Will Zillow Cause a Real Estate Market Crash?
The timing couldn’t be better - or worse - depending on if you’re a buyer or seller.
For those who aren’t familiar with Zillow, it’s a relatively new site, created by the founders of expedia.com, that provides analytics and data for the real estate market. It is designed for public consumption, and even though its estimates are often admittedly way off, it might not matter.
Zillow is a nightmare for real estate agents and sellers because not only does it provide a (usually lower) estimate for a property than the asking price, in many cases it lists the complete sale history on a house. So, if I, as a buyer in Southern California that someone is trying to sell a property for $650,000 that they bought for $185,000 in 2000, I’m in a much better position to negotiate. The real estate agents to whom I’ve mentioned Zillow are not happy about it. They usually mumble something about comps and local market values, but the reality is that 1) today is a far different market than it was even two years ago, 2) interest rates may have stopped going up too late and there is no guarantee they won’t again, and 3) even if Zillow is wrong, it may be creating a new “right” through the spread of its data.
Zillow takes away the primary advantage of real estate agents - privileged information. Buyer’s agents don’t work in their client’s best interests by negotiating the lowest possible deal they can. This sort of tool could be the first step in exposing the fallacy of this arrangement.
One can imagine more buyer-to-seller direct communication, online discount escrow corporations, data-driven inspection reports, and one day, a much greater elimination of the various middlemen in real estate. That will solve one problem that creates the bubbles. The other problem is already being solved by the further democratization of information. Sellers who may be stuck on the tail end of a bull market may feel some pain in the short term. But in the long run, this development is a good thing for the entire market. It will balance out demand and supply because pricing information is more readily available. Bidding wars will cease, and young families can go from having to look at every shack as an “investment” and find a comfortable place to call home.
August 18th, 2006 at 8:19 am
Well written Ray. Zillow, in my opinion and experience, is an excellent tool for consumers–it has a few issues similar to the way that—once people start using WebMD they become doctors–people shouldn’t try to be experts (although I confess that there is no comparison between the expertise of a reator and the expertise of a doctor). All of this said—IPAYONE and HELP U SELL are becoming the way to go, and certainly Zillow will become an ample weopen for consumers. I really like it. Does it really UNDERestimate? Plus–I like the maps. I can see my house!
Bear