Since launching in 2006, Zillow has upended the real estate industry. It has taken real estate from the multiple listing service (MLS) directly to consumers, often to the displeasure of real estate agents and brokers.
Let’s take a closer look at how Zillow has shaped the real estate market over the past decade, and where it’s taking real estate next.
What is Zillow?
Zillow describes itself as a real estate marketplace. It is best known for providing information on homes listed for sale directly to potential homebuyers, largely bypassing the need for an agent’s access to the MLS. Zillow pulls listings from MLS sources nationwide and other syndicated sites. Homeowners can also manually input for sale by owner (FSBO) listings.
Further, it houses a database of more than 100 million U.S. homes not currently listed for sale, including basic facts on each home and their sales history.
Since its launch as a media company reliant on advertising dollars, it has grown into much more. Zillow connects potential homebuyers and sellers with local real estate agents and mortgage providers. It provides educational content focused on consumers, including buyers, renters and sellers. Agents can promote themselves on Zillow, making themselves accessible to thousands of local consumers, through online question-and-answer forums or through straight advertising.
Most contentious for real estate agents, Zillow provides a Zestimate for each home in its database. Agents vocally dislike Zillow’s home value estimates because they are based on algorithms, which can be less accurate than data provided by local real estate experts. An incorrect Zestimate can cause unrealistic expectations for sellers and homebuyers alike.
As Zillow has grown, it has acquired several other real estate aggregators, including:
- StreetEasy; and
Collectively, Zillow and its subsidiaries are known as Zillow Group.
Why do agents dislike Zillow?
Real estate agents and brokers have long had a prickly relationship with Zillow. Before Zillow hit the scene, homebuyers and sellers had very little direct access to listings. Now that listings are so easily available to the public, agents are feeling the pressure of potential irrelevance. But they needn’t be too worried.
That’s because there is so much more to buying and selling than access to listings. Agents know this, and consumers do, too. This is evident by fellow listing aggregator Redfin’s first experiment in real estate brokerage services.
Redfin’s first business model was to provide clients very little guidance. Its brokers and agents helped with documents and gave clients open access to local listings, but not much else. This business model did not gain traction — buyers and sellers wanted more personal guidance from their agents, even if it meant paying a higher agent fee. So Redfin hired more agents in order to provide more personalized service and increased its fee structure. This model where clients receive more attention has been a greater success for Redfin.
The lesson learned? Agents are more than just the listings they provide. Buyers and sellers are completing the biggest financial commitments of their lives — of course they prefer professional guidance. But still, the negative agent perception of Zillow and other listing aggregators persists.
Some of these negative feelings are due to the other reason agents have a problem with Zillow — the infamous Zestimate. Agents struggle to convince buyers and sellers that their personal valuation of property is more accurate than the dollar amount produced by Zillow’s algorithm. Competing with perceptions created by inaccurate Zestimates is a major headache for agents.
Considering all the negativity directed at Zillow from agents, you wouldn’t expect to hear about agents pouring tons of money into the listing aggregator. Right?
Where the money is
In 2017, Zillow’s revenue (minus certain expenses and costs spent on litigation) totaled $1.1 billion, increasing 27% from 2016. This money is fueled by the 151 million unique users who use Zillow’s websites and mobile apps each month. But these users don’t pay to use the site — rather, their presence draws other moneymakers, which produced in 2017:
- $762 million from agents and brokers who paid to be Premier Agents and advertise their brokerage in search results;
- $165 million from payments by other real estate professionals;
- $81 million from their mortgages division; and
- $70 million from display advertising.
Breaking this down, over 90% of Zillow’s revenue comes directly from real estate professionals.
Who are these real estate agents who have bucked their industry’s expectations and put their lot in with Zillow? They are industry professionals who have chosen the carrot over the stick — they’ve found that working with Zillow is more beneficial than fighting it.
The impact is in the numbers
Compare Zillow Group’s roughly 115 million unique users to its competitor, Realtor.com, which receives 37 million unique monthly visitors as of 2016, according to the Mercury News.
Realtor.com is owned by the National Association of Realtors (NAR). When it was first launched a decade prior to Zillow it was only accessible by real estate agents who paid to be members of their local association of realtors (AOR) and used the Realtor® designation. Sort of like a nationwide MLS.
Now, Realtor.com claims to be the “most comprehensive” source of real estate listings available publicly.
However, remember that Zillow pulls its listings from the same MLS and other syndicated sources that Realtor.com does (on top of the FSBO listings only available on Zillow). Granted, listings may be delayed up to 24 hours before appearing on Zillow. But for the millions of homebuyers and sellers choosing to use Zillow over Realtor.com, this brief lag is made up for by Zillow’s format and ease of use.
Still, many agents continue to prefer Realtor.com (sanctioned by NAR) over the outsider, Zillow.
Tomorrow’s successful agents: today’s innovators
Zillow has made more than a dent on the real estate industry — it has moved real estate from an exclusive activity to one that is open and accessible. Buyers and sellers have gotten behind this model. Now real estate professionals are following suit.
Agents who have resisted Zillow in the past because of fears of irrelevance are coming to terms with the company’s oversized presence in the market. Well before clients contact an agent, they look at Zillow. So why shouldn’t a proactive agent advertise themselves on Zillow, too? The answer is clear.
When agents embrace innovation in the housing market, their chances of becoming obsolete decrease. The question for an agent on the fence about Zillow is — will you follow the clients? Or be content with the smaller market presence provided by other methods of reaching clients?
Where Zillow is taking the industry
What’s next for Zillow, and by extension, the real estate profession?
In 2018, Zillow is currently attempting to improve its Zestimate feature. Their Zestimate is currently delivering results within an accuracy range of 4.2%. They want to shrink this range so the Zestimate is more accurate.
Beyond what a home is currently worth, Zillow is searching for a solution to accurately predict a home’s future sale price. If they are able to introduce a successful way to predict future home values, they will become an invaluable resource for homeowners and agents alike. The ability to plan on a future sales price will improve a homeowner’s or investor’s investment outcome.
But in 2018, we are following several years of rising home prices. This begs the question — what happens when Zillow’s price forecasts predict falling home prices (assuming their algorithm allows for a declining market)? Will homeowners rush to list their home, creating excess inventory and making the home price decline sharper than predicted? Is too much knowledge in this case a bad thing?
We’ll have to wait and see. Agents and brokers: do you think Zillow’s Zestimate is a bigger problem or benefit for homebuyers and sellers? Share your thoughts in the comments below!
Editor’s note — This article was written in response to a reader’s request to learn more about Zillow’s impact on the housing industry. Do you have a topic you’d like to see turned into an article? Email your idea or question to firstname.lastname@example.org.