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Spencer Rascoff and Stan Humphries

Zillow Talk: The New Rules of Real Estate

Summary

Spencer Rascoff, CEO of Zillow, and Stan Humphries, Chief Economist, detail their findings based on the immense amount of data they have been able to aggregate and analyze through Zillow's platform. Zillow is aiming to improve and promote transparency to help consumers make choices based on information, not superstitions or hunches

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Key Takeaways
  1. Unlike what most people think, when a home is for sale is not black and white. Many people are willing to sell their home even if it is not on the market if the price is right
  2. Spencer Rascoff started off wanting to disintermediate the travel industry and built his first company, Hotwire to do so. After Hotwire was acquired by IAC InterActiveCorp, his next dream was to bring transparency to the real estate market. Today, Zillow is the largest real estate site on the Web and on mobile, with 90m unique users visiting every month, has 110m homes, including Zestimates and hundreds of thousands of real estate agent reviews. Besides massive amounts of data and users, Zillow adds value by analyzing this data and making it available to all people at all times to be able to make more informed decisions. Zillow can estimate a home's value instantaneously, using tools more familiar in genomics image compression and biochemistry - moving from a 13.6% margin of error to a less than 7% margin, while increasing Zestimate coverage from 43m homes to more than 100m. Uses simple models, hyper-local information, continuous iteration and refinement to keep improving the Zestimates
  3. The American real estate market is one of the largest in the world at over $25.7T and for the most part of our history, they argue that real estate has been a great long-term investment with less volatility than stocks
  4. The concept of the Breakeven Horizon is important to know - how long you must live in your current home to make buying worth it
  5. Real estate mantra of location, location, location should be changed to future location, future location, future location
    1. Easiest way to find a hot spot is to look at a neighborhood that has already taken off and trying to spot patterns and similarities
    2. Adjacent areas to city center grow quickly in value due to what they term a halo effect
    3. Better real estate strategy is to buy home outside of the premier neighborhoods
    4. Gentrification (new wealth kicking out current, less wealthy residents) is more powerful than the halo effect. Neighborhoods that are likely to gentrify if they have older homes, low home ownership rates and some access to more popular neighborhoods
    5. Starbucks is a great leading indicator of rising home appreciation
  6. The greatest indicator for a neighborhood that would one day strongly appreciate in value was the age of its housing stock. The older the average home is, the more likely a given neighborhood will see strong appreciation
  7. The conventional wisdom of "buying the worst house in the best neighborhood" is actually bad advice. Instead, buy the worst house in the hottest neighborhood
    1. Buy a house not in the bottom 10% of the nicest neighborhood you can afford
  8. Great school districts boost property values and high property values boosts school quality - creating a virtuous circle
  9. Do your homework to see if Fixed Rate Mortgage or Adjustable Risk Mortgage is best for you - steady or falling interest rates makes ARM more likely the better choice
  10. Foreclosure discount is tricky because it doesn't take worse condition of these homes into account and they are often smaller too. True discount, when comparing apples to apples, is really only about 7.7%
  11. Inspectors - reviews are a major differentiator, try before you buy (ask to see old homes they've bought or sold), first impressions matter and attend the inspection in person
  12. Renovating bathroom, mid-range windows adds the most value to homes where kitchen and basement renovations tend to lose money
  13. Adjectives in listing is very important - potential, quaint and unique detract a lot of value but words like granite, landscaped, remodel, stainless add value
    1. Be honest, flaunt the house's attributes and add enough color and descriptions to the listing
  14. Homes listed during the last 2 weeks of March tend to sell faster and for more money. However, always list after the first major influx of new listings of the year (bringing your listing to the top when people start searching more in early summer)
  15. Listing at too high a premium actually lowers the eventual sale price, on average
    1. If overprice, better to quickly revert price down to market value
  16. Pricing using the "magical number 9" can lead to a higher sale price. $149,000 or $149,900 for example tend to sell for more than homes listed at $150,000
  17. Infrequent, emotional expensive decisions tend to make people nervous and therefore rely on experts. This is especially true for home decisions which is why real estate agents are likely to thrive even though service providers in different sectors are disappearing
  18. Right agent - experienced (10+ years), women tend to be slightly better, rely on their Zillow rating
  19. Street maxims - a street with a name sells for more on average than numbered streets, Lake St. is better than Main St. (less common), suffixes matter (Dr. vs. Pl. vs. Ct.)
  20. The "sand states" (California, Arizona, Utah and Florida) tend to be more volatile because of the highly flexible work force found in those states
  21. More walkable areas offer higher returns on average and are more resilient to economic downturns - see Walk Score ratings
  22. Richer neighborhoods have 60% higher returns on average than poorer ones
  23. Mortgage Interest Deduction is essentially a $100b subsidy which mainly benefits the wealthy
  24. Government housing subsidies tend to hurt low-income tenants in the long-run more than help them
  25. Coastal areas always command a premium and appreciate faster although they can be devastated by hurricanes and the like. The risk tends not to be accounted for in the price because the government has shown that it will bail people out after disasters
  26. More than half of America's homes (50m) have been updated on Zillow but what makes Zillow's database unique however is more the frequency with which it's accessed and updated than its sheer size. The differentiating factor is that Zillow has a database not just of all homes, but of all home values - going back for decades. By adding the dimension of time, Zillow can analyze the data for developments that have powerful implications about how the housing market is performing today and how it is likely to perform in the future.
What I got out of it
  1. The age of organizing data to bring transparency of pricing, trends and decision making has come to real estate and it'll be fascinating to see how their platform and forecasts perform moving forward

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