business, decided homes were just like cars and said he would create the Kelley Blue Book for homes using public tax assessors’ data. No one had the guts to tell the well-intentioned entrepreneur that homes were not like cars at all (when was the last time you put a granite dashboard in your Taurus?) and that the public tax data was either inaccurate, incomplete or stale, and lagged the market.

Furthermore, there are characteristics of a home or its surroundings that are not factored into the public data which can drastically affect a home’s value — things we call “unzillowables“. A physical examination of the property by a local expert reveals unzillowables. (Zilllow does not make house calls). Some unzillowables, like upcoming laws & construction projects require a deeper knowledge of the local market. Finally, once someone looked up the value of their home, and their neighbors, there was no reason to go back and check it again. (dang, all those stock graphs gone to waste). Besides, knowing a “median” error rate offers no guarantee that the home value you are looking at isn’t off by 1,000% (median is just the middle value, meaning there are a lot of fat error rates above it— have Jonathan Miller explain it to you).

Now, that wasn’t the worst of it. Zillow had counted on real estate brokers and agents paying money to a website that competed with their most prized (and effective) marketing tool– the CMA. Yeah, right. Didn’t Dave Liniger set you straight on this? Not only did the zestimate compete with the foot-in-the-door CMA, it told the public, in essence, they really didn’t need a CMA, or an appraisal— (I know David G will object, but just think about it– why give a value– and then say “doublecheck it with a CMA or appraisal”? Doesn’t make any sense.) Well, it was no surprise the real estate industry called Zillow a carnival act and refused to pay even a brass razoo to advertise on it. The result: mainly mortgage companies and discount brokers bought any ads on Zillow. Bye-bye, millions.

Zillow, to its credit, realized real estate agents could be sold by letting them list property on the site and advertise on the house listings. And they backed off the Kelley BB nonsense– it was never mentioned again– evidence that even Zillow wasn’t buying it. (Any real estate agent who knew a car salesman knew KBB is a depreciation guide & homes don’t usually depreciate.) Zillow then took a bold step — they allowed agents to do something their own MLS would not allow— the ability to freely advertise/list someone else’s property– without the knowledge or consent of either the homeowner or the listing agent. Awright! The EZ ad dollars started trickling in. (Seeding with free ads to noted brokers and bloggers was meant to do 2 things: get known faces out there on the ads (& hope the sheep follow) and reap possible good blog press). Evidently, it was not enough. Our Suess (a Sellsius guess, not the author from who’s book Zillow took their name) is that the EZ ads are not getting the real estate agents any EZ business, and the ad revenue is not enough to keep the lights on or the statisticians fed. Unfortunately, it may not be Zillow’s fault— the overall market is crappy and business is anything but EZ.

So there you have it, in our humble opinion— Zillow needs more money, and some more ideas. Why else would they get another $30 million? (When was the last time someone shoved a mil in your hand because you were were raking in the dough?)

H/T: Venture Beat.

For Zillowphiles, the most comprehensive Zillow coverage in all of blogdom is below:

Gadzooks!

Did Zillow Actually Listen To Sellsius?
Discrimination by Zestimation: The Law of Unintended Consequences
Has Zillow Spiked the Google Juice?
Is Zillow Betaproof?
I See, Said the Blind Man to the Deaf Lady
Mining The Elusive Unzillowable
Realtor.com v. Zillow Video
Realtor’s Allan Dalton calls Zillow Carnival Act
Sellsius Conversation with NCRC
The Truth Is: Zillow has a Right To Exist
Unzestimate My Home: Will Zillow Let Owner’s Opt Out?
Unzillowable, To Coin A Phrase
Will Listing Your Home Above the Zestimate Turn Away Buyers?
World’s First “Unzillowable” Listing
Z-Day: Z for Zendetta
Zillow Confesses…
Zillow, Dem’s Fightin’ Words
Zillow Housing Reports: The Statistical Lie of Estimated Truth
Zillow’s Real Prey: It’s Not Brokers
Zillow: Truth by Association
Zillow Ultimate Poll
Zillow Poll Results
Zillow Zapped with FTC Complaint
Zoophole: Only Humans Have to Post Conspicuous Disclaimers
Will Zillow Let Listing Owners Opt-out now?
Zillow Doubt
Why Arizona Went After Zillow
Zillow Bans Unzillowable Ad
The Power of Print: Perception as Truth
Comment of the Day
Is Zillow Using Our Homes as Bait?
Zillow Tales: Where do you want to Start?
Property Shark in Zillow Waters
Dear Arizona: Zillow May be a Dog, But it is not a Poodle
Is Zillow Q&A Lookie Loo Heaven or Listing Agent Hell?
The Human Listing Site: Zillowfying Your Privacy Under the Guise of Transparency
Redfin & Zillow: Stats of a Feather

Sellsius Gives Zillow Pat on the Back

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  • Your link to "Did Zillow listen to Sellsius" is broken, Joe.
  • Thanks Phil.
  • Always interesting to read the fantasy version of the Zillow story. Please update your post with the corrections listed below.

    Funnily, I quoted the KBB analogy yesterday. Just like KBB doesn't tell you exactly what a buyer will pay for your car, the Zestimate value does not exactly predict what a home will sell for. Why else would we publish a value range for each Zestimate? A Zestimate value obviously does not replace a CMA and it says so on Zillow.com.

    More than 80% of buyers start their home search online. 4,4M people used Zillow in August. Zillow is now one of many places online that consumers and pro's get free instant valuations and data. The public records about homes, flawed as they can be, have always been ... well ... public. Online AVM's and access to data is not going away and so I must ask that you consider that you may be doing a disservice to your readers by publishing misinformation about what is a core part of a consumer's experience in real estate.

    Corrections:
    1) Zestimate values DO NOT REPLACE appraisals or CMA's. No-one at Zillow has ever suggested or believed otherwise.
    2) The KBB analogy is s useful one - see above. It's an analogy - houses aren't cars.
    3) No agent can advertise another agent's listing on Zillow. We've been over this. Please consider that this misinformation can have negative and costly implications for the professionals who have used this feature and correct your post.
    4) EZ Ads were not seeded at launch. Not that it would have been a bad idea but we literally don't have the capability to comp EZ Ads. Check this fact with Bob from Active Rain who can't stop teasing me about it.
    5) Agents and sellers are having success with EZ Ads and with advertising their listings on the site.
    6) Many traditional brokerages are advertising on Zillow. Furthermore, Zillow's audience is interesting to advertisers outside of the RE industry.

    You clearly have a lot of opinions about the ROI advertisers are seeing online. How about some first-hand insights? Can you share any details about how the advertisers are doing and how many real estate agents are paying to advertise their listings on this site:
    http://www.sellsiusrealestate.com/default.aspx. Now, that's a story I'd like to read on this blog.
  • Wow... Dave is a machine. I would agree with him.

    What I'm more amazed at is that the valuation is $350M, what the @!#$?

    Seems to me for a round 3VC your looking for a 20% or better annual return and some visibility to an out in 3 years. So Zillow would have to have something like a value of $600-700M in 2010? OK... hmm lets see.. thats a stupid bet. Lending Tree when for what 7x revenue to IAC? Say Zillow can pull 10x revenue they need to get to $60M in 3 years on an unproven business model... I can't see it.

    How long can that $30M last? 150 FTEs @ what 60-70k per + burden? thats $1M a month right there.

    To me the math just doesn't add up. I think Rich is a smart guy and the Zillow does add value to real estate conversation. I just hope they can hold out...
  • Nice to see you again David.

    Let's explore what is fantasy what is fact.

    The story of Zillow is based on Rich Barton's published experience as a buyer, not as a real estate professional, of which he has no experience. Zillow grew out of his buyer frustration accessing information.
    Fact or fantasy? Rich Barton does not come from the real estate industry.
    Fact or fantasy? The VCs who have fronted the money know Mr. Barton. He has an ownership interest in one firm, no?
    Fact or fantasy? Zillow gave free ads to brokers/bloggers in certain markets? I happen to have met one in Chicago. Or was that person relating a fantasy?
    Fact or fantasy: Zillow needs the $30 million

    The KBB analogy: You can't drive your house

    KBB is a depreciation guide based on the agreed premise that a car value declines due to 2 major components-- age of the car and mileage-- that is because cars have a useful life. Also, almost all cars have a limited number of components, many standardized such as internal combustion engines, drive trains and front and back seats, making them essentially fungible assets. Homes are not depreciating assets. Also, they contain features which cannot be said to be uniform. They also exist in a context, a neighborhood. Where your car is parked has no impact on its value. A home is not a fungible asset. So you are really comparing apples to oranges when you talk Zillow and KBB.

    While Zillow does give a value range it highlights a single value. Why? Zillow promotes a low median error rate as a whole? Why?

    Non corrections:
    1. Never made this statement.
    2. See above. Continued KBB analogy is misplaced if zillow is indeed a media company-- since as a media company you need to sell ads to real estate pros who do not see Zillow as a KBB
    3. Semantics, my friend. If I say your house is for sale & it is not my listing, I am advertising your home. Why? Because as a result you are likely to call me. Why would someone list another's home except for economic advantage?
    4. Maybe not a launch but they ads were seeded (given free) based on my info
    5. I have no clue what the measure of EZ ad success is. What is the conversion rate in EZ ads?
    6. Not at launch. Only after allowing listings.

    Agent Scoreboard--
    Dave has had a lot of practice defending zillow. Which part did he get right?
  • "You can’t drive your house"

    Really?

    Please do update your post. More detail regarding the 6 corrections I highlighted:

    1) This statement is false: "... a website that competed with their most prized (and effective) marketing tool– the CMA."
    2) This statement is false: "And they backed off the Kelley BB nonsense ..." As I mentioned, I for one still use that analogy.
    3) This statement is false: "they allowed agents to do something their own MLS would not allow— the ability to freely advertise/list someone else’s property." This issue is not a matter of semantics. Advertising a listing and "tell us its for sale" are two distinct features. Only a listing agent or owner can advertise a listing on Zillow. Anyone can "tell us its for sale." Again, you are potentially doing a lot of harm to hardworking agents here.
    4) This statement is false: "Seeding with free ads to noted brokers and bloggers was meant to do 2 things: get known faces out there on the ads (& hope the sheep follow) and reap possible good blog press)."
    5) Sorry, I withdraw my request for the 5th correction. This statement is false but since its only your "seuss" or opinion you're obviously entitled to be wrong: "EZ ads are not getting the real estate agents any EZ business, and the ad revenue is not enough to keep the lights on"
    6) This statement is false: "the real estate industry ... refused to pay even a brass razoo to advertise on it."

    Being misinformed about today's real estate tools will disintermediate Realtors. Think about it.
  • Well, maybe it would be best if Zillow would take some of that money, rent a decent office building and sponsor some Real Estate licensing courses for out-of-work travel agents...
  • It would be great if Zillow would take some of that money, rent a decent office building and sponsor some real estate licensing courses for out-of-work travel agents...

    Obeoman

    steven.stearns@obeo.com
  • David-

    If Zillow aspires to be KBB, it aspires to disintermediate real estate agents. With KBB, the need to get your car valued by a professional is unnecessary. So too, the need to have it sold in a used car lot. Can we agree on that? (Also, I am less likely to price my car too far from the KBB value). Thus, if zestimates had the consensus acceptance of KBB, it would tend to eliminate the need to have a professional value your home and the need to sell using an agent. Clearly, these are not facts -- they constitute an opinion, a hypothesis, based on a comparison with the effect KBB had on resale of cars. Therefore:

    1. The statement that the zestimate competes with a CMA is in no need of correction. If a zestimate has KBB status, it will compete with an agent provided CMA. If zestimates ever attain KBB status, then the hypothesis will prove true or false. Secondly, if an owner has a zestimate he trusts (like KBB), he will compare it against a CMA-- i.e the zestimate will compete with the CMA. Thirdly, promoting that the median error rate is only 7% is meant to convey a trust in the zestimate, as one would trust a CMA-- again, competition in my opinion. Finally, the original home page (since changed--see Sellsius Pats Zillow on the Back post) said to buyers "Do not overpay"-- again to convey the perception to consumers that the zestimate is a tool to be trusted.

    2. If an employee of zillow (you) continues to use the KBB analogy am I to assume the principals also continue to use it? I don't think so. Until I read a principal of Zillow using the analogy, I see no need to correct the statement. Fair enuf?

    3. "Telling" that a house is for sale is the advertising equivalent of a "House for Sale" lawn sign-- one sign sits on my lawn, one sits on Zillow's. Let's try an analogy, shall we. My neighbor's house is for sale & I, an agent who doesn't have the listing, puts a "for sale" sign on my neighbor's lawn, with my contact info-- is this advertising?
    Couple it with the fact that if I list another's home, I can also engage the Q&A.; Consider why I, an agent, would tell the public that another's home is for sale and engage in Q&A;? Is it purely a benevolent act or is there something in it for me? I think you know the answer. Sorry, David it IS advertising. That's a fact Jack.

    4. Did Zillow give brokers or bloggers free ads? I was told YES by a broker. If you say NO, that's another blog post after I call the broker. Correction on hold til then. Fair enuf?

    5. No problem.

    6. I am talking valuation only Zillow, before it became a listing site. By "real estate industry" I meant to convey "traditional agents, on the whole", i.e most agents did not advertise on the valuation only Zillow website--- the majority of ads were from discount brokers and mortgage companies. After Zillow allowed listings, yes agents jumped in. I hope I cleared that up.

    In conclusion, let's not overlook that I say Zillow NEEDS the money. That's in the headline-- so I ask you-- is that factually correct?-- it was not on your list of corrections.

    As always, I appreciate your time here, David.

    PS: To help prevent misinformation to a any reader, I included the Zillow history posts so that they could get a full sense of our position on Zillow, if they cared to.
  • Always interesting to read your opinion. David can chime in further, but to directly answer your question -- No, Zillow does not NEED the money. Surely, you can understand the benefit of raising money from a position of strength (when you don't need it). This is a direct quote from Rich regarding "Why did you need to raise more money?" --

    "We want to increase our investments in both products and growing out the ad sales organization. We didn't run out of money, we still have the majority of the money from the last round, but we do believe that we are going to need more capital before we get profitable."

    John Cook published a lengthy Q&A with Rich that he published - http://blog.seattlepi.nwsource.com/venture/arch...
  • Being a Realtor and an Appraisal Assistant, I will be interested to see how Zillow continues to evolve. It is an intriguing and fascinating business model in my opinion. Just like with any valuation, one has to take it with a grain of salt. Zillow Estimates, CMA's and Appraisals are all opinions of value. The problem occurs when users believe each these valuations are good as gold. The only true market value is what the Buyer is willing to pay for it.

    I always find it interesting how Realtors and Appraisers get defensive when it comes to talking about business models like Zillow. People tend to bash and negative root ideas they fear will make them have to evolve.
  • Agree Scott. Real estate professionals have no problem with Zillow because they understand it. But if Zillow aims to be KBB (as David admits is a good analogy for Zillow) it aims to have consumers believe its valuations are good as gold. Now, the fine print says zestimates can be iffy but out of the other side of their mouth they laud 7% error rates and publish Zindex Housing Reports (based on estimates) which appear in newspapers, have their API appear on trusted realtor sites and before you know it, there is an acceptance of the product --- perception has a way of becoming operational truth. To reach this level of public acceptance requires time AND ad dollars kicked into the zillow kitty by real estate professionals. There is nothing wrong with the business model, it's the end game the model is geared to achieve that should be considered. EZ ads only make it EZier for Zillow to get to KBB nirvana. And David-- this is only my opinion (jf).
  • Disclosure:
    I am a licensed broker and REALTOR in Westchester County, NY. To date, I have sold 45 single family homes in 2007. I am in the trenches.

    I have no objection to zillow or how they do business per se, but have yet to find them useful. My home, which we bought for $675,000 two months ago has a zestimate for 765k. How is this helpful? The half dozen times I have had customers or clients use it, the data has little more than muddy the waters.

    If the database grows, they can iron out the inaccuracies, and it grows in efficacy as an advertising conduit I can see it being useful. However, I don't see that right now.
  • $87 million in 18 months is quite impressive.
  • Kelley, it helps to have a successful track record as Barton does. Also, he is part owner of one of the VC firms, I believe. (David will correct me if I am wrong )

    Phil-- totally agree. Professionals get it. It's the consumer who may not, despite the disclosures. Your point about muddied waters is quite true-- rather than being a "first step" it adds a another step to the process-- explaining it away.

    If you have a good idea of the home value already-- you can say-- oh yeah, Zillow is close or off by a mile. But if you don't have a clue-- it helps not a whit. So what's the point?

    As a listing site, I have no problem with it, except for letting anyone list someone's house as "for Sale" without homeowner or listing agent consent, or even knowledge--- a whole Q&A; could go on about a home where the owner has no idea it is happening.

    We oppose Zillow mainly based on their non-recognition of a homeowner's and listing agent's RIGHT to control the marketing of their asset (they can only prevent others from listing the home by "claiming it"-- an act they should not be required to do)and RIGHT to opt out of the zestimate, especially if they list a house with a sales price--- a lowball zestimate can scare away buyers.

    We also have issues with the Q&A--; misinformation (which David is complaining about in this post) cannot be flagged by homewoners or LA who do not know the misinformation is out there PLUS there is no consequence to flagging-- if I say, mistakenly or intentionally, there are termites , you say no-- the info sits there in cyberspace, uncorrected. But we can go on and on--- read some of our past zillow posts if you have the time to get all this in context)
  • Hi Joe (and Dave G above)...Here in Chicago I post my Listings on Zillow and their local rep is a reader and frequent commentor on my Chicago's Home Weblog. I DID in fact, receive a free Ad credit from Zillow a few months ago. (Also a free pen and a complimentary breakfast)

    So DAVE G, LOOK AT THIS> (It's an actual e-mail from Zillow)



    Geno...I am glad you came by, it is so nice to now have a face with the name.

    Do you mind emailing me the email address and password you used to create a Zillow account? I will set up your ad credit of $250. Once it is up, I will shoot you an email and you can edit it however you would like. I'll put your head shot in there for now which you can keep, or change to advertise a listing.

    Thanks!

    Sara


    ____________________________________________________


    Sara Bonert

    Zillow.com
  • Geno -

    Check the date on Sara's e-mail. It was sent in July. EZ Ads launched in May. Joe's claim that EZ Ads were "seeded" is total B/S and so are his suggestions that that explains the program's success.

    Again, seeding EZ Ads would not have been a bad idea. I actually wish we could have. But Joe's version of your story IS a fabrication.

    As I mentioned, we don't technically have the capability to comp. EZ Ads. In your case, Sara took the initiative upon herself and purchased your ads on her personal credit card. Was that a mistake? (This conversation makes me wonder.) 6,000 people have bought EZ Ads. You are one of 10 people that Sara bought ads for.

    I hope that this issue is now clear.
  • Not that I really feel like jumping into this 'issue' but I have to say first that I think Sara is a really cool person and an advocate for her company. I'm actually indifferent to Zillow, one way or the other. I can attribute exactly 0.00% of my business to it. As far as Sara having to use her own credit card for buying myself and 9 other people ads...my comment to that is I personally spend many tens of thousands of my gross commission dollars each year to do business in Chicago--some is well spent, some is folly, most is just normal operating expense. As far as you wondering what is and is not a mistake I can only add... shame on Zillow for taking her money in the first place.

    peace out
  • Geno -

    You misunderstood - Sara was obviously reimbursed for this expense.
  • David,

    Why didn't you whip that personal credit card out for me???? I need to start sucking up to Sara I guess.

    Bob Stewart

    Rudy,

    Give em heck...........
  • Bob -

    Touche' ... I think you're going to have to move to Chicago. Love the "active|bob" badge - very cool. And thanks; all I need is Rudy piling on here as well. ;-)
  • Thanks Geno for stepping in. You're aces.

    David--

    You cleverly said :"EZ Ads were not seeded at launch."

    As you know, seeding need not occur at launch & I never said it happened at launch--- heck, I seed my lawn whenever the grass gets thin.

    But whether we call it "seeding" or not, the point David, is that free ads were given out by Zillow to influential brokers (like Geno). Are you saying only brokers in Chicago got them? Because I heard rumor it also happened in Seattle.

    Set the record straight David-- did Zillow, through its employees or agents, give out free EZ ads-- or was Geno and the Chicago 10 the only lucky ones? (Don't let us go to the videotape)

    For the record--- I see nothing illegal, immoral or fattening with seeding EZ ads.
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