So court papers were filed this week in the law suit against former Realtor.com president Errol Samuelson for breach of contract, breach of fiduciary responsibility and misappropriation of trade secrets. The official complainant is Move. Inc., but make no mistake, this is Realtor.com, (so in essence the National Association of Realtors) vs. Zillow.
Samuelson ran realtor.com from 2003 to 2007 as CEO before switching roles to become the Chief Strategy Officer of Move and its subsidiaries Real Select Inc. and Top Producer, (all under the National Association of Realtor umbrella) He resigned suddenly on March 5th and was announced as Zillow's new chief industry development officer almost immediately. Zillow also poached another long time Move exec. Curt Beardsley at the same time.
Realtor.com put out a statement saying, "“We take action in cases in which we believe our trade secrets have been compromised. We have raised this matter for the courts and believe that the matter will be resolved judiciously.” The complaint alleges Samuelson also “arranged to defect to Zillow, destroyed evidence, and then resigned from Move without notice,” an act “timed to damage Move and inhibit Move’s response.” Furthermore it states that if Samuelson “undertakes the tasks for which he was hired by Zillow, the unauthorized disclosure or use of plaintiffs’ trade secrets … is inevitable,”
Although there has been some simmering over the years, but this is the first time the two giants of the real estate online game have really butted heads.( Zillow had recruited a few other lower level Realtor.com execs in 2009, but apparently grabbing the top gun really rubbed them the wrong way.)
I am glad this is happening, and there is bad blood between NAR, (so in essence realtors in general) and Zillow. I have been pretty vocal of my dislike for Zillow (and Trulia). Actually dislike is not the right word. I have been concerned how agents and brokers are being taken advantage of, as these companies have grown and dominated a sector like no other. In April 2014 27% of all online real estate searches were on Zillow or Trulia. To put that in perspective, Amazon accounted for 5.8% of online retail sales during the same time. You may say its comparing apples to oranges, but it is rather eye opening to see just how dominant these businesses have become.
And they have done it on the backs of small to middle producing real estate agents. Agents who willingly donate the lion's share of the information on these sites, with no compensation, and now are being charge monthly fees so they can appear as "premier" or "pro" agents. And as these sites have become more popular, the monthly rates have increased. Now agent can spend upwards of $5,000 a year on each site to appear next to local listings in their zip codes.
Now if you register and "claim" your listings, they will put your contact info next to your own listings. (Zillow does put you at the top, but Trulia puts you second–even on your own claimed listings.) To me that is unconscionable and absurd that this is allowed, or at least not protested.
And furthermore as a slap in the face, Zillow ran this ad recently.
Where is the agent? I am assuming there needed to be some sort of licensed real estate professional (according to the law) to set up all those showings, present offers, etc. There is a quick shot of a generic real estate sign, but no realtor. Zillow makes most of its money directly from real estate brokers and agents, and they don't show one in their advertisements?
So how has Zillow morphed and grown into this online behemoth? Well they were started in ’05 in Seattle by some pretty bright minds that previously had a hand in Microsoft and Expedia. And they give information that people want.
Basically they are a database that includes 100 million homes across the United States. And although current homes on the market are a big part of their search results, in addition they give value estimates of homes, by offering several features including value changes of each home in a given time frame (Zesitmates), aerial views of homes, and prices of comparable homes in the area. Where they can access appropriate public data, it also provides basic information on a given home, such as square footage and the number of bedrooms and bathrooms. Users can also get current estimates of homes if there was a significant change made, such as a recently remodeled kitchen.
In this age of information, it is the site where you can do a virtual window peep into your neighbor's specs and financial history of their home.
And where are they getting this information? Well from local municipalities and tax records, but more and more they are gleaning this information from the unwitting foot soldiers–the real estate agent. Long after a listing has sold, or gone off market, the pictures and information that Zillow takes from your local multiple listing service stays on their site. And while an agent pays yearly MLS dues, as well as a fee for each time a listing is registered, Zillow is allowed to immediately snatch that information completely for free, and use it as bait to earn money through the advertising it adds to the page, either from the same agents it just took from, or Adsense or other various vendors. (Bank of America recently signed a big advertising contract with Zillow.) Not a bad gig right? Sell people something that we can get for free.
And now a simmering dislike between NAR and Zillow has exploded into litigation warfare. Will it prompt NAR to act, and band it's "associates" together to fight Zillow? Well the issue is, NAR's hands are a bit tied. First of all there is an anti-trust issue. Although most agents and brokers in the United States are members of NAR, we are in fact competing companies–separate entities . Banding together to lobby for certain governmental housing programs or other such reform is fine, however conspiracy to squeeze a competitor brings up all sorts of nasty collusive issues in the "restraint of trade." NAR cannot simply tell its members to no longer use Zillow. It's against the law.
The other issue is, these feeds are not coming from NAR. They are coming from smaller local multiple listing services who through third party sites, distribute the listing feeds to various online portals like Zillow, (and Realtor.com). Although NAR governs the local MLS's, and oversees the bylaws, the individual decisions, like what distribution software etc. is up to the MLS board. For example the Sullivan County Multiple Listing Service uses a company called Point2 to dispense the listings. Within hours of me submitting a listing to the SCMLS, my pictures are branded with a Point2 logo, and they are shipped out to these various carnivorous sites, where the agent who has paid the most will have their toothy grin next to my brand new listing. And for that I get to pay a fairly substantial yearly fee, plus an additional fee for every listing posted.
Don't get me wrong, I do not blame the agent(s). They are spending the dollars to bring in business. I have a MLS feed on my website. My grin is next to other agent's listings. Co-broking is what the MLS was founded on. My issue is that Zillow is a massive MLS feed disguised as a real estate agency, competing with (and destroying) local real estate companies online presence.
Right now if you pick a local town and type it into Google– for example Callicoon NY Real Estate, or Jeffersonville NY Real Estate, Zillow is constantly in the top three. They are there in EVERY real estate search throughout the country. They are #1 in New York, NY Real Estate or Manhattan Real Estate–they have managed to bump Douglas Elliman (the largest LOCAL real estate company) from the top spot.
There is really no business that is more locally oriented than real estate. How can a company based in Seattle have top ranking for "Youngsville NY Real Estate"?
And they have very cleverly integrated themselves so agents unknowingly boost their Google rankings further. They have an online template company called Postlets, that easily lets agents fill in some blanks, add some pictures, and suddenly you have a very nice, professional looking single property webpage, that you can post on all the aggregate sites, plus Backpage, Craigslist, etc. However Zillow imbeds a link back to their homepage, so any agent who uses this service is helping them boost rankings. They also offer a "Zillow 5 star agent badge" which an agent can add to their website, ( I suppose to tout one's prowess), however it is the same Trojan Horse concept. There is a nice little link back to Zillow. However any link that Zillow has on their site back to an agent's site is "no-followed." (Meaning Zillow is essentially saying, "Do not trust, or follow this link" to Google.)
Zillow is not the first major company to engage in questionable practices to gain Google rankings. JC Penny's was outed by the New York Time's in 2011 for buying links to boost its rankings for search terms ranging from bedding to vacuums. Google promptly hit them with a pretty major penalty. JC Penny could not be found anywhere on Google for almost three months. They have since recovered, but nowhere near where they were. They blamed it on an outside company hired to improve online search results. Also more recently Overstock.com was hit with a Google penalty when they were outed for offering college kids discounts to write and add links on different college blogs and sites. (An .edu domain is looked on favorably by search engines.) Again a contrite Overstock was allowed back in Google's good graces after a short stay in the penalty box.
So why has Google not turned its wrath on Zillow? Well for one I think that Zillow's practices are not quite so blatant, so they don't clearly violate Google's terms. However I do hope, that Google will take a closer look. (Who knows, maybe Matt Cutts reads my blog) To have a company dominate the search engine results as much as Zillow is unfair to thousands of real estate companies across the country large and small.
And in the meantime I hope that all the small MLS organizations around the country also take a closer look at Zillow, (and Trulia) and try to come up with a way that we can slow this runaway train a bit, and figure out a way where it can benefit the hard working agents. Already there have been a few. The Denver MLS has refused to send its MLS data feed to Zillow since March. And the local San Diego MLS has insisted a special "advertising remarks" section be added to their feed, where agents can add a phone number, website and other contact info that aggregate sites cannot hide.
As a consumer, I can see one saying, who cares? Why should I care where I am getting my information from? Well the problem is some of the information that Zillow touts is wrong. If a home has not been listed for awhile (or ever), Zillow cannot take the MLS sheet info on a home, so instead they pull it from the tax assessor records. And many times those are incorrect, sometime blatantly so. (Very few homeowners will volunteer information to the assessor, especially when that info could potentially raise their taxes.) So many homes listed as two bedrooms one bath are really three and two, etc. Some independent studies have calculated that the amount of homes that have inaccurate data on Zillow (and Trulia) is as high as 30%. Can you imagine if I gave out correct information only 70% of the time? I would be out of business, (with more than one pending lawsuit) in weeks.
I recently saw a house sell for $834,000. Zillow's "Zestimate" on that same house was $142,000. Again so blatantly inaccurate that it makes me shake my head. But some homeowners see these estimated home values, and believe them.
And that is just the wrong information Zillow has on homes that aren't for sale. They are also notorious for keeping homes on their site listed "for sale" long after a home has expired or been sold. I was once sent a listing from a prospective buyer on a home that had been sold two years prior and still listed as active and fully available on Zillow.
Zillow's CEO was asked about inaccurate information. His 2013 tweet is below.
Sounds to me like Mr. Rascoff is fairly nonchalant about misleading listings on his web site, and in fact it also sounds like he is promoting the old bait and switch.
The bait and switch is considered "misleading the public" and not allowed under the Realtor Code of Ethics. However Zillow can not only shrug it off, but actually encourage it.
At some point these sort of inaccuracies and gray area shenanigans will anger the wrong, (or right) person, and Zillow will hopefully be made more accountable for what is demonstrated on their website, But for now, we should stick to the old mantra. Let the buyer beware.
And for Zillow the buyers are us real estate professionals.