So I came across Zillow.com, a much-hyped Seattle area start-up that was founded by the creator of Expedia. I must say, this is the most impressive website that I’ve seen related to home search/buying/selling. It has a logical and friendly user interface and it has an abundance of “data porn”.

The big questions for me is “how are these guys going to make money?” I have it on good authority that the goal of the website is to break down the inefficiencies between the average buyer/seller and the real estate broker. Think about it, what are we, as sellers, really paying that 6% for? If you think about selling a home as an end-to-end process (much like selling a company, raising venture capital, which are the processes I’m familiar with) it would include:

1. Posting the house on the MLS
2. Staging the house to maximize the look/feel and ultimately the price
3. Hosting open houses and showing it one-on-one to perspective buyers
4. Bringing in offers
5. Negotiating the final deal
6. Closing the sale

This may oversimplify things a little, but let’s just call it a 6 stage process - more or less 1% per service.

By day, I’m an Investment Banker, which means that it is my job to prep companies for a sale or financing, take them on the road, collect term sheets and negotiate the final deal. Basically, I do parts 2 through 5 of the list on a daily basis, so why can’t I just hire someone for steps 1 and 6 and only pay them for those services? The reason is that the real estate agent is able to leverage the inefficiencies in the market and as a result doesn’t have to unbundle his/her services.

In my opinion, Zillow is exactly what the real estate market needs - a nice shake up. There are far too many agents that do far too little and get paid far too much money because of these inefficiencies. This is capitalisim at its best.