Zillow: Much ado about nothing

Zillow… Zillow… everyone is talking about Zillow recently. Give their marketing department raises and some time off!! It reminds me so much of the deafening buzz that surrounded original dotcommers like Pets.com and Boo.com, though…and I think Zillow is headed for the same fate. Here’s why.

For all the hype and glory, Zillow is basically a close cousin of HouseValues.com. Both companies have built their business model on the consumer wanting to know how much their house is worth. HouseValues.com makes money by selling the requests to real estate agents as leads on a subscription basis. It looks as if Zillow will monetize the same consumer through ads.

Will either site be successful? Probably, to some degree. Will either change the real estate landscape, though (as many are saying Zillow will do)? Not with this model, because their business model is inherently flawed.

The one thing no one is talking about is what motivates a consumer to want to know how much their house is worth? Both companies make the erroneous assumption that these consumers are the same consumers that will want to sell their house soon, and thus are good leads for real estate agents. Since the average time a house turns over is seven years, I guess they will both be right at some point.

That being said, lets examine a few reasons why consumers really want to know the value of their house.

Refinancing
In the past few years, most consumers wanted to know the value of their home for refinancing purposes. With interest rates at historical lows, Americans have been using their homes as virtual ATMs. According to Freddie Mac, 71% of all refinancing that took place in 2005 resulted in a higher loan amount–i.e. cash-out refinances.

Nosy Neighbor
Ask any real estate professional what happens to all of the flyers put into the information box the first few days of a listing. It’s the houses neighbors who want to know how much a home is selling for. These same people are now moving online to do the same thing.

Estate Planning
Often, a person’s home is their greatest asset. Thus, at estate planning time, they need to know just how much that asset is worth. They’re not looking to sell right away.

Preparing to Sell
Yes, some percentage of the homeowners wanting to know the value of their home are doing so in preparation for selling. It’s not a majority, though, and may not even be more than 20%.

Prediction

Zillow, and close cousins like HouseValues, will probably do well. They’re not going to revolutionize the industry, though. For all their buzz, they’re largely just the same old models transferred to the Internet. The revolutionaries will be those who really understand the consumer and turn the real estate industry upside down to better serve them.