The internet has upended how real estate is traditionally practiced in several ways, one of which is the rise of online listing aggregators like Zillow, Redfin and Purple Bricks. Since 2006, Zillow has taken real estate from the multiple listing service, or MLS, and brought it directly to the consumer, much to the chagrin of real estate agents and brokers. Zillow considers itself a real estate marketplace that provides information on homes listed for sale to potential home-buyers without having to consult an agent who has access to the MLS. It also houses a database of more than 100 million homes currently not listed for sale, including basic facts on each home and their sales history.
Controversial among real estate agents however is the Zestimate feature which provides home value estimates for consumers. This is based on algorithms which agents criticize as being often less accurate than the data provided by local real estate experts. Inaccurate guesses can cause unrealistic expectations among sellers and buyers alike. One of the main reasons agents and brokers have concerns about sites like Zillow is because they provide direct access to listings which they feel is in direct competition with the services they provide. But since buying and selling is more complicated than just having access to listings, there still is a purpose for the services of agents and brokers and Redfin provides more of a use for them.
Redfin’s business model directly hires brokers and agents who provide personal guidance to their clients after paying a higher agent fee. This was after unsuccessfully attempting a hands-off approach in the past in which the client had to work with the local listings given without much assistance from the agent. The impact sites like Redfin have had on the real estate industry is most evident in how it bypasses the gatekeepers of home listings and doing away with less efficient ways of looking up such information, like the old MLS books that were used before the mid-1990s. This is accomplished by wielding technology and its ever-increasing sophistication as a means of continually streamlining the business model that Redfin and Zillow work with.
Buying homes has been made more convenient, straightforward and less expensive as a result of the processes that have been refined, the wasteful practices that have been done away with and the old technologies that have been rendered obsolete and replaced. Zillow is continuing to change the way real estate is conducted as a matter of fact, by buying and selling homes directly on the market, earning about 40% of its revenue this way according to its recent earnings report. What makes Zillow’s direct buying program different from other companies is that it does not eliminate the need for real estate agents. A local agent would represent Zillow in the purchase and sale of each home, enabling agents to earn commission on a purchase and sale.
Redfin has also gotten involved in direct homebuying through the “Redfin Now” service. According to its SEC filing, “customers who sell through Redfin Now will typically get less money for their home than they would listing their home with a real estate agent, but get that money faster with less risk and fuss.” So while consumers would sacrifice a bit of profit through this service, it appears they would be compensated by greater convenience. They have also launched a mortgage-lending operation into their existing digitally focused real estate brokerage and title businesses called “Redfin Mortgage.” It uses primarily digital channels in order to lower customer acquisition costs and emphasizes the need to keep all aspects of the home-buying operation under one roof in order to streamline the process and make it easier for all parties involved.
A good question to consider is what effect companies like Zillow and Redfin have on the appraisal process, and it seems that the impact is rather minimal overall. Redfin states on its website that its estimating feature is merely a starting point for the home buying process and does not replace the need for an appraisal nor should it be considered a substitute for the expert pricing advice of an experienced real estate agent. Zillow also says on its website that their Zestimates are not appraisals and should only be used as starting points, encouraging buyers, sellers and homeowners to supplement the Zestimate with other forms of research like visiting a home, arranging a professional appraisal or requesting a comparative market analysis (CMA) from a real estate agent.
This goes back to the original critique that real estate agents and brokers have of these online listing aggregators, their estimates of home value are often less accurate than those of professional appraisers and other real estate experts. There will always be a need to have accurate reports and appraisals, so companies like Trimavin can take advantage of this and provide the best service for its clients.