At midnight on Feb. 8, the mysterious new Web site created by the swashbuckling Web entrepreneur Richard Barton was scheduled to go live. If all goes as planned—at press time, it appeared it would—it’s going to be a weird moment.
The story of Zillow.com has been, from start to finish, an anachronism: a stealth start-up formed in a whorl of rumor by an old god of the Internet boom (Mr. Barton founded Expedia.com); funded in a venture-capital frenzy; and launched far ahead of schedule as competitors—many of them old friends and business associates—got wind of the plan and raced him to the market.
The icing on the cake is that, this time, the whole thing is founded on speculation about one of the most hotly contested sectors of the economy: the real-estate market.
“Zillow.com today announced the launch of its beta real estate site, offering free, unbiased valuations on more than 40 million homes across the United States, with data on an additional 20 million homes. This includes most homes in the country, not just those for sale. All consumers need to do is enter an address.”
Creepy! The number it crunches out for the address you type in even has its own name: It’s the property’s “Zestimate.”
It will include historical value changes for each home, charted over one-year, five-year or 10-year terms; it will compare those value changes to value changes in the surrounding ZIP code, city, state or the whole country. It will find data on all comparable home sales in an area. It will offer satellite and aerial views of each home. And it will include individual data on each home, including the number of bedrooms, bathrooms, total square footage and the year built.
It’s free. You don’t have to identify yourself to get the information.
Is this what everyone was so nervous about?
Until the eve of the site’s launch, little more was known than the company’s name, its slogan (“Your Edge in Real Estate”), its $32 million in investment capital and the bona fides of the company’s founder. Now 38 years old, Mr. Barton revolutionized the travel industry with Expedia, and resigned as its chief executive in February 2003 after selling most of the company to media mogul Barry Diller.
He’s a name brand stepping into a burgeoning field of Internet entrepreneurs who want to cash in on America’s housing boom and increasing penchant for the kind of do-it-yourself financial planning that has already made a million millionaires on the Web.
And he’s a big threat to Manhattan’s brokerages, which through a combination of exclusive deals and keeping listing information out of public hands, have always maintained a tight hold on the Manhattan real-estate market.
“Whether it is one of my competitors or not, at the end of the day, there is no reason any of these sites should exist,” said Dottie Herman, chief executive of the New York brokerage Prudential Douglas Elliman. “We should never have had that competition, because we should have had it on our sites. We should have done it a long time ago.”
‘Shaking in their Boots’
But it took the slow siege of Zillow to get New York’s real-estate players grabbing for scraps of the future industry before it’s too late.
Can the brokerages compete with high-profile tycoons like Mr. Barton, who are willing to pour millions into the system to push the industry to be more Internet-based?
“It happened when Barry Diller decided to get into the business,” said Bradley Inman, founder and publisher of Inman News. When heavily financed power players enter the picture, “the traditional industry shakes a little in their boots.”
It all started late last year, when Mr. Barton suddenly became a fixture at local real-estate functions—a conference at the Times Square Marriott, a party in a Chelsea loft—and intensified when he gave an interview to Inman News.
“Hopefully,” Mr. Barton told the reporter, “2006 will be remembered as the year that Zillow.com showed up.”
At a conference he met the chief executive, of PropertyShark.
“Rich Barton said to me that he loves PropertyShark, and that honestly scared me,” said Rich Slack, of PropertyShark.
“It’s really frightening for a little company that we’ve just bootstrapped, to have somebody come along with $32 million and a gold-plated executive team that they have employed,” said PropertyShark founder Matthew Haines. “We’re trying to keep our cool.”
On Feb. 2, the Corcoran Group relaunched its own Web site with a sleek black home page, and added features that are standard in the new breed of real-estate search engines and databases: searches by school district or subway line, for example. (Another feature allows Web crawlers to arrange furniture in the property, using an online layout tool.)
Ms. Herman said her firm is preparing to relaunch their own Web site in a few weeks, and the chief executive claims that “it will have information that nobody else has in the city.”
On Feb. 7, PropertyShark, which assembles a wealth of property data pulled from public records for house-hunters and brokers, stepped up plans to advance its own real-estate Web service in major markets, including New York.
Last week, another Seattle-based startup, Redfin, launched a direct service that could cut into broker commissions. According to a source, Redfin plans to come to New York imminently.
“In the real-estate industry, a lot of the cost is going out of that equation,” said Paul Goodrich, managing director of Madrona Venture Group, which helped fund Redfin, where Mr. Goodrich is also the chairman.
On Jan. 31, Trulia.com launched in New York City, providing its easy-to-use searches through listings from numerous brokerages, while also accessing data compiled by real-estate appraisal firm Miller Samuel and PropertyShark. In addition, the Web site provides what are also referred to as mash-ups—hybrids of two different technology services—where the listings retrieved are then pinpointed on Google Maps.
And then there is Mr. Diller, whose RealEstate.com—which links customers to local brokers, provides search tools, and assists in the mortgage process through his conglomerate’s Lending Tree brand—is preparing to step into the brokerage business in some markets this year. Ironically, it was Mr. Diller who purchased the remaining shares of Expedia, allowing Mr. Barton to pursue his latest project.
Mr. Diller’s RealEstate.com currently brings in revenue by having brokers bid for potential buyers who have signed up with a customer profile. The customer is given a choice of four brokers, and if the individual closes with the broker, they can receive a rebate of $2,000 or more. In addition, consumers are also prequalified through Lending Tree as a way to unify the mortgage and buying process.
Later this year, the company plans to move into the brokerage business in some markets on the West Coast, which could be difficult, considering that the company currently brings in revenue from broker partners.
The Manhattan Project
In most of the country, individual markets rely on what is called a multiple listing service—a database of properties for sale which agents have access to. Manhattan doesn’t have one.
There is a listing service run by the Real Estate Board of New York, but it’s available only to licensed brokers. Approximately 300 member firms are expected to share their listings within 72 hours of receiving an exclusive to sell a property.
“If you are interested in buying an apartment, and you walk into any one of these firms—whether it is a one-person firm or a 2,000-person firm—they’ll have access to what’s available,” said Steven Spinola, the president of REBNY.
“There is a distinction in that we don’t have a database,” continued Mr. Spinola. “We don’t have a public Web site. We set rules for the cooperation of brokers. As a REBNY member, they are not only encouraged, but obligated to co-broke.”
In some precincts of the luxury stratosphere—the gilded corridors of Fifth, Park and Central Park West—the code is unlikely to be cracked by the likes of Zillow. (Observer challenge: Look today for a Zestimate on a Corcoran co-op listing in a Candela building on Fifth or Park Avenue; let’s see how we do!)
But large condominium developments, quickly emerging as a larger and larger part of the super-luxury market, are unlikely to be so immune to Mr. Barton’s surveillance.
If enough properties are gathered on a Web site without needing access to the REBNY database, brokerages like Corcoran and Prudential Douglas Elliman, which have increasingly depended upon expanding their listings down-market to stay competitive, could find themselves losing a lot of business.
For instance, if a buyer is interested in a finding a $1 million to $2 million home in the Upper West Side and checks Corcoran’s Web site, they would retrieve 51 listings. However, with another listings aggregation, PropertyRover, the same search yields 298 listings, from various firms. Then the buyer clicks on the listing they like and is directed to the company Web site that has the lead.
If a buyer uses Redfin to purchase a property—using the on-staff (and salaried) licensed broker, the startup will take 3 percent of the commission in the transaction. But the buyer gets a rebate of 2 percent, with Redfin pocketing the other 1 percent as its share.
The same transaction would otherwise have involved two brokers, with privileged access to the REBNY database—one for the buyer and one for the seller—each extracting a 3 percent commission from his client.
That’s half of the brokerages’ business.
The only way to protect themselves is for the brokerages to consolidate—to further clamp down on the exclusivity of their listings—and to create enough online features to entice home shoppers to begin their search for property on their Web sites.
With more buyers starting their searches online, each firm is vying to be the best place to begin by offering a user-friendly system that is packed with information. The city’s leading brokerages are sparing no expense in redesigning their company Web sites with more features, pushing BlackBerries on brokers.
And making partnerships with the new breed of real-estate firms operating on the Web.
Trulia started its work in California. But before entering the New York market they reached out to Manhattan brokerage firms.
Now venture capitalists are pouring millions of dollars into Trulia, and the company plans to bring in revenue through advertising—not brokerage. Phew!
“We’re going go be friendly with the brokers, to offer them services to compete with Zillow,” said Mr. Haines.
Mr. Haines’ company is partnering with Terra Holdings, which owns Brown Harris Stevens and Halstead Property, in an effort to provide real-estate data to potential Terra Holdings customers.
“I think the nature of real-estate companies has changed over the last few years,” said Jim Cahill, executive vice president at Terra.
Mr. Cahill said he also plans to incorporate subway directions into listings through HopStop, an online company that acts like MapQuest for public transportation.
“The public has more and more access to information than they’ve ever had. I think it is really important to give the consumers what they want, as fast as possible.”
The arrangement appeared to be an effort to combine forces against the increasingly hyped-up storm of Zillow. A press release issued by PropertyShark about its own plans in the coming months read:
“My understanding is that Zillow is out to disintermediate the broker and real estate salesperson …. Unlike Zillow, PropertyShark.com is focused on empowering real estate professionals, not disempowering them. We give professionals, and savvy consumers, the actual raw data, as well as an unprecedented level of depth which captures the unique nature of each piece of real estate and its value.”
“What these engines are doing is putting it together,” said Jonathan Miller, the president of Miller Samuel. Mr. Miller is one of the industry leaders in producing voluminous industry reports. Recently, he’s also been providing data and analysis regularly on both his own blog, Matrix, and the popular real-estate blog Curbed.
“They’re not replacing the brokers,” said Mr. Miller, “but offering a tool to navigate to the listings.”
And a tool for the brokerages to stay relevant.
“Way back in the late 90’s, we invested a small fortune in Corcoran.com,” said Pamela Liebman, chief executive of the Corcoran Group. “It is much easier to have that capable and experienced broker leading the charge for you,” said Ms. Liebman. “I can also probably go on the computer and find out what’s wrong with me when I have a head cold, and order my prescription from Mexico over the Web. I’m not going to do that, I’ll call the doctor.”
Ms. Herman does not think the influx of real estate dot-coms will tap into the traditional brokerage business.
“They’ve been telling me that for 10 years,” said Ms. Herman. “At the end of the day, I don’t really believe that our company even competes with them. It’s apples and oranges.”