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Zillow CEO gives you hints during media appearances

Zillow and Trulia are getting hitched, and Spencer Rascoff is leaving a trail of breadcrumbs with the new playbook, as he makes media appearances and statements across the nation.

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Zillow’s second quarter earnings report reveals a loss per share of $0.05 (more than expected) with revenue hitting $78.7M (also higher than expected). The company raised their full-year revenue outlook to $321-$323M, up from the previous view of $304-$308M. This is the first earnings report released since the announcement that they intend on acquiring competitor, Trulia.com.

Zillow CEO, Spencer Rascoff, is an engaging personality who makes the rounds of cable news from time to time, most recently catching our attention with his appearance on Mad Money’s Jim Cramer on CNBC. The full transcript is below, and we’ve italicized the points Rascoff smoothly makes that should tip you off as to the Zillow playbook, so pay attention...

Full transcript:

Jim Cramer: all right. Zillow shares trading slightly lower — couple bucks, come on, after reporting mixed quarter results — well, mixed if you’re a nitpicker. Real estate marketplace is really on fire right now. One of the things that is happening is that they are merging with Trulia. I can’t believe how lucky we are to have Mr. Spencer Rascoff here. We often talk about how he’s here in spirit a great deal. Spencer, when I interviewed you in the spring, I said, come on, if you can’t beat them, join them, go buy Trulia. You said, we’re going to beat them. What changed?

Spencer Rascoff: Well, ask and you shall receive, Jim. You asked me many, many times why don’t you buy Trulia, why don’t you buy Trulia? And we now intend to buy Trulia. I think the combination of the companies provides a lot of benefits for employees, and shareholders, and industry participants. There’s no question that there are a lot of cost savings from the two companies combining, and there will be revenue synergies, and so I’m super excited about the transaction.

Jim Cramer: One of the things I’m concerned about, you have a lot of people signed up, really amazing. Could you run out of inventory to sell?

Spencer Rascoff: We have around 57,000 subscribing real estate agents that buy local advertising from us, but our traffic continues to grow so quickly. We had 89 million unique users last month. So as traffic grows, there are more impressions available to sell. We have lots of impressions available for our agent advertisers.

Jim Cramer: A lot of people at home are saying, wait a second, we see home sales are slowing, we see mortgage numbers, and you do a preapproved mortgage. In reality, you’re not levered to that.

Spencer Rascoff: no, what’s happening is the consumer is rapidly changing their behavior from shopping for real estate in the newspaper classifieds to the internet and increasingly not even the internet on a desktop machine, but actually to a mobile device. That migration is swamping any macro headwinds. Housing is slowing somewhat, but the user is shifting so quickly to the internet that we’re benefiting from that.

Carlos Quintanilla: People are looking at visitor growth, desktop decelerating. Is mobile making up for that desktop deceleration?

Spencer Rascoff: more than making up for it. We’re now over 200 homes a second on mobile, and when I was on your show three years ago at the IPO, just three years ago, it was 20 homes a second. In three years, that’s 10x the mobile growth in three years’ time. It’s astounding what’s happening with the mobile devices.

Jim Cramer: One of the things I thought was most interesting, I’m from summit, New Jersey, and you did a special call out about a broker, and I just want you to walk people through. This is a precipiting broker which usually means Realogy to me — I probably know the broker personally, but you talked about the number of leads that is generated with $ 5,000 a month, and how many lead conversions. I want people to understand why the brokers initially reluctant to use Zillow are now all in.

Spencer Rascoff: agents who advertise with Zillow, they spend money with us and they make a lot of money. I think you’re referring to an agent I tweeted about yesterday, who I met at one of our Zillow Summits, which is these local events where we meet hundreds of agent advertisers, and this agent was just telling me, he was thanking me for how much money we’ve helped him make. And when he gets a Zillow lead, he follows up on it incredibly quickly and he usually converts that lead into a transaction and he makes a lot of money. that’s why our ARPA, average revenue per agent is growing so quickly, it’s now over $300, is what the typical agent is advertising a month.

Jim Cramer: But you know, yelp had good ARPA basically, but they didn’t sign on enough new agents. You also didn’t sign on as many agents as some thought. How come you’re getting a pass on that?

Spencer Rascoff: Well because I think our revenue is growing so quickly. The premier agent revenue growth is up 82% year over year, that’s the fourth quarter in a row of accelerating agent advertising revenue. So you’re right. We are focusing more on a smaller number of top producing agents who are willing to spend more because they value our audience more, and that means we are we bringing on fewer total subscribers and fewer total advertisers, but at a higher rate. I’ll take that tradeoff, and the tradeoff is working, clearly, total revenue from agent advertising continues to grow, with the law of good numbers, it’s harder to continue to increase your growth rate as your numbers get bigger, but we’re finding a way to do it on agent advertising.

Carlos Quintanilla: Here’s a macro question. Journal does a piece this week on Oklahoma City. People moving there because they are being priced out of the coasts. Somebody wrote this week that the millennial story will be moving not because a job is better in another city, but because the houses are cheaper. Do you think that both of those things are true?

Spencer Rascoff: well, it is true, but there’s an anchor around American homeowners which is negative equity. Still around 20% of all Americans with a mortgage are upside down on their loan. And so there may be a job in some fracking state like North Dakota or Oklahoma, but if they are underwater at their house in New Jersey because they bought in 2006, it doesn’t matter if there’s some better job elsewhere, they can’t sell. That’s what keeps job ability lower than we’d all like.

Jim Cramer: this preapproved mortgage, people felt that was just dying on the vine, but the numbers there, you revealed that program when you were on the show last time.

Spencer Rascoff: That’s right.

Jim Cramer: how can that be going up in this environment?

Spencer Rascoff: we created the product which is the only place on line now where you get preapproved for a mortgage. The normal preapproval experience is a pretty painful experience; and now online on Zillow Mortgages you can actually get preapproved and have a letter that you can then go and look at houses with. That’s a big deal.

Jim Cramer: I imagine that Trulia, a lot of these things you’ve put through, for StreetEasy New York, for preapproval, Trulia, and you don’t need all that spend, that ad spend that Trulia’s doing.

Spencer Rascoff: Look, you told me years ago, buy street easy, and we did. Then you said buy Trulia, so what’s should we buy next?

Jim Cramer: I’ll get to you later, but it doesn’t matter, because aren’t you cohosting the 10 and 11?

Spencer Rascoff: you’re cheaper than an M&A investment banker, and your deal flow is better, so you let me know.

Jim Cramer: oh, spencer, thank you. People say Jim, why aren’t you harder on him? Here’s the way we work – stock was at 20, stock’s at 140, I save it for the guys whose stock went from 140 to 20. Spencer Rascoff, thank you.

Spencer Rascoff: Thank you.

Lani is the Chief Operating Officer at The Real Daily and sister news outlet, The American Genius, and has been named in the Inman 100 Most Influential Real Estate Leaders several times, co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

Real Estate Corporate

Zillow’s new patent: Determining regional rate of return on home improvements

(CORPORATE NEWS) Zillow has been granted dozens of patents of late, threatening any tech or real estate brand using the broad ideas they’ve laid claim to.

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Zillow is back on our radar after acquiring the latest in a long list of vague, over-reaching patents (that our government continues to grant to them). This time, they’re going after data – specifically regional rates of return on home improvements.

The patent in question describes a “facility” (later described as a “computer-readable hardware device”) that can estimate housing prices in a given geographic area, but the real crux of the patent is the home improvement feature. The aforementioned facility can be used to determine how much of a financial return will be present upon completion or categorization of work done on a specific property within that same geographic framework.

Sales estimates generated by this facility will also take into account “type[s]” of home improvement, thus further streamlining Zillow’s notorious “Zestimate” feature.

The way this process works is also mentioned in the patent. According to the abstract, the facility takes regional data regarding homes’ “attribute values” and then compares that data to any available home improvement information. An analysis involving that information along with the difference between the sale price of a property and Zillow’s automatic valuation generates an estimate of the rate of return on the home improvements in question.

As far as Zillow patent grabs go, it’s worth noting that this one has a high degree of specificity in its description – something that was missing from many of the other patent applications they’ve filed in the last decade or so – though some aspects of the patent lapse into Zillow’s aloof rambling of late.

For example, the background on the patent says that “…the facility may use a wide variety of modeling techniques, house attributes, and/or data sources. The facility may display or otherwise present its home improvement rates of return in a variety of ways.” That isn’t particularly specific to a style of data representation, freeing up the real estate giant to enforce this patent on a more general level.

And the problem with the remaining specificity is that it details everything from the natural flow of data and the process of comparison to the physical configuration of the hardware used to process that data – which may make it difficult for many technologists in the space to generate similar data without falling into the dangerous zone of violating the patent simply by using common sense.

This is the M.O. over at Zillow Group. Unfortunately, the patent was just granted, which means smaller real estate ventures will need to keep an eye on the way they process regional data pertaining to home improvement values.

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Real Estate Corporate

Viva – the startup that gives renters equity as they rent

(TECHNOLOGY) Viva launched as a pretty brilliant model – give renters back equity as they rent, foster future buyers, and build a property portfolio.

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Renting often feels like a necessary evil, one which is compounded by the fact that renters are unable to build equity – through no fault of their own. A company called Viva thinks they have a solution for this systemic issue: third-party equity.

Viva is a startup with the main goal of allowing renters to earn a certain amount of equity per month.

The process itself is fairly straightforward: Renters in Viva-managed properties have the opportunity to earn up to eight percent of their rent back in equity per month. This equity is stored in the form of a rebate that can be reclaimed once the renter’s lease is up.

I say “up to” eight percent because, according to Viva, certain tasks–mild, “unskilled” maintenance and general upkeep of the property–are assumed to be the renter’s responsibility (unless otherwise dictated elsewhere); failure to maintain a presentable property can result in a lower percentage of rent going to your equity.

While that sounds like it opens the door for picky landlords to dock renters for arbitrary issues, Viva assures them that they “expect the vast majority of all tenants to earn the full 8% every month.”

That equity can be tracked via Viva’s online portal and payment receipts from each month of rent.

Once a renter’s lease expires, they can request their equity in the form of a rebate; it can also come in the form of a housing credit should the renter want to put it toward their next property.

On the landlord side, Viva charges a relatively high 16 percent for management: eight percent for renter equity, and eight percent for general management fees.

While this sum is higher than the average 10 percent cited on Viva’s FAQ, they point out that their eight percent covers more things (maintenance and “community engagement”) than a usual maintenance fee.

Viva also posits that people who live in properties they manage will be more dedicated to maintaining those properties, thus cutting down on long-term costs.

Viva’s goal of creating a third viable option that nestles between renting and buying couldn’t come at a better time in terms of the housing market. Both renters and landlords will want to keep an eye on this venture as they develop.

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Real Estate Corporate

This Zillow patent application is WILD, threatens entire real estate industry

(NEWS) Zillow has applied for another patent on their mission to outgun the entire real estate industry – will the government grant them yet another win?

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Zillow has added yet another crippling entry to their long list of patent grabs, this time focusing on a computation model that emphasizes 360-degree videos’ role in creating floor maps.

The patent, if granted, would give Zillow domain over the process of recording, analyzing, and presenting such videos in conjunction with real estate services.

The official title of the patent is “Generating Floor Maps For Buildings From Automated Analysis Of Visual Data Of The Buildings’ Interiors,” leaving little to the imagination: The respective processes of creating, analyzing, and sharing those floor maps all fall under the heading of the patent.

The patent also specifies “automated operations” in the abstract, implying that the method of capture all the way through analysis and sharing could be performed automatically via the aforementioned “computing devices.”

Zillow clearly intends to use the results of this process for both further development of their automation (“controlling navigation of devices”) and for customer use while viewing properties virtually (“display on client devices in corresponding GUIs”).

The videos themselves can be “continuous” in that they are recorded by a camera moving seamlessly through the house from room to room; similarly, the videos may be “acquired without obtaining any other information about a depth from the path to any surfaces in the house,” resulting in what one might identify as the modern equivalent of a virtual tour.

The end result of such a video, at least for clients, is the ability to view and control an uninterrupted sequence of movement through a property. At any given time, the client could theoretically pause and “look around” using the 360-degree controls; this process would, ultimately, simulate actual movement through the home.

Naturally, this patent is worrying for the same reason Zillow’s past patents have been problematic: It’s too broad.

360-degree video is an obvious choice for real estate services looking to create a virtual experience that is interchangeable with an in-person tour, and–between accessibility issues and social distancing protocols of the last year–it’s an increasingly necessary option for real estate providers who want to stay afloat.

If Zillow is able to secure this patent, competitors will have to find another way to create their virtual tours–one that, in the ever-tightening web of options not proprietary to Zillow, is sure to drive even the most loyal clients into Zillow’s patent-snatching arms.

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