Zillow.com launches

As a part-time real estate investor, determining accurate home valuations are a critical function during the search for an investment property. Today I use a professional AVM (automated valuation model) tool to determine a property's fair market value, but soon I expect I'll be using a Zestimate as soon as good data is available for metro Atlanta. Congratulations to the team at Zillow.com who just launched their beta site today.

According to Rich Barton, Zillow's CEO, "Zillow began a little over a year ago with a few people in an office, dreaming about how the web might be used to empower everyday people to take more control of the scary, frustrating, and exciting process of buying and selling a home." Barton further goes on to say that "Zillow.com will make revenues from advertisements on the site."

Barton founded Expedia within Microsoft back in 1994, so he has a good understanding of disintermediation. I can then only hope that his comments earlier this month at the Inman Conference where he said that Zillow isn't going to be like Expedia only means he recognizes real estate agents provide some value in the home sales process (specifically to buyers) vs. travel agents who Expedia and other online travel sites made obsolete (with the exception of those agents addressing niche markets). So while real estate agents provide some value to buyers, the only real value a real estate agent brings to a seller is in getting their home listed in the MLS.

Some real estate agents may argue that they add value by helping a seller establish a fair sales price for their home and assisting in marketing and showing the property, though that's very debatable. I've sold several homes through real estate agents, and in every case I established a sales price higher than the agent's recommendation. Each home subsequently sold at a sales price higher than the agent's recommendation. The standard commission for a listing agent is 3%, and listing agents aren't incented to maximize a home's selling price--they're incented to price a home to sell quickly. They'd rather sell your home tomorrow for $225k ($6,750 commission) rather than having it sell 2 months later for $250k ($7,500 commission). While the difference to the seller is significant--$25,000, the $750 difference in agent commission is not.

The other value-adds a real estate agent may offer such as assisting in marketing and showing a property are questionable. The #1 way to market a home is to get its information and photos into the MLS. And usually a listing agent isn't present at a home showing unless it's during an open house. Most often it's the buyer's agent who shows a property.

I'd like to see Zillow or some forward-thinking company take up where Homebytes.com left off which would truly shake up the industry. I lived in Orlando for a while, and when I sold my home there and moved back to Atlanta, I used Homebytes.com services which for $499 provided MLS listing with photos, listing on realtor.com + photos, yard sign, a handful of directional & open house signs, listing on Homebytes.com, and a lockbox. On top of the $499 listing fee, I also agreed to pay 3% to the buyer's agent unless the buyers weren't represented in which case no commission was paid.

Sadly, Homebytes.com closed up shop on May 1, 2001, and my house hadn't sold... that story is for another time. The company was awesome to work with and had a terrific model... but like many startups they were underfunded. After Homebytes closed up shop, one of the co-founders, Lawrence Bunnell, started RealtyThrift to effectively do the same thing as Homebytes but on a smaller scale. At the same time, several other Homebytes employees started Insight Realty to do the same thing. These two companies merged in 2003, and now they operate as InSight Realty. Had Homebytes not been around at the time, I would have used another flat-fee MLS service like YourIgloo.com, but I'll never use a 3% commission listing agent.