Zillow, Trulia and the Future of Real Estate Disruption

On Monday it was announced that online real estate marketplace Zillow acquired fellow online real estate marketplace Trulia in a deal worth $3.5 billion in stock.

The existing business model for both of these companies is revenue generated through advertising sales for their real estate listings. Part of the motivation for the acquisition was that both Zillow and Trulia felt that they were falling short of attracting more of the traditional real estate marketing spend to their sites.

Many pundits are saying that the Zillow-Trulia deal means that real estate tech has finally arrived, but we think they’re entirely missing the point. Real disruption in the real estate space will come through fairness and transparency.

Disruption will come in how buyers and sellers are able to access information. A real estate transaction is the largest in the lives of most people. If real estate agents can be given better tools, that in turn help them offer the highest level of service to their clients, that itself is disruptive and matters much more to buyers and sellers than real estate advertising spend and the like.

While Zillow and Trulia may have disrupted the way people search for homes, they have done little to disrupt the actual process of buying and selling a home. Zillow and Trulia have made searching for homes a bit easier, but they haven’t really helped people to make more considered and informed (read: “smarter”) real estate decisions.

Even with the huge traction that Zillow and Trulia have in the US market, American home buyers still have access to more information and data when researching which washing machine they want to buy for their new home than for the actual home they’re buying. That’s the polar opposite of disruption, as the fundamental pieces of a real estate traction haven’t become a bit less calcified by their offerings.

There are two main reasons why researching houses continues to be more challenging than researching washing machines.

First, when researching a washing machine the average person knows the key features that make a good washing machine for them and what features to avoid. The same is not true for houses. While we all know what we like and don’t like in a house, knowing what red flags we should be looking for when researching a house and a condo is less clear.

Second, even if we knew what we should be looking for when researching properties, actually finding the information we need is not always easy.

The latest tool being developed at Realosophy is called StreetWise and bridges this information gap. It is a built on the belief that by mining and analyzing the right data we can learn things about houses, neighbourhoods and condo buildings that are not transparent to us today.

StreetWise looks for the hidden information about a house that is never going to appear on an MLS listing and latent trends in neighbourhoods and condos that make it possible to objectively compare one to the next. It helps buyers make more informed decisions.

For true disruption to occur in the real estate space, products need to be built that will make money for lenders and investors while serving the needs of buyers and sellers of homes. It’s critically important that these products are fair to all involved in the transaction and are easy to use and understand. This has been missing from the real estate industry and haven’t been addressed by Zillow or Trulia to date. We believe that while the industry has been focused on technology as the disruption itself, it’s far deeper than that and cuts directly to entrenched user behavior and industry custom.

Canadian home buyers often blame the lack of innovation exclusively on restrictions with MLS data. What is interesting is that even in the US, where real estate sales data is more available, we have yet to see any real information innovations in the real estate industry.

One of the main reasons is that to objectively analyze real estate means telling buyers that certain houses or neighbourhoods are a bad bet, an approach that would not sit well with Zillow’s main client base—realtors.

This article was coauthored by John Pasalis, president of Realosophy.