What's your house really worth? (cont.)

By Jeffrey M. O'Brien, Fortune senior editor

Needless to say, Zillow has a tendency to put real estate people on edge. "There is something really quite scary," reads a post from last summer on 0DotZero, a real estate blog, "about the fact that Joe and Jill Consumer [are] perfectly willing to give their frikkin' cell phone numbers to Zillow.com, when they wouldn't even be willing to accept a cookie from my Web site."

The blogger, who claims to oversee interactive technology and marketing for a large unnamed commercial real estate agency, sees trouble ahead for his business. "He who holds the primary customer relationship controls the customer," he says. "From that perspective, Zillow is well poised to control the customer."

Both founders have heard this type of angst endlessly, and they swear they're not trying to obliterate the middleman. (They're much more intent on stealing one of the last great cash cows of newspaper advertising - like Craigslist with a profit motive.)

"At Expedia we were the agent," says Barton, whose mother was a real estate broker. "With Zillow we're not. There's speculation that we're going to charge commissions and sell houses. That is not what we're doing." He goes on to say that a broker is less like a travel agent than an attorney. You have access to every bit of legal information that a lawyer does, but none of the training - would you really choose to represent yourself?

It's clearly in the company's short-term interest to maintain the current power structure. Brokers, agents and developers spend upwards of $8 billion in advertising a year. By 2010 a greater percentage of that money will go to the Internet than to newspapers, according to the media consultancy Borrell Associates.

So Frink spends his time convincing the professionals that their ads on Zillow will attract new clients. "If you have a good agent, they'll say, 'I know about the barking dogs,'" says Frink. "If we can get the agents to share that kind of information with the public and they get a benefit from it, they'll get more clients and gain more trust."

Agent outreach

For the most part, Frink's outreach seems to be working. The site is getting more ads from agents every day, and the National Association of Realtors is sold on the concept. "Zillow is lighting up the imagination of consumers, getting them engaged in the real estate process. If you're marketing anything, it's good to have an interested user base," says Mark Lesswing, a senior vice president at NAR. "Many realtors don't fear Zillow anymore. They use it as a way to show how their services are more valuable than something you can get for free on the Web."

If Christopher Guest ever films a mockumentary about real estate agents, he could do worse than to make the trip to Phoenix and get a load of Brett Barry. With a George Michael beard, bleach-white teeth, perma-tan and a smattering of gold jewelry, Barry darts around his office in a strip mall, his face lighting up whenever another human comes within shouting distance.

Specializing in a planned community near Scottsdale, Barry lords over his territory in a canary-yellow Porsche Boxster whose vanity plate reads SAYSOLD. "It's a realtor thing," he says, half apologizing for, half drawing attention to his chariot. Locals tell me today is the coldest day of the year in Phoenix, but that doesn't dampen Barry's enthusiasm. "Let's put the top down!" he calls out as we get in the sports car for a tour of his domain.

Barry is skeptical of Zillow's valuations, especially in a market like Phoenix, where so many properties are languishing. If the Zestimates are based on sales, then Zillow is missing a whole lot of data. He points at a stack of pages from the MLS (for Multiple Listing Service, the nationwide database of properties for sale). "Look, 213 days, 353 days, 529 days," he says, referring to how long each house has been available. "There's a lot of fat in the market. Prices are still too high."

For any homeowner looking to sell, it's a gloomy message: These are the worst of times. Not long ago, Phoenix was the nation's fastest-growing market. The median price rose 55 percent in 2005. Agents were closing deals on the hoods of cars; investors flipped homes without ever moving in.

Fast-forward to early 2007: Throw a rock in any direction, and it'll bounce off a FOR SALE sign. "There are 45,000 listings in the Phoenix MLS, and that number hasn't changed in six months," Barry says as we cruise among lookalike stucco homes. With every passing week, the number of houses on the market rises, increasing the downward pricing pressure. "It's like a freeway pileup."

But Barry's not glum. The way he sees it, his services are even more valuable in a down market. (He says he made $100,000 more last year than in 2005, the height of the boom.) And he's taking me along on his rounds to show me why that's true. At each place he quickly identifies shortcomings, punching numbers into his cell phone calculator and revealing that a house is overpriced by $25,000, $40,000, $90,000.

Scouting trips like this one give Barry valuable knowledge. Same for the kibitzing he does with fellow agents, telling stories, listening to what types of properties are moving. Add such anecdotal data to his access to professional valuation services, his intuition on how much to discount a house that backs up to a road instead of a golf course, and his presence in the community, and you get an agent who has repeatedly ranked in the top 1 percent nationwide.

And yet even Barry has problems persuading clients to follow his advice. Homeowners too often become emotionally attached to the price they could have fetched at the top of the market - especially if they've taken home-equity loans.

"You look out on the street and see five to ten houses for sale, but many people still don't believe things have changed," he says, shaking his head at a dirty carpet. "The average seller says, 'I need to get this much out of our house to move up.' But the market doesn't care."

By giving consumers real-time updates on the value of their homes, Zillow intends to improve the dynamic between homeowners and agents like Barry. "We're going to change the nature of the communication," says Frink. "When real estate agents are talking to clients, it's going to be more of a two-way conversation."