Zillow is by far the #1 website and app for all real estate matters. And that is no mistake. When the company started, it desired to be the WebMD of real estate. There continues to be a ton of real estate related content posted on the site, besides just houses that are listed. For that reason, I would argue they have succeeded in being like WebMD for everyday people to learn about a topic they may not know about already.
Zillow receives their live listings information from Realtors. As Realtors, we pay and subscribe to an MLS (multiple listing service). The MLS is designed to talk amongst local MLS feeds and provide real estate agents with all active property for sale in the local area. Locally, even though they are not the same MLS, a realtor in Detroit is able to get housing info on houses in Ann Arbor and vice versa. Over time, Zillow also purchased one of the top e-signature document management companies for real estate agents - Dotloop. Between the MLS, Dotloop and other data sources, Zillow compiles data and uses algorithms to feed content and housing data to consumers. Zillow also allows homeowners to enter information and list their own homes for sale as For Sale By Owner (FSBO).
One of their biggest faults in their calculations is the ever famous Zestimate. When they have traditionally calculated their value on your home, they use active and pending sales in the equation. Unfortunately, when a lender orders an appraisal, the appraiser does not use the same information. Therefore, Zestimates have been known to be almost perfect to as far as off by 40%. Most famously, their CEO's Zestimate was grossly over calculated.
Zillow's business has grown exponentially. They have done so by understanding what the consumer is looking for and charging realtors and mortgage brokers to build it. Their business model is based around charging realtors and mortgage brokers a fee to advertise in specific zip codes. Because they were very successful early, they received tons of inquiries. Zillow did not turn business down. Instead, they split zip codes more and more and more. A zip code such as Plymouth's 48170 may have as many as 10+ realtors paying for a share of the leads. Those leads are of course YOU! When you see a house and click on the "tell me more" button, your info is sent to the realtor. In general this is a good thing, because you're going to be put in touch with somebody that can get more info and/or show you this home. The downside is that you are not choosing the agent that Zillow connects to your inquiry.
So what's so nasty? Let's start with you, the consumer, that Zillow claims they are providing information. Zillow has created an entire area for you to sell your own home. One major problem for you is that since you're not a paying advertiser, Zillow places you at the bottom of their paying realtors as contacts for Zillow. While cost is the number one reason people opt to do FSBO, sometimes it's also to avoid real estate agents all together. Zillow defeats this purpose by placing your info in an almost impossible area to find you and is insisting you pay a buyer's agent since that is most likely going to be your #1 source of inquiries.
Next, Zillow created Instant Offers. Again, their entire sales pitch here is that they will provide you an instant offer, quick close, and you don't need a real estate agent. Ironically, through their iBuyer program (iBuyer is the investor that is purchasing your home on the Instant Offer), your home will be purchased below market value along with charging you 5% commission. You still have tax, title and transfer fees in any transaction, regardless of who/how you sell your home. For that purpose, I'm going to exclude those costs from the totals. But let's say you bought a home for $400,000 3 months ago and are now forced to move due to job change. You need to sell quick and since you just bought the home, you feel you can't use a realtor who may charge 6% of the sales price as commission. Instead, you accept an Instant Offer. Best case scenario, they'll offer around $380,000 so they can re-sell it for profit. After all, that's the only way an investor is going to purchase a home is if they can make money, not you! So you've already lost $20,000. Additionally, they charge 5% of the sales price. So now you're losing an additional $19,000. In an effort to save money and time, you have lost $39,000. Had you listed with a strong realtor that could market and sell your home and charged 6% to do so, you would have lost $24,000. This is the reason 9 out of 10 Instant Offers are rejected. Because it is NOT good for the consumer.
Additionally, because Zillow does not compile data the way an agent, appraiser or any other professional gathers information, they often over estimate the value of your home. As agents, we joke, when was the last time Zillow was in your home? If you bought your home and then remodeled the kitchen and finished the basement, odds are Zillow's Zestimate is going to be too low. Because Zillow uses list price, not sold price for their Zestimate, you're more than likely going to be given a number higher than what your home is truly worth.
Now let's move on to the business side of Zillow. As a realtor, the only way I can be shown as the actual listing agent of my own listing is to pay Zillow for that privilege. I have no issues or concerns with you reaching out to a buyer's agent to show the home. In fact, if you search buyer's agency in my blog, you'll see that I actually encourage you to work with a buyer's agent when buying a home. But why should your agent be the one who pays the most to Zillow. And back to my point, why should I have to pay Zillow to advertise my listing when the only reason Zillow can show this property is because my MLS provides the data?
Secondly, one thing we have learned since internet leads really became a thing around 2010-2012, is that many people looking on Zillow are really not all that interested in working with an agent right away. This is a two way street. You, the end user, are not looking for agents to start calling, texting and emailing multiple times a day asking you to work with them and possibly signing an exclusive agency agreement until you're more ready. We as realtors are happy to provide info and content at all times, but also are paying a "lead generation" company for active buyers/sellers. This creates more hostility between prospect and agent than it does provide help to both parties.
Next, Zillow claims they don't want to be a real estate broker. They claim they want to be the Uber of real estate. The interesting part of that claim is that they have obtained a broker's license in Arizona. The bought a mortgage company out of Kansas and are processing 300,000 loans a month. They bought an e-signature document management company and have access to other broker's data that nobody else has access to. They became an investor in Las Vegas and soon Atlanta to buy properties below market value and have them back on market within 90 days to sell for profit. And they're not offering that program to all current realtors paying for leads in Zillow. They're hand selecting the agents they wish to work with... kind of like how a broker has specific agents working for them. Hmmm.
Zillow has a new problem on their hands. Investors were against the iBuyer program. Investors were against the way they're interacting with consumers. Interest rates are rising and in many markets, sales are slowing down. Their stock has dropped significantly over the last 6 months. The CEO of Zillow has previously owned companies that were smaller and able to be bought by bigger companies when needed. Zillow is the big company here. It will be interesting to see what happens to the company over the next year or longer. The Las Vegas MLS has removed their feed from Zillow. Canada is still contemplating allowing a feed to Zillow. There are talks of other MLS's removing their feed. And I'm meeting more realtors that are leaving rather than joining. Without the MLS, it'll be hard to pull listings for clients to see. Without our money, their only other option is to have traditional ads like other sites. It's hard to know and it will be important for stock holders, realtors & mortgage lenders and consumers to pay close attention in the months and years to come.