Zillow was the perfect web site for the real estate boom. What better way to track your home's escalating value than by obsessively checking your Zestimate—Zillow's appraisal of a house's potential sales price? Three days after Expedia creator Rich Barton launched the site last year, it had drawn 1 million users, a figure that has since climbed to about 4 million a month. As the housing market fizzled, Barton introduced new features—like letting homeowners connect with potential buyers—to keep visitors engaged. And now, Zillow has overhauled its algorithm and will incorporate user-generated content into its calculations. wired visited Barton in his 46th-floor office overlooking Seattle's Puget Sound.
WIRED: How is Zillow weathering the housing crunch?
Barton: When we were building Zillow, you had to be ready to make an offer on a home the day you saw it. In that market, Zillow was interesting, but whatever. People didn't have the time to use it for research. Now it's a buyer's market. People are taking a lot longer to make decisions and offers. So more people are using Zillow as a research tool.
WIRED: Not everyone has been thrilled with their Zestimate. Tell us how it's done.
Barton: Our algorithm is a complex piece of AI that pores through a ton of data, looks for patterns, and creates predictive models. Then it goes through by zip code and identifies which models work best in each neighborhood. We're going to take that all the way down to the house level eventually. It's an interesting computer science and stats problem. A fun one.
WIRED: Why wait until now to upgrade your algorithm?
Barton: Zestimates are based on history; we plot house prices like stock prices. We are careful about major updates to the algorithm because we are literally rewriting history.
WIRED: So how does your users' data fit into the formula?
Barton: The Zestimate is only going to be as good as the information we have going in, and there are lots of holes and inaccuracies. We opened up Zillow so owners could correct facts about their homes, publish their own estimate of their house's value, and upload pictures. We can feed some of that information back into the algorithm. If you say, "No, there are four bathrooms, not three," we take that as reality. It makes the Zestimate significantly better.
WIRED: Can sellers really be trusted to give honest appraisals?
Barton: It's kind of like a warts-and-all corporate blog—stuff is going to come out that you wouldn't want, but everybody ends up better. It's a very modern concept. Smart homeowners get it: If there was a flood in the basement two years ago, it's going to be found out. So let's talk about the fact that it happened and what we did about it.
WIRED: OK, maybe that works now, when we're in a buyer's market. But what happens to that candor in a seller's market, when buyers don't ask as many questions?
Barton: Once you open the information doors, it's difficult to close them. I don't think it's characteristic of just the current market. I'm of the opinion that there is no hiding, period. Everybody is a reporter, a blogger, a rater of everything. Fighting that force is like fighting gravity.
WIRED: So how does that kind of transparency change the market?
Barton: The more confident all market participants are in the veracity of the data, the more likely they are to trade. I'm fascinated by the ramifications of our Make Me Move concept [in which homeowners who aren't actively selling their houses post a price they would accept]. Whether or not a home is for sale is not binary. It has been forced to be binary by the structure of the marketplace, but everything is for sale to a certain degree. And many homes have uncollected and unsystematized interest from potential buyers. I think, as we put that information together, you'll see transactions that would otherwise not have happened.
WIRED: How long before Zillow offers a mortgage product?
Barton: If you take Zillow's principles—power to the people, transparency in marketplaces, rich information—and apply them to mortgages, there's an obvious opportunity. So we're working on that. We think there are many consumers out there who... There is a lot of mortgage-buyer's remorse. Let's put it that way.
Contributing editor Evan Ratliff (www.atavistic.org) wrote about cellulosic ethanol in issue 15.10.
