Every seminar, sales training, friendly chat, networking event, or brand new client coffee meeting has given me the same exact insight:
“90% of all potential buyers and sellers begin gathering information online”
This phrase haunts my individual real estate goals, and shatters the mold of what real estate agents/brokers are used for in the new millenium. In my own business, 100% of my clients visited an internet source prior to having a face-to-face conversation with me. It’s as easy as typing in your criteria on a website, looking at the map-view in your desired neighborhood, and poking around on a filtered page to pull up exactly what you’re looking for. This revelation is exactly where the paradigm shifted for the real estate industry. In 2006, Zillow.com changed everything.
IN THE OLD DAYS
In order to illustrate what the paradigm shift was, let’s go back 137 years to 1880 when the American real estate market was just beginning to develop.
Back in those days listing agents (who have properties to sell) needed a way to organize and advertise their properties. They would hold real estate exchange meetings, which resulted in the forming of weekly groups and coined the phrase “real estate exchanges” around the country. The real estate agents of this time would attend meetings and come prepared to buy houses at auction that very day. Once more and more of these groups came into existence, the term changed to “multiple listing exchange” and further into “multiple listing service” as we know it today (or simply by the computer acronym: “MLS”).
From about 1907 until 2006, the real estate industry stayed much the same. With the invention of the printing press, it become easier and easier to organize listings across the country. In 1907, listings were held as proprietary knowledge to the specific multiple listing exchange they belonged to. If you wanted to see these listings, you had to become a member of that exchange. You could join multiple exchanges, but it was highly costly, so the need for more listings and knowledge gave rise to companies that would put together ALL the available listings in a certain area of town (or multiple towns) into a binder that could be disseminated to all real estate agents for one simple fee.
These binders took over as the “information” that buyers and sellers would seek out a real estate agent for. Real estate agents held tightly to these books of data to attract customers. As a seller you would ask, “how much is my home worth?” and the agent would comb through the binder for the most recent 6 months of sales data to give you a decent answer. As a buyer you would ask, “what is available in my price point?” and once again the agent would comb through the data, give you a few choices that fit your criteria, and you’d go see a home/plot of land for purchase.
Real estate agents were essentially information hoarders and keyholders. We opened the door, made the offers, and sold the house. This worked well until someone finally started compiling all these binders and the vast wealth of information/data/knowledge that real estate agents held so dear and started putting them online in the digital age.
THE ZILLOW.COM BOMBSHELL
Here is verbatim what Zillow.com is all about as of 2017:
“Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help.
Zillow serves the full lifecycle of owning and living in a home: buying, selling, renting, financing, remodeling and more….”
So from a consumer standpoint, Zillow.com is the greatest gift to the potential buyer/seller/renter the world would ever know, right? Vast quantities of information crunched before your very eyes in seconds, Zestimates of what you should be paying for rent or for your new house or for selling your home, connections to real estate agents on the right side of every individual listing page, and even help with identifying local lenders to help you get your finances in order to make the big purchase!
Well — take everything with a grain of salt. Zillow.com has made some interesting changes in 2017 which give them a lot more credibility, but prior iterations of the website made my job a living hell once my clients had formed an opinion based of the information they were seeing online.
Their Zestimate process and the lack of updated listings can be blamed for a lot of the reason agents and clients disagree.
ZESTIMATES AND OLD INFORMATION: THE CRUX OF MISINFORMATION
Another verbatim quote from Zillow.com’s page on how the Zestimate (full definition is HERE for reference) is calculated:
***I inserted some emphasis by BOLDING AND CAPITALIZING certain text
“The Zestimate® home valuation is Zillow’s ESTIMATED market value, computed using a proprietary formula. It is not an appraisal. It is a STARTING POINT in determining a home’s value. The Zestimate is calculated from public and USER-SUBMITTED data, taking into account special features, location, and market conditions. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:
Getting a comparative market analysis (CMA) from a REAL ESTATE AGENTGetting an appraisal from a professional appraiserVisiting the house (whenever possible)
Zillow also produces a Zestimate forecast, which is ZILLOW’S PREDICTION of a home’s Zestimate one year from now, based on current home and market information. Learn more about the Zestimate forecast.
Zillow also provides a Rent Zestimate estimated monthly rental price. Learn more about the Rent Zestimate.”
The Zestimate forecast is another misnomer that can cause general confusion to the everyday consumer. Since Zillow.com is simply a website displaying opinion and not an actual real estate agent specializing in your local market, the fact that Zillow offers this advice is purely speculation.
Many factors go into determining price:
Supply (inventory of homes) & Demand (amount of Buyers searching for homes)Seasonalityneighborhood economicsbuilding regulations and zoningsoil physics/structural concernsfinishings (counters, appliances, moldings, landscaping, etc.)recent sale activityperceived safety and other various stigmatizing factors by buyers (haunted house, murder in house, high-crime neighborhood)much more… community-type, gated community, condo, HOA fees, etc.
Zillow simply cannot analyze all these qualitative factors to generate an exact price. Although, I will say they are fairly consistent at getting within 6% to 10% of actual purchase price, whether higher or lower. When talking about a $300,000 house, that’s $20,000 – $30,000 off in either direction: over-pricing or under-pricing a property’svalue.
This created a rift between real estate agents and their clients that has become a controversial topic when first meeting:
“Zillow says my house is worth $500,000.”
—says the prospective Seller.
“That would be true if we were to sell it in July when the market is hottest. Also, there hasn’t been a single sale in this neighborhood since it was found out that there are large amounts of PCB in the soils. Zillow is behind on it’s calculations, as well, because they have no other sales in 6 months to base their Zestimate on.”
—says the real estate agent.
You can imagine the rest: the Seller has been researching for months and months and comes up with THEIR price based on inaccurate figures. They have become ingrained in their perspective and won’t settle for less than that list price. So what happens in this scenario? An ethical real estate agent will NOT take the listing without an arrangement which states if the Seller’s listing price fails to make a sale within a certain time frame, the price will be reduced to the agent’s listing price. An unethical real estate agent will take the listing at that price and promise the world (rarely delivering), but the house doesn’t end up selling and the Seller becomes angry and even MORE ingrained in their original price and waits another 6 months to put the house back on the market at that price again during the summer selling craze, potentially never selling it because it is still over-priced.
All in all, Zillow creates turmoil and misunderstanding. Real estate agents then need to re-educate clients and waste a lot of time doing it. In this example, the Seller has the potential to lose 8 – 16 months because they are not priced correctly for the market. This also happens on the buy-side, where buyers believe they should pay $25,000 under the asking price because Zillow says it’s not worth the price. That strategy may lead to 5 months of searching before finding a home that both Zillow’s opinion of price and the real estate agent’s value sync up and finally lead to procuring a home for the buyer.
All in all, re-education can take up to 2 months until the seller/buyer experiences the damage of misinformation for themselves. This is 95% of what happens in cases with my own clients that firmly hold to Zillow.com information.
WHAT EXACTLY IS A REAL ESTATE AGENT’S WORTH TODAY?
While some of my colleagues would argue differently, real estate agents are a means of INTERPRETING the vast quantities of information available in today’s technology-based society, offer BETTER research and more up-to-date information, and ANALYZE all the information to help our clients ultimately reach their real estate goals with as much understanding as possible.
Some agents may think differently. For example, some agents may think, “If you have a buyer, get them the best house for the lowest price. If you have a seller, sell their house for the highest price possible with the fewest amount of monetary concessions.”
Neither answer is necessarily right or wrong, but there are many factors that go into a home purchase. Each client is different and has different goals. One client may need a house within 45 days and doesn’t care what they pay. Another may want an amazingly cheap deal and not care about timing. Even further, another client may need to sell their home as fast as possible because they’re moving out of state.
So what is a real estate agent today? In my opinion, a real estate agent is a person that makes sense of all the available information to their clients online (or through word-of-mouth from friends), can explain the rights and wrongs of the information, take their client’s wants and needs ahead of their own, and ultimately follows through on all promises to deliver a great overall experience while satisfying all of their client’s real estate related desires.
I LIKE ZILLOW, ACTUALLY…
Zillow is not by any means a bad company. They are a means of communicating generalities to the masses, and do have an enormous amount of data to provide general statistics that can be used as jumping-off points for the public to gain understanding of real estate activity in their neighborhood. Zillow is a forum for independent Sellers and Landlords to post their properties for sale WITHOUT the help of a real estate agent to save some money. It has become a universal advertising Mecca for real estate agents that are looking to grab some of those clients that start their search online. It allows you to view and review those agents to make sure future clients are informed on how their agent performed. It’s a HUGE credibility source for agents since most people start their search online and view Zillow or Yelp for ironing out the right fit for them.
… BUT WHAT I HATE ABOUT ZILLOW IS
The general acceptance the masses have for the platform’s information. Agents go through lots of trainings and have to go through even more schooling to get their license. We are professionals. While each of us may have varying methods of determining price and researching historical sales, we have all been fully licensed by our state’s regulatory board. We are experts in our field to be relied on, but when a client chooses to believe their own research over the expert’s, that is when an agent’s credibility can be hurt for no reason other than a misinformed client sticking to their opinions.
THE TRUTH ABOUT BUYING & SELLING A HOME (AGENT OR NO AGENT):
YOU CAN BUY OR SELL A HOME WITHOUT A REAL ESTATE AGENT.
It’s not a great idea on the buy-side, as in many cases the agent is paid by the SELLING party on the other side of the transaction and a buyer never has to pay a penny for their servies. On the selling side it is a bit easier, but then you are responsible for determining price, marketing, and writing all contracts by yourself.
You can do it all without a real estate agent, but considering we are the experts, an agent will help you achieve top dollar (depending on their abilities of course, every agent promises that). A truly exceptional real estate agent can get you above your listing price with the right strategies, will help you reach your goals faster, and are a resource you can rely on during the entire process from purchase agreement to closing table.
TO SUM UP,
Unless you are a professionally licensed real estate appraiser or agent, please take the information on Zillow.com with a grain of salt. Remember that the Zestimate is consistently 6% – 10% higher or lower than actual value (and is within $1,000 of actual value on maybe 1 out of every 20 listings). Rely on your real estate agent to accomplish your goals and keep your needs ahead of their own (choosing the right real estate agent is a different conversation, however). And most importantly, keep an open mind when you do finally decide to buy or sell your first home!
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