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Here’s Zillow’s strategy for dominating online real estate

Last week, the Bipartisan Policy Center co-hosted a fairly typical policy talkfest: Lawmakers, bankers, government officials, reporters, think tankers and other sundry wonks gathered at the Ronald Reagan Building in downtown Washington to talk about how to finally reform the sclerotic housing finance system.

The guests were familiar, but the day of panels and speeches was also sponsored by a relative newcomer in D.C. policy circles: Zillow, the real estate listings Web site, which organized the agenda and supplied branded notepads and information booklets. By the end of the day, attendees would leave knowing not just the proposals on the table for fixing Fannie Mae and Freddie Mac. They'd also know the value of the Zestimate and Zillow Home Value Index for assessing the state of the market, and they'd know about the suite of other services Zillow makes available for free.

This eight-year-old company, which has no D.C. office and just one lobbyist on retainer to build relationships,* has managed to put itself at the center of the conversation about housing in Washington and beyond. If you want to know how leading lawmakers are looking to reform mortgage finance or you want to see an interview with President Obama on the topic, you'll probably eventually find yourself watching clips from Zillow events (which is very good for Zillow's stock).

The company's rise -- and rising influence in the discussion on housing policy -- is a unique tale of a start-up leveraging its data to challenge an old business by redrawing competitive boundaries. Zillow is simultaneously taking on traditional real estate agents, media companies and publishers of housing data -- and it's threatening all of them in the process.

Not a bad tactic when you're trying to corner a market.

As tech companies go, Zillow is a wizened elder. Founded in 2005 by Seattle-based alums of the travel Web site Expedia, it has grown to 800 employees, with some 60 million users a month and $47 million in revenue last quarter (substantially more than its closest rival, Trulia, which declined to comment for this report). Most of that comes from advertising, which means that Zillow needs as broad an audience as possible, as well as a solid gold brand. To create one, executives decided to make themselves useful.

"Zillow saw this opportunity, about five years ago, to fill what we perceived to be a massive void in academia, government and in the media," says Spencer Rascoff, the company's 37-year-old chief executive. "Nobody was providing objective, unbiased data and analysis about what was happening in the real estate and mortgage industries. The people that were providing it represented trade associations with agendas and were advancing particular policy prescriptions for their constituents."

When Rascoff says "trade associations with agendas," he means the National Association of Realtors, where the mention of the word "Zillow" makes people recoil in distaste (the Association told its membership that it didn't take part in a White House online forum in August during which Rascoff interviewed the president on housing because Zillow was a "popular housing entertainment website" and the interview was "not a serious public policy discussion"). While many real estate agents have adapted to leverage Zillow and other listings sites to their advantage, Zillow has also given homebuyers lots of information they used to have to get from professionals, which makes it more difficult for agents to add value.

And when Rascoff says those trade groups' data are biased, he means that their metrics, such as sales of existing homes, tend to make the housing market look rosier than it is. Similarly, the closely-watched Case-Shiller Home Price Index is more useful for investors.

"Those repeat sales indices were designed to help finance professionals to understand the movement in their portfolios of homes, and they're weighting towards more expensive mortgages, because that's where you have more risk," says Stan Humphries, Zillow's chief economist. (The Realtors association maintains that its members-only Multiple Listing Service is more accurate, and Zillow emphasizes that its "Zestimates" are a valuation starting point, not an appraisal.)

Zillow's numbers are different. Rather than just measure what's selling, their team of over a dozen economists, statisticians, and other analysts pulls in local property databases to value all homes, which owners can then update themselves with attributes like a renovation or a new garage. That creates what's called a "hedonic" index, which is more difficult to compute but also a better reflection of the entire market. Zillow also prides itself on telling people when the market looks bad, like it did before the real estate bubble popped and as it kept sliding.

"You looked at other industry professionals, and they would tell you the bottom's right around the corner, things are going to get better. And month after month after month, we were the only ones saying home values are bad and they're going to get worse," Humphries says. "Our business only works if people trust us to be telling them the unbiased truth. We don't want to tell them now's a good time to buy and sell, because we believe that now can't be a good time to be doing both."

Once it had its index, Zillow took it to Washington, presenting it to groups like the Urban Institute to help them understand how it works. After a while, Humphries got a call from Congressional committee to testify about the housing market. In July 2012, Zillow did a Google Hangout with Housing and Urban Development Secretary Shaun Donovan, followed by a guest blog post. There was a half-day housing forum at the Newseum in April 2013 and the Obama event came in August, followed by a Q&A with Sens. Mark Warner and Bob Corker on their housing finance reform bill, and a Hangout with FHFA. Zillow says that the appearances carried no financial transaction either way -- the airtime is what's important.

"It was absolutely part of our marketing plan," Rascoff says. "As a result of being the biggest real estate site on the Web, increasingly politicians are coming to us to say, 'Hey, how can we get the word out, and how can we interact directly with homeowners?'"  (That's not always the case -- Warner's office says that Zillow reached out to the Virginia senator first. HUD and FHFA didn't respond to questions about how their respective Zillow collaborations came about.)

Now, the Zillow Home Value Index is starting to be cited nearly as much as indicators that have been around for a lot longer, and recorded conversations with a Zillow logo underneath them are among the most accessible ways to hear from government officials about how the housing finance system might get overhauled. That's really important for a company that views itself as a media play, dependent on high volumes of people who trust its content (as distinguished from real estate search sites like Redfin that actually employ real estate agents*).

"We believe in the primacy of audience," Rascoff told investors on the company's latest earnings call, "that whichever model serves the consumers the best, establishes the largest household brand and wins the largest sustained audience, ultimately will take the lion's share of the media revenue available in our category."

For that purpose, a joint appearance with the president beats even an ad in the Super Bowl. For not wanting anything from Washington -- Humphries says he only wants the housing finance system to get fixed in some way, declining to name his favorite approach -- Zillow certainly has gotten a lot out of it.

A previous version said that Zillow did not have a lobbyist on retainer. It does. The post has also been clarified to better reflect Redfin's relationship with real estate agents.