On Friday, September 22, the Norris Group proudly presented its 10th annual award-winning black tie event I Survived Real Estate. An incredible lineup of industry experts will join Bruce Norris to discuss perplexing industry trends, head-scratching legislation, and opportunities emerging for real estate professionals. All proceeds from the event benefit Make a Wish and St. Jude Children’s Research Hospital. This event would not be possible without the generous help of the following platinum partners: HousingWire, Coach Fullerton, Coldwell Banker Town and Country, PropertyRadar, the Apartment Owners Association, the San Diego Creative Real Estate Investors Association, InvestClub, Las Brisas Escrow, MVT Productions, Inland Empire Real Estate Investment Club, Realty411, and White House Catering. Visit www.isurvivedrealestate.com for event information and tickets.
Episode Highlights
- Is the right policy in place right now to encourage homeownership?
- How are Sara Bonert and Sean O’Toole involved in the real estate industry?
- What is Zillow’s main goal when marketing to their customers?
- How do realtors view Zillow’s marketing tools, and how has it changed over the years?
- What is the purpose of PropertyRadar, and how has Sean used it to help buyers compete?
- What is the Zillow Instant Offers, and how does it work?
- Who are Zillow’s and PropertyRadar’s target markets?
Episode Notes
This week is Part 4 of our weekly rebroadcast of I Survived Real Estate 2017. This segment began with David Kittle discussing whether policy is in place to encourage homeownership. Interest rates have been at zero for ten years. Had had talked to a friend who was in the fraud detection business about the whole scenario. We have interest rates at 3-4%, and he is buying a house. He is getting a 3% mortgage, which in 1985 you had to be a billionaire to get this. Homeownership and applications are down. A recent survey from MBA showing existing home prices didn’t really show any positives.
David said when he looks back at Joe Biden saying jobs is what we really had to focus on, fast-forward to today and we are not here yet. The policies are in place to buy a house, and we talk about credit being tough to get. When David looks at it, it’s really not tough to get and is out there. It just has requirements you may not be able to meet, but this is always going to be true. When he looks at his friends in the business and sees the average price it was to originate a loan with his own companies, it is so much more to originate a loan now. With David it was around $5-$600, now it is $8,200. This includes all the compliance issues from the CFPB and the backroom costs. Somebody is paying for that, even at low interest rates. They are at 3%, and we are still worried about if people think about buying a house. It is all about the affordability and being able to have a down payment.
Next up were Sara Bonert and Sean O’Toole. For over ten years, Sara has held various roles in sales, broker, and MLS services at Zillow Group. Today, she manages the operational and data side of industry relations. She also leads Zillow Group’s tech connect programs, which help agents, brokers, and MLS implement listing data feeds and set up traffic and lead APIs.
Sean O’Toole is founder and CEO of PropertyRadar.com. He started his first software company when he was 18 and has been a serial entrepreneur ever since. In 2001, he started buying foreclosures, which sparked an idea that would eventually bring together his newly found interest in real estate and merging it with his passion for technology, finance, and economics. What was born was out of this was ForeclosureRadar, which has gone on to become PropertyRadar.com. Sean’s vision is to have PropertyRadar.com bring greater transparency and stability to the real estate market.
Bruce said when he thought about what he would talk about, he was getting into his car and received an email with an address. He wondered if it would automatically turn into a map when he pushed on it. It actually did, and he was glad he did not have to get out his Thomas Guide book since he did not have it anymore. When he got to the hotel and checked in, he did not have a key. However, he did have a plastic card that he could wave to get into the room. These are both examples of displacement. We like some of it, and some of it we do not like.
Sean started ForeclosureRadar in an industry in which Bruce was connected. If you were in Riverside and going to trustee sales prior to the advent of ForeclosureRadar, there were 6-8 people who were there. After Sean put his brain into it, there were probably 100 or more who showed up. Sean made it possible for small people to compete with big people. At the time there were only big people since they had the money to afford the list and the time to devote to chasing down when the sale was going to change. Sean automated this, and there were suddenly 100s of people who got to do it. When you start thinking about this chain of events, there were more people who made money in that industry than ever before, it was just spread more evenly.
Sean said they were just doing some estimates, and it is a little bit of a “back of the napkin” thing. If they match up who their customers are with the transactions that happen, they had around $8 billion in profit over the last ten years. Instead of being in 20 pockets, it was in 2,000 pockets. People were also forced to pay higher margins. The margins shrunk, so they had to get better at what they did. They had to get better at every piece of the transaction. That’s what happened; you got better at competing.
Sean said if the product is free, you are probably the product. Bruce said when he thinks about Zillow, there is no charge for him to show up there. He asked Sara how many visits to their website Zillow gets, which Sara said they average about 178 million a month. Zillow started in 2006 and has probably exceeded anybody’s wildest expectations. What she has captured is all the eyeballs who want to do what is next, and this is really her business model. She wants whoever is next to pay for accessing that gigantic client base. In general, Zillow looks at themselves as a marketplace. When they built the site, they asked what the consumer wanted. This was a unique way to build a real estate platform. They always thought about what the consumer wanted and thought of them as their North Star. In their purest form, they want to be a marketplace. They bring these eyeballs and try to match them with the best agent. Now, they are trying to build tools to smooth out this transition.
It is still a bumpy transaction, and sometimes people can be in the dark when they are closing and may not even know why something closed. Zillow figured out how they could smooth that out, although not necessarily being the broker. Instead, they could help with technology, tools, and transparency. Bruce asked how the realtor views Zillow and if it has morphed into something that is better than it started. Sara said she has been at Zillow twelve years, and it has definitely gotten better. She said the way the realtor views Zillow depends on how they are using them. Zillow makes money when they make money. If agents aren’t making money, they won’t buy advertising. This is how Zillow makes their money at the core since they are an advertising platform. Zillow wants the realtor and broker to win because they will buy the advertising from them. People who use the platform and get involved in the platform to invest in the process and cultivate leads who come into the platform love them. Therefore, Zillow has a core group of people who are professional, full-time realtors investing in the platform who see high success.
Their target is the agent who will be up to their eyeballs in activity. They are the ones who benefit the most from the site. Zillow bets on the full-time professional realtor and not the casual real estate person who does 1-2 deals a year. These are the majority of realtors. In one sense, you have those not favorable to Zillow who have the volume going somewhere else. Just for fun, Bruce put his home address into Zillow. All of a sudden, he saw pop up 477 people shopping for that price range home in the area. There wan agent who popped up, and Bruce wondered how that agent got the right to pop up on his search. Sara said this was the premier agent platform, so it is market-based pricing. With things like Google AdWords, you pay to show up on Google at the top. It is not as simple as just showing up, but rather it is a full platform where you are not only going to show up, but Zillow will also offer customer relationship management tools. This way when you contact one of them because you are interested in selling, Zillow is confident they are hooking you up with somebody who has some kind of system to follow up with you.
The biggest issue is when Zillow sends all these leads, but the consumer does not get a response. When they first started, over 50% of leads were not getting responses. This is a terrible experience for the home shopper. Zillow had to consider whether they would always send it to the listing agent. However, if the listing agent is not responding, then you have to ask yourself who is being served by that. The answer is nobody. Zillow saw that the person had a system in place and was using their tools, and they could see they were responding to leads because they saw they were open. They work the system, and ultimately the house gets sold. This makes the listing agent happy, and hopefully the person had a good buy side agent.
Bruce next discussed with Sean about ForeclosureRadar becoming PropertyRadar, and one of the things he said was the purpose of the company was to allow the small investor to compete with the big companies that are emerging. Bruce asked Sean how he was doing this. He said he really saw the power of public records. Zillow only exists because they took public records data and developed the Zestimate. This became interesting to people and drew a lot of eyeballs to their site. They leveraged the power of public records to really create a large company. Sean said when they looked at this in a larger scale, whether with the trustee sales or general marketing, there is a ton of data out there about you. This is not just in public records, but also other repositories. Sean had the vision for a long time to take that data and make it more accessible. This is important for small businesses to stay relevant.
One of the things that is starting to occur is you have alerts that are new. Sean said there were a couple things he thought were really important besides gathering the data and making it easy to search, find, and view. One thing was when you are talking about millions of events a day and tens of thousands of users with search criteria, people may ask why one site is not faster than another. The reason is one may have a handful of fields and a completely different technology, so it is much easier to make it fast. When you have 200 different criteria, it becomes much more difficult and something known as an end-by-end program. Their event engine takes the millions of events and matches them up to the hundreds of criteria in real time for tens of thousands of users. PropertyRadar is the only one who really has anything like this.
Bruce gave a practical application of a hard money lender wanting to know today that somebody closed the sale on a flip. They can get an alert and find out that this person successfully sold a home, and you can then look at his record and know to contact him. Sean added that you can see what he paid for it as well as for what he sold it. Imagine how many daily alerts you can get that are direct hits on something in which you are interested. Bruce wondered how long this has been in effect, which Sean said they launched the original version a long time ago. However, it has only recently gotten more powerful. The big thing they did recently was added a lot of new data.
Bruce next asked Sara about the new Instant Offer, which is a competitor to many of the people in the audience. Sara said it is not really anything new since people have been working with it for years. Technology has really moved things along, and a number of well-funded start-ups came into the space and moved it even further and faster When an open door calls you and tells you they will give you a certain amount for your home, Zillow said this was really a one-to-one and they only had one chance for an offer. You don’t really know what the marketplace is and don’t really have anything to benchmark that against. They invented Zillow Instant Offers so the homeowner can go on and electronically say they are interested in potentially selling your house. Zillow partnered with a pool of investors and other larger companies as well as smaller investors. The person going online would have two days to respond to this and present an offer back. The important number that the consumer cares about is the net proceeds.
The way Zillow differentiates is it is a marketplace where they are presenting a number of offers to the consumer and offering an agent to participate in it. You can say what an investor will offer you and the net proceeds. If you want to go through the traditional real estate process, Sara said more than likely she can get you more for your house. However, they would have to put it on the market and it may be a longer close. The consumer has an opportunity to say what they can get with an investor, and if they want to go through the traditional process they can make more. It is more transparent for the homeowner, and they are more aware of going with the traditional real estate. Zillow feels they are the only people in the iBuyer space giving the professional real estate agent a seat at the table and opportunity to get that business.
They are in three test markets right now. They are in Orlando, Phoenix, and Las Vegas. However, they do not have solid results; however, it has been double-digit converging. This is the highest conversion they have ever seen in online real estate. People are coming with the high intent to sell, and when they can see what they get then they lean towards the more traditional real estate process. When they came out with the program, the reaction from the broker world was that they were converting to the very thing they feared. They thought the intent was for the broker in transaction, and that is not true since Zillow is not involved in the transaction.
Sean said the people flipping houses are bringing a ton of technology to this, so they go in and make offers to homeowners. Then, they buy the houses and bring a lot of innovation along the way. This includes access to much cheaper capital than most would have access. They are doing things like open houses where the buyer can walk up with their phone and unlock the door to look at the property. This is a huge potentially disruptive threat, not only to realtors but also to Zillow and all investors. Sean said the next step should be for them to not only let these large institutional buyers compete for that, but let everybody in the room compete for the deals. Sara said is definitely on the table, and Bruce said this was exactly what he was going to ask. He gets the sense that Zillow is trying to do a good service, and that would be a good service to give more competition and local people the chance. It opens the marketplace up, which is ultimately good for the seller. Since the seller is their North Star, Zillow’s priority is to do exactly what the seller wants.
Tune in next week as we hear from the entire panel of experts. The Norris Group would like to thank its gold sponsors for supporting I Survived Real Estate: First Lending Solutions, Guaranteed Rate and Nathan Chabolla, In A Day Development, Inland Valley Association of Realtors, Jennifer Buys Houses, Keller Williams Corona, Keystone CPA, LA South REIA, Michael Ryan, New Western, North San Diego Real Estate Investors, Northern California Real Estate Investors Association, Orange County Investment Club, Pacific Premiere Bank, Pasadena FIBI, Pilot Limousine, RealWealth Network, Rick and LeeAnne Rossiter, the San Jose Real Estate Investors Association, San Francisco Bay Real Estate Networking Summit, Sonoca Properties, South Orange County Real Estate Club, Spinnaker Loans, Think Realty, uDirect IRA Services, Westin South Coast Plaza, Wilson Investment Properties, Inc. See www.isurvivedrealestate.com for event information.
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