How a red-hot housing market made Zillow a media company
A few years before the financial crisis hit, Spencer Rascoff was among the entrepreneurs who started a new website devoted to real estate. They named it Zillow, and it was meant to hold all the data and information consumers needed to buy and sell their homes. Marketplace host Kai Ryssdal talked to Rascoff, who is now CEO, about the years the company’s spent collecting data as home values crashed, recovered and are now skyrocketing. The following is an edited transcript of their conversation.
Kai Ryssdal: You have said in an interview I read before coming in here, you said that this is a “real estate media company.” What does that mean?
Spencer Rascoff: It is. So what it means is that we have all this incredible information, it empowers consumers, and then we make money by selling ads. So we’ll do about a billion and a half of revenue this year and it’s advertising driven. So when you’re looking at a home for sale, you’ll see a couple buyers’ agents next to that listing, and those are agents that are paying us to show up there and try to help you buy that house.
Ryssdal: Here’s the thing though about data and information and buying a home: Sure, yes, you want the data, and you want to know what mortgage rates are, and you want to know how close the schools are, and you want to know what prior sales prices are. But there is an incredibly emotional aspect to buying a house. How do you put that into the algorithm?
Rascoff: Well, we’ve tried to infuse it into the brand. That’s actually what Zillow means. Zillow is “zillions of pillows.” It’s the data, the left-brain aspect of real estate, and pillow is the squishy, emotional, you know, where you rest your head at night side. So it comes through in the brand, and the advertising and the brand positioning. In terms of into the product, you know, the emotional side of home values doesn’t factor into this estimate. I mean, this estimate is very much a mathematical algorithm that tries to figure out whatever house is worth.
Ryssdal: Where do you get that data, by the way, the “zestimate” data? Because I will tell you, on my house, it’s not right. I’m just saying, it’s not right.
Rascoff: Sorry about that.
Ryssdal: It’s too low.
Rascoff: Of course, I never hear that. So the property attributes bed, bath, square footage, taxes, that ultimately comes from county records, which we get directly from counties. Listing information we get from brokerages and multiple listing services, and then we get lots of other data from other sources — county records, crime data, school data, etc. And then the “zestimate” is something that we produce on top of all that.
Ryssdal: I want to talk about the housing market in this country in a second, but first I want to take you back to not long after you guys started. You were two and a half-ish something years old, and then the housing market in this country goes kerflooey. And not only is it bad for the housing market and the economy, it’s bad for you as a company.
Rascoff: It was, yeah, 2008, it was very difficult for us as a company. We had layoffs, went from about 200 employees to about 150. We really had to buckle down and try to make it through, and it wasn’t clear whether we would survive or not as a company.
Ryssdal: Do you, as you look now at housing in this country and the data that you have actually, what do you make of the housing market?
Rascoff: It’s hot. It is red hot. You know, we’re now past peak value in almost every city in the country. So that means we’re above the 2007 peak that everybody talked about as a bubble. Today what’s driven home price appreciation is lack of inventory. Through the recession, 2008 through 2011, there were hundreds of thousands of homes that were not built. Now here we are almost 10 years later, and a couple million homes missing means just too much demand, not enough supply. Home values appreciate really quickly.
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Ryssdal: Do you impute any fragility in the red hotness of the housing market then?
Rascoff: No. I mean, the super high end has slowed down a little bit as there are fewer foreign buyers than there used to be two or three years ago. But the mid-level is still incredibly hot, especially the lower-price tiers are very, very hot because homebuilders have basically given up on building entry-level homes. So the $200,000, $300,000, $400,000 home, new home just really doesn’t exist anymore because labor’s expensive, land’s expensive. So homebuilders, when they build homes, they build more expensive homes. So there’s very limited inventory at the low end.
Ryssdal: And you guys are actually getting into the business of buying and selling yourself.
Rascoff: We are. This is big news. We started buying and selling houses in Phoenix and Las Vegas and later this year and other cities, too.
Ryssdal: How come? It seems a hair off the core competency?
Rascoff: It can seem that way at first. We look at it a little differently. As you point out, we’re a data company, right? So what we have that no one else has is we have information on what houses people want to buy. And so we think that offering this service to the seller will allow us to match supply and demand between seller and buyer. So imagine a seller in this on-demand economy. Think about what you do on your smartphone: You press a button and magic happens. You press a button, the car arrives. You press a button, the food arrives. Press a button, you know, Amazon brings you things. Consumers want that type of convenience and ease. And so for the seller, we’re trying to provide that convenience and ease where they take an all-cash offer without having to ready their home for sale.
Ryssdal: In an economy where consumers are, have a great tendency to do things perhaps without thinking, and I say this without aspersion to American consumers, do we want them doing transactions this size on their phones?
Rascoff: Yes, I think so. I think so.
Ryssdal: Yes, because that’s your business, but come on, man.
Rascoff: Well, there’s still a lot of consideration in the transaction obviously, but for most people, lining up the sale of their home with the purchase of the next home is almost impossible and it’s a requirement for them to buy that next home. So we look at our service as basically providing liquidity to the seller so they can have an all-cash offer and a hand for their existing home and then go buy their next home.
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