Zillow, the giant national real estate database, made headlines last month when it announced it would pay $50 million in cash for the Manhattan listings website StreetEasy.
The acquisition represents a move by Seattle-based Zillow to grab market share in New York City, where it’s failed to make inroads despite its broad national reach.
“Zillow had left something to be desired, and StreetEasy clearly remedied that,” Zillow CEO Spencer Rascoff told The Real Deal. He and StreetEasy CEO Michael Smith said they had been in talks for years. “We finally got … to a place for both of us to do this,” Smith said.
But industry pros said the merger could have even broader implications for the New York real estate industry.
Manhattan real estate listings have long been largely inaccessible to outsiders because the city lacks a comprehensive Multiple Listing Service — a database that shares information about all the homes on the market. Instead, many New York City firms rely on a more limited listings feed from the industry’s most powerful trade organization, the Real Estate Board of New York.
In general, MLS platforms tend to be stronger in single-family home markets than in densely populated urban areas, or “vertical housing markets,” said Jonathan Miller, president and CEO of Manhattan appraisal and consulting firm Miller Samuel.
“National aggregators and multiple listing services … have been particularly weak in presenting data for what I call the vertical housing market,” Miller said.
When StreetEasy launched in 2006, it filled that void in Manhattan by “scraping” the Internet for real estate listings and posting them, allowing users to access nearly all of the city’s listings for free. Real estate industry executives here initially balked when StreetEasy published information, such as price changes and number of days on the market, which had never before been publicly available. Now, however, most of StreetEasy’s listings are provided directly by industry feeds and brokerages, and for several years the site has operated as a sort of de facto MLS for Manhattan.
Now that Zillow owns StreetEasy, it will likely replicate the StreetEasy model in other cities — a move that could increase transparency in the real estate industry on an even broader basis.
“I see this as a template,” Miller said, “starting with the biggest vertical market in the country, and being able to apply this to other downtowns with a heavy concentration of condos, co-ops and rentals.”
And eventually, the Zillow conglomerate could one day become something of a national MLS, said Zhann Jochinke, COO of Keller Williams NYC. If Zillow adds some of the features currently provided by MLS’s and trade organizations, such as a platform for commission sharing, it could pose some serious competition to REBNY and similar organizations across the country, he said.
“Watching Zillow over the years, they’ve started to act … a lot more broker-friendly,” Jochinke said. In fact, Zillow has even ventured into the political arena; last month President Barack Obama answered questions from U.S. homeowners, renters and prospective buyers in a live-streamed event hosted by Zillow.
Zillow is a widely recognized brand throughout the United States — the website had 61.3 million unique users in July, the company said. But Zillow has failed to catch on among users in Manhattan.
While StreetEasy is widely used by both real estate brokers and home-seekers in the Big Apple, “no one uses Zillow” in New York City, said Andrea Sedwick, an agent at Manhattan-based NestSeekers International.
Zillow’s CEO openly acknowledged the company’s lack of penetration into the New York market.
“StreetEasy has won New York,” Rascoff said. “There’s no question that StreetEasy beats Zillow.”
Brokers said that’s largely because Zillow’s popular “Zestimates” — which use an algorithm to estimate property values — are often wildly inaccurate for New York City homes.
Zillow has data for 110 million U.S. homes, and Zestimates (both for sales and rentals) on 100 million, the company said. Of those, 1.6 million homes are in New York City, said Katie Curnutte, director of communications for Zillow. Zestimates factor in comparable sales of nearby homes, as well as features like location, lot size, square footage, number of bedrooms, tax assessments and transaction history.
But the algorithm doesn’t take into consideration the nuances of the Manhattan market, such as views, ceiling heights, renovations and elevators, said Town Residential’s Nicole Oge.
“It’s great in theory, and it’s clearly working outside New York City,” Oge said. But here, “there are too many variations.”
Or, as Jochinke put it: “Their ‘Zestimate’ is laughable for Manhattan.”
Dragos Mario Popovici, a sales manager at the Manhattan brokerage Miron Properties, said his firm is marketing a two-bedroom duplex at 125 West 21st Street that’s listed for $3.5 million, and that “we are confident will sell for asking or slightly above.” But the “Zestimator” has it valued at $2.6 million.
“Based on that price, the unit would be a giveaway in today’s market,” Popovici said.
Elliman powerbroker Leonard Steinberg agreed, citing the Zestimate of $1.8 million for Apartment 4D at condominium 40 Bond in Noho. The unit is not currently on the market, but if it were to sell, it would go for “conservatively, north of $3.5 million,” Steinberg said.
Meanwhile, Apartment 6 at 43 Great Jones Street has a Zestimate of $406,502, which Steinberg called “hilarious,” adding: “2,300 square feet in Noho? More like $2.5 million to $2.65 million. That’s a disaster of misinformation.”
In some cases, Zestimates are so far off the mark for New York that they’ve caused confusion among homeseekers from out of town, brokers said.
Jeffrey Schleider, managing director at Miron, said he’s had out-of-towners contact him about apartments after seeing “a Zestimate that was significantly below the asking price.”
Of the 347,900 Manhattan homes with Zestimates, Zillow claims that 54.8 percent are within 10 percent of the eventual sales price. And the company noted that its Zestimates are not appraisals and should only be used “as a starting point to determine a home’s value” along with other data and with a consulting agent.
Still, until now it was nearly impossible for Zillow to compete with StreetEasy and other homegrown companies specifically tailored to apartment-living.
“It’s very hard to dominate like StreetEasy has” in New York, Miller said, because other companies “are not set up for vertical housing markets.”
Clearly, that fact has not escaped Zillow’s notice.
StreetEasy will remain a distinct company but will be integrated into Zillow’s national online residential database, the companies said. Spokespeople said plans are underway for the integration of the two sites, though they did not comment specifically on whether StreetEasy’s data will be used to make New York Zestimates more accurate.
But the company did say it plans to expand StreetEasy’s office at 13 Crosby Street and move the Zillow team in. Zillow has had one Manhattan office, at 315 Madison Avenue, where it employs mainly sales staffers, for six years.
Zillow — which went public in July 2011 and makes the bulk of its profits from agents who pay to be featured on the website — has seen its stock price shoot up from about $36 a share last August to more than $94 a share last month, though its stock dipped slightly on the heels of the StreetEasy announcement. The company also announced a $412 million share sale.
In the long term, the acquisition will likely have a positive effect on Zillow’s stock price, Keller Williams’ Jochinke said.
“There is great opportunity to increase revenues,” he wrote in an email. “Zillow should essentially be able to drive their current Manhattan/New York City traffic to StreetEasy, and more eyeballs equal the ability to generate higher referrals to advertisers.”