What happens when a real estate agent’s secret weapon becomes not so secret?
The best-selling book Freakonomics explores this scenario, arguing real estate agents amass influence by hoarding secret information. It suggests agents use information not accessible to others to manipulate clients into uninformed decisions.
But the advent of online listing aggregators has made this contention from Freakonomics — now over a decade old — somewhat moot.
Thanks to online listing aggregators, the asymmetrical relationship between agents and clients is shifting in favor of the client. Online listing aggregators like Zillow and Redfin publish real estate information like home facts, sales histories and current listings in a given neighborhood.
Now that this once carefully guarded information is freely available, clients’ perceptions of the value of real estate agents are declining, and homebuyer shopping patterns are reflecting this.
When searching for a home, 58% of Millennial buyers prioritize visuals like professional photography and virtual tours compared to just 37% of Baby Boomers, according to Zillow’s 2017 Consumer Housing Trends Report. Media-rich platforms like Redfin and Zillow offer precisely the shopping and research experience Millennials seek.
Online listing aggregators are becoming an attractive alternative to agents for sellers as well. In fact, 57% of Millennial sellers first attempted a for-sale-by-owner (FSBO) in 2017. That’s a stark contrast to 32% of Generation X and 19% of Baby Boomer sellers who first attempted a FSBO.
Informed clients are good clients …right?
Many agents have developed a hostile attitude toward online listing aggregators, but these sites are actually helping agents close deals. first tuesday has previously commented that buyers informed by listing sites like those mentioned here are more likely to be patient, understanding and eventually close on a home in general.
Online listing aggregators excel at taking over some of agents’ more preliminary duties. Zillow goes as far as publishing comprehensive informational guides for buyers and sellers, helping agents get first timers up to speed.
But even though Zillow’s controversial home valuation feature — the Zestimate — is an informational tool, it has a significant median error rate of 4.3%. The Zestimate offers users a starting point to determine their home’s value. This approximate value is based on a myriad of data points, like past sale prices, tax assessments, and the general physical attributes of homes in the area. Consequently, areas with fewer data points available to Zillow will have less accurate Zestimates.
Editor’s note — You can find out how accurate the Zestimate is in your area here.
The Zestimate’s imprecision stems from ignorance of factors that are difficult to track automatically like the individual home’s condition, appliances and improvements. Traditionally, an agent makes these adjustments to reach a more reasonable price based on their market knowledge and experience, but Zillow’s algorithm lacks that benefit. Outdated information is also a major hindrance to accurate Zestimates.
Although Zillow is actively working to close the gap between Zestimates and sale prices, the difference can create unrealistic expectations for current buyers and sellers, which can strain the agent-client relationship.
High and low Zestimates cause sellers to push back against their agent’s preferred listing price and buyers to make inadvisable offers. In both cases, inaccurate Zestimates sow distrust of agents.
Man versus machine
If the Zestimate is so unreliable, why has it become such a sticking point for sellers?
The answer may lie in public perceptions of agents.
In a 2015 Gallup poll, only 20% of respondents rated real estate agents’ ethics and honesty as high or very high. The common factor between real estate agents and other professions respondents similarly distrusted — including stockbrokers and telemarketers — is that they are all “middlemen” in a position to profit.
Given 80% and 82% of buyers and sellers respectively cite trustworthiness as the most important factor when choosing an agent, it’s no wonder online listing aggregators have become so popular. Powerful and “unbiased” algorithms backed by Big Data are capitalizing on the public’s negative perceptions of agents.
Up against Big Data, an agent’s perceived weakness is their greatest strength: the human element. Agents are cleaning up the misinformation the Zestimate spreads by providing insight and interpretation Zillow cannot. While the site is a powerful informational tool, an agent’s guidance is helpful to parse this wealth of information.
Information aside, agents also perform valuable services behind the scenes, like preparing paperwork, pre-screening potential buyers and coordinating closing with the seller, the lender and the closing agents. Agents can remind potential FSBOs that Zillow, on the other hand, won’t help prepare a purchase agreement with favorable terms or fight on their behalf on a low appraisal.
Online listing aggregators won’t be replacing agents anytime soon. Although Zillow and Redfin are assuming some of their duties, agents can stay ahead of the curve by working alongside these sites and developing their niche market. Real estate is local, and local knowledge remains invaluable.
Ultimately, trust and care will mend the rift between agents and clients widened by online listing aggregators. Zillow is an excellent tool, but agents need to educate their clients about its limitations and demonstrate value beyond pricing.
Agents and brokers: how has Big Data changed your relationship with clients? Do you find that online listing aggregators more often inform or mislead? Share your experiences in the comments below!