My hunch is Zillow’s next move is to figure out how to weave real estate agents into the Neighborhood Advice process — likely by giving Premiere Agents branding inside that Facebook Connect experience and encouraging buyers to contact the agents in addition to their friends who live there.

Sound cool? You can try it here.

This is a brilliant strategic product decision by Zillow in my book.

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Wow, the Zillow acquisition of Diverse Solutions for $7.8 million in cash and stock is big big news for this industry. I’ve got a unique perspective on this announcement for a few reasons:

1. At Virtual Results, we work extremely closely with Diverse Solutions. Their dsIDXpress comes standard with every Predesigned Website that Works (dsSearchAgent is optional), and on most of our customs.
2. I worked for Zillow for almost 5 years & worked with Diverse Solutions as an API partner starting back in 2007 (& 2008).
3. I happen to be close friends with a few people at Diverse Solutions

It goes without saying that I want to congratulate all those involved. I have many friends at both organizations, so I’m obviously happy to see them join forces. But, what does it mean for everyone involved you are likely wondering?

Zillow

First, this gives Zillow relationships with the roughly 200 MLS’ that Diverse Solutions currently works with. It’s a much easier process to work with one data provider like Diverse Solutions than working with 200 different MLS’ individually. We all know listings quality continues to be a pain in the rear for all real estate portals — one interesting product that will certainly come as a result of this acquisition is a seamless listing syndication program for all Diverse Solutions clients that’s hooked straight to MLS data.

Second, there is certainly revenue growth here for Zillow — the deal gives Zillow the ability to sell Diverse Solutions products to their sizable advertiser base, as both a package deal with Zillow Premiere Agent subscriptions as well as a standalone IDX product.

Third, Zillow gets one step closer to being able to offer agents and brokers everything they need to power their respective online marketing efforts.

Diverse Solutions

There is certainly no question this is a massive win for the team at Diverse Solutions. Being backed by the largest real estate site on the web gives them increased engineering resources, sales and marketing, and just general long term strategic security that they didn’t have before.

Diverse Solutions Clients

I expect Diverse Solutions to get a significant bump in terms of development resources, which should mean better products for clients of Diverse. The holy grail of listing management is for an agent/broker to maintain their listings in one place, and have that seamlessly feed into their entire online marketing; this takes Diverse Solutions clients’ one step closer to that (once a seamless syndication product is integrated).

MLS

The MLS data agreements that Diverse currently has in place will all be honored, so I really don’t think this should be much of an issue for MLS’.

Rob picked up on the hostile interpretation of the acquisition – which is the possibility of a “ZDX” that COULD come at some point down the line. “ZDX” (or whatever you want to call it) would be an IDX experience for agent and broker websites powered by Zillow listings rather than IDX data. So, I guess MLS’ might have something to worry about after all. But, this certainly won’t happen for awhile — if at all.

Now, Zillow just needs an integrated website product and a CRM to be able to give agents and brokers a one stop shop of products to power their entire internet marketing efforts

What do you think of this acquisition?

The vast majority of real estate professionals I encounter dismiss the value of these models, sometimes for very good reasons which I’ll discuss later.  Technology enthusiasts like myself, however, find the same fascination with these valuations as the average consumer.  It’s a brave new world in the real estate industry, and the amount of intellectual and financial horsepower being driven toward these online outlets of real estate data seems almost unlimited.  In the end, though, my concern is with who really benefits from online automated real estate valuations?

Clear Benefit:  Real Estate Consumer Websites

Zillow, Trulia, and their cohorts are in the business of differentiation.  There are already tens-of-thousands of agent-based local websites delivering accurate, timely listing data for consumers.  Recreating this same database on a national scale doesn’t add value for a local home buyer.  To pull a consumer away from their comfortable neighborhood home, something shiny and new is required.

The national real estate websites are leveraging their superior finances and workforces to create tools that an average agent cannot.  Automated valuations create a unique, interesting, and (potentially) financially valuable tool for consumers.  When a home buyer begins using one real estate site to compare home values vs. home prices, he or she is likely to continue using that same site for a long period of time, to guarantee the consistency of the metric being used in the search.  This creates a consumer who not only views a large number of pages within a site for comparison purposes, but does so repeatedly, day-after-day.  Consumers will many times become quite loyal to the site, out of appreciation for its unique value, or even out of fear of making a mistake by not coming back and consulting this source of information.

This loyalty and traffic, generated by the unique content, creates a great amount of SEO and financial value through advertising.  For a real estate portal with no associated brokerage actually selling homes, this is the number one goal.  Profits come from advertising, and advertisers buy traffic visibility.  Make no mistake, Zillow didn’t become one of the world’s most popular real estate sites because the forums had nice discussions.  Zestimates were the sparkling new bauble leading the news media and the public through the door and allowing the company’s introduction to a massive audience.

Unintended Benefit:  Real Estate Macro Market Statistics

Although I can’t guarantee this, after watching a company like Zillow for years, I don’t imagine that the founders ever thought that their market data would be used in the way it is today.  The tools, in the beginning, were designed to compile large amounts of data and apply it to one home, creating one estimate of value at a time.  The massive undertaking and collection of data sources, in the end, created an unexpectedly-accurate database for national real estate forecasting that is nearly unmatched in size.

Stan Humphries, Zillow’s chief economist, has been making a name for himself by beating Case-Shiller to the punch on housing statistics of late.  The statistics are actually a very good thing for the overall real estate market, as they add another voice with a large body of credible data to back it up.  The extra publicity doesn’t particularly hurt the company either, as Humphries and CEO Spencer Rascoff are regularly featured as national real estate figures based on their data.

Partial Benefit:  Home Buyers

This point has been made by real estate agents ad nauseum, but I’ll repeat it because it is valuable.  Automated home valuations have a small benefit to a buyer in their home search.  In an introductory phase, buyers may want to see sales prices and values in a general area to begin to understand the area in which they’ll buy.  Estimates may flesh out the neighborhood a bit more than simply viewing recently closed sales.  The additional data could help a buyer understand that most homes in their preferred neighborhood are worth between $350,000 and $400,000.

That’s it.  That is where the value ends for a home buyer.  Estimates on individual properties are not worth the screen they’re displayed upon.  Since Zillow is the most popular, and I know and like a bunch of people at the company, I’m going to pick on them in particular.

Nationally, Zillow’s estimates missed the sale prices of homes 45% of the time by more than 10% of the value.  Zillow’s estimates missed the sale prices 25% of the time by more than 20% of the value.  From these two statistics alone, it’s clear that you’d be foolish to make a home purchase decision based on an automated valuation.

This isn’t an opinion, it comes directly from Zillow’s statistics.  The  company itself points out that its estimates are not to be used as an appraisal, and is highly transparent about its own inaccuracies in the data for individual homes.  Unfortunately, it seems that there are far more consumers relying on Zestimates than there are actually reading those disclaimers.  Buyers should understand that once they’ve gotten past the initial phase of scouting out a neighborhood, using an automated valuation model isn’t going to provide accurate information on individual homes’ values.

Net Zero Benefit:  Home Sellers

Home sellers register the most complaints with real estate professionals over automated home valuations, with good reason.  While home buyers might miss a potentially good buy because they relied upon an online valuation, there are always other homes to buy.  Sellers, on the other hand, have just one iron in the fire.  If a seller lists his/her home for sale and an inaccurately-low value is being posted next to their house online, the seller is stuck explaining a botched mathematical calculation to buyers instead of promoting a home’s best features.  There is no upside to a high valuation.  Sellers have already named their price, and buyers won’t be increasing their offers because of the high valuation.  While the number of potential buyers who may undervalue this home based on that valuation is unknown, it creates a great amount of anxiety for a home seller that they’re being unfairly judged by an outside source with little direct knowledge of the home.

All of the major real estate sites claim to have procedures for human input on their valuation models to adjust a poor valuation.  This is very temporary band-aid, however.  Human input will always be subjective.  High valuations won’t be appealed.  Listing agents and sellers will always appeal low valuations, even if their home is overpriced.  In the end, human input altering the outcome of the model just reduces the intergrity of the model itself.

Automated Valuation Models Have a Long Way To Go Before Truly Benefitting Consumers

We’ve certainly seen some benefits to real estate statistics and greater market knowledge, and I enjoy watching another statistical powerhouse competing with the old guard for the most accurate industry projections.  It’s fairly clear, though,  that these automated valuations have benefitted their creators much more than individual home buyers and sellers.  In the spirit of technology progression, I’m hoping that these algorithms are developed to the point that they become somewhat-accurate predictors of value.  However, as much as I’m admirer of our ever-increasing ability to manipulate data for research purposes, I’ve sold far too many homes to believe that a computer model can compare one neighbor’s shiny granite counters to another’s crumbling laminate.  The data is a nice tool for economists, but for the individual consumer it’s more entertainment than sound financial advice.

National real estate player Trulia began its foray into the home valuation space yesterday.

Trulia Estimates, as they’re called, are currently in beta and available for sold properties in the San Francisco Bay Area. Brian Boero of 1000Watt Consulting provides a thourough break down of the Trulia Estimate launch, so I won’t go any deeper. Instead I’ll focus on:

• What this move means to consumers,
• How it might affect the business side of things,
• What it means to SEO,
• A comparison of Trulia Estimates and Zillow Zestimates.

Consumers’ Perspective

From a consumer standpoint, I think this is great news. When I was searching for my last home I used my own real estate search site, of course, but was constantly heading over to Zillow for previously sold data and, more importantly, Zestimates.

Once Trulia breaks out of beta and launches nationwide for active properties, Trulia Estimates will provide similar useful data to consumers…and that is good news for home buyers and sellers alike.

Business Perspective

It’s no secret that home buyers use multiple websites when searching for property, as I did in my example above. And there is no doubt that this move is aimed directly at Zillow’s Zestimates. What this does for Trulia is provides their users with a reason not to leave their site. Smart move? Yes, and the same reason we’ve launched Value Scores on HawaiiLife.com.

For the time being Trulia’s Estimates pose no threat to Zillow, but once they’re available nationwide for active properties it will be interesting to see how much Zillow’s web traffic will be dinged.

SEO Perspective

Google rewards sites for providing useful information, and Trulia Estimates will definitely be useful to consumers. Over time this will be a positive move for Trulia’s SEO.

Comparison Trulia Estimates vs. Zillow Zestimates

For this comparison we’ll be looking at 88 King Street #717, San Francisco CA 94107:

• Trulia – 88 King Street #717
• Zillow – 88 King Street #717

Both sits provide valuable information, including price/sq ft and nearby similar sales. Zillow, however, gives much more previous sales history as well as tax history. Zillow also provides a graph showing several years of their Zestimate. I don’t think that Trulia can do this as their Estimate is brand new, but maybe they’ll figure out how to use their algorithm historically.

The one place where Trulia wins is that they offer the ability for consumers and agents to provide feedback on the home valuation. As Jim Bilbao comments on Mr. Boero’s post, “bringing crowd sourcing to home pricing is attractive.” I couldn’t agree more. Will this force Zillow’s hand to integrate something similar into their algorithm?

Conclusions

This is a great move by Trulia. A long time coming, maybe, but better late than never. The question is, can Trulia catch up to Zillow? After all, Zillow has a 5 year head start.

By now, everyone is chimed in with how excited Wall St. is with internet stocks, specifically those that are leading the ‘social’ bandwagon; starting with Google’s failed $6 billion offer to Groupon, LinkedIn’s warm reception and Facebooks’s massive valuation — are you kidding me, $100 billion?!

No, I’m not here to debate about another Tech Bubble, though it’s worth mentioning Frank Quattrone recently baptized LinkedIn as “..the Netscape of its era.” to which he made clear, the 1995, pre-bubble Netscape.

But this got me thinking, what can I do to give me the best chance to sell my real estate site? Here are the factors that I think will help (and that I’ll be likely working on):

• Do you own your real estate niche online? Be it as big as Washington, DC or as quaint as Napa, or even in the hot-then-frigid-cold Reno real estate. Can you show potential buyers if indeed, you are dominating? Start tracking results and leads.  (Note to self.)

• Who are your potential buyers? I’d love for my parent broker company to buy me off someday.  I like my mother and believe in their vision. But…

• Will they? Why will they spend five to six figures to buy you out? What’s in it for them? I’m actually hitting this in  my stubborn head in my next round of improvement for my sites.

In general, I’m thinking of ways that would make my site simply unattainable for potential buyers.  Meaning, when they look at my site, I want them to say things like:

“Man, that Joe guy did something real special here,”

“Whow, Joe gets a solid $50,000 yearly revenue off the site, “

“It’ll cost too much to build something like Joe’s and I don’t even know where to start,”

“Even if we spend the same amount of money and hire talent, his site (and links) is already 4 years aged.”

What would you do in your site if you new you were going to sell 4 years from now? What’s your high target price? Realistic price range? Who will be your potential buyers? (No seriously, I want to know…)

And I believe this deal confirms my suspicion that the Postlets deal was just as much for the value they hold in the rentals vertical as it was to give them strategic leverage against ListHub. I would be willing to bet a pretty penny that Zillow is starting to get some decent traffic in the rentals space with their Rental Zestimates (which I think was a brilliant move for them) and growth of rentals inventory on the site.

Onward toward the IPO they go.

It was announced today that Zillow (my former employer) acquired Postlets, a free syndicator of real estate listings. The company was founded by Asher Matsuda and Raymond Chen in 2005 and today boasts over 350,000 listings and 500,000 registered users (though not sure how many are active every month). Asher and I worked on a few initiatives during my biz dev days at Zillow and I was always impressed with him. I know Postlets was a part time thing for both Ray and Asher, so am happy to see their work pay off for them with a financial exit (though they are both now full time Zillow employees). I’m not going to write a novel, but I do have a few thoughts to share:

• I certainly agree with Brian that this is a counter strategic move to Move’s acquisition of Listhub a few months ago.
• That said, I still see a good relationship with ListHub as essential to both Zillow and ListHub. Zillow receives a large number of listings from ListHub and ListHub’s value is significantly lessoned to its partners if it were to stop sending listings to Zillow/Yahoo! Real Estate. So, this doesn’t mean Zillow is going to kick ListHub to the curb.
• While Zillow is not likely to stop cooperating with ListHub, you can of course expect them to try to direct agent and brokerage partners toward Postlets for syndication services rather than ListHub. Listings syndication is a must for any agent or brokerage that is focused on doing everything they can to sell their listings, and Zillow can now offer those services to its clients as a result of this acquisition. This acquisition takes them one step closer to being a one stop technology shop for agents and brokers.
• Believe it or not, I actually expect this to help Zillow more in the rentals area than in the for sale area. Without looking at the actual data, I think Postlets has a bigger inventory of rentals than homes on the market — and I bet the registered list of users includes a large number of property managers and landlords which Postlets can help Zillow reach. Brokers and agents already know Zillow, but Zillow has more work to do to reach landlords and renters.
• It’s interesting that Zillow acquired a company – to date, they’ve had a strong culture to build features internally, and I would say that’s worked pretty well so far. To me, the acquisition indicates they are ramping up for an IPO and need to have the strategic services at their disposal to counter any competitive questions about Move during the IPO process. I wouldn’t be surprised if there was another acquisition or two prior to their IPO…but I’ve been wrong before.

Will be interesting to see how this shakes out over the next year or so. With Move owning ListHub, Zillow owning Postlets, the question now becomes what will Trulia do? To compete for agent and broker ad dollars, it seems they are going to have to offer syndication to their partners as well. vFlyer maybe? Or Birdview Technologies?

I think, over the next 12-24 months, we will see a race between Zillow, Trulia, and Move (Realtor.com) to sign up the next wave of niche real estate sites and media outlets to their respective ad networks. Building an inside sales team to sell ads is an extremely expensive undertaking, but required to reach agents all over the country. Most niche sites that have traffic likely don’t have enough traffic & ad impressions to warrant hiring their own sales team. And let’s be honest — most of those companies would rather spend their time and effort building more cool features and growing their traffic than managing a sales team. But of course they also need to make money – so having another party handle their ad inventory makes sense.

Any guesses as to which niche real estate site is next in line to sign on the dotted line?

For the real estate professionals reading, how important is it for you to advertise on the “largest” real estate network? What do your clients say when you SHOW them (hat tip to Chris Smith) you are spending money marketing their listings on the #1 real estate network?

Strategically this is a great move for Zillow, and will effect the real estate industry in several ways. From a real estate agent’s perspective, this expands marketing reach and puts everything into one user interface…saving agents time and allowing them to focus on other tasks.

On one of the MLS committees I sit on in Maui, there is a lot of opposition to large real estate sites like Zillow. While I understand why some Realtors might see these types of sites as a threat, I encourage you to think about this as an opportunity to gain more exposure for your client’s listings.

So, back to my question. Did Google dump their real estate listings because of partnerships like this between Zillow and Yahoo (and Trulia and CNN)? Well…yes and no. Google does state that one of the reasons they cancelled this service was because of, “the proliferation of excellent property-search tools on real estate websites” (and this blogger would argue that Zillow is one of the best real estate research tools around). However, Google has some of the brightest minds in the industry, and if they wanted to throw their programmers at real estate, they could blow everybody out of the water.

Personally, I think Google has bigger fish to fry. I don’t think Larry Page is taking being dethroned by Facebook as the most visited website very lightly.

Zillow’s record January: 15.7 million unique monthly visitors, up 75% year-over-year. Thanks to each and everyone one of you!

This seems to be a clear indication that Zillow is growing fast (13 million unique users in December) and pulling away from the pack of real estate portals. Anyone know (and willing to share) February traffic numbers for Trulia and Realtor.com?

Full disclosure: I worked for Zillow for 4 1/2 years and am a minor shareholder in the company.