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As the Zillow Turns

It's happening. Real estate site is morphing before your very eyes. It is making the transition from industry disruptor to enabler. Don't see it yet? Well, blink and you just might miss it.

The spunky site has been around for a little more than a year. When it launched back in February of 2006, promising free and immediate residential real estate market value estimates, I grew immediately concerned for companies like HouseValues (Nasdaq: SOLD  ) that thrived on generating leads for real estate agents through a more cumbersome gimmick.

I was right. Shares of HouseValues have plummeted by more than 67% since I wrote that article. Even if you argue that the real estate market is soft, other online real estate plays like Move (Nasdaq: MOVE  ) and parent IAC (Nasdaq: IACI  ) are holding up a whole lot better.

It just didn't make sense to jump through all the hoops at HouseValues when a less intrusive solution like Zillow was making it obsolete.

Yes, I know that Zillow's valuations are suspect in some cases. Spotty ballpark figures should never be the sole basis of pricing your digs. But once Zillow let the genie out of the bottle there was no going back to the way things used to be.

The new and real estate agent-approved Zillow
Some of the latest tweaks at Zillow are intriguing, especially when you consider who they are empowering. To some, Home Q&A and EZ Ads may not seem all that revolutionary. Zillow's Q&A offering, where community members can engage in conversations on specific home pages, is a kissing cousin to ZipRealty's (Nasdaq: ZIPR  ) move to allow users to comment on listed homes. The EZ Ads contextual marketing platform is a stone's throw away from Google's (Nasdaq: GOOG  ) AdWords where advertisers bid for targeted placement.

However, these two features are like real estate agent flypaper. Zillow claims to have attracted 150,000 real estate professionals among the 4.1 million unique visitors to its site last month. Expect agents to flock to Zillow even faster now.

It's not a manner of sleeping with the enemy. It's more like sleeping with the enemy to get a free breakfast in the morning. Home Q&A, which was just launched this week, is the perfect promotional freebie for agents. If someone has a question about a home that you are listing, you want to be there with an answer. I've seen a few cases where an enterprising real estate agent simply asks the question, just for the sake of coming back to populate the page with the answer.

Real estate agents that aren't feeling particularly chatty about their own listings would be well-served to field questions on other properties. If folks are inquiring about particular homes, it probably means that they may still not have agents representing them as buyers.

Since we all know that most of the traffic to forums comes form lurkers, participating becomes an even more valuable way for a real estate agent to get noticed. ZipRealty's plan wasn't perfect. Sellers can anonymously talk up their homes while rival sellers can talk them down. An interested buyer can also publicly criticize the listing as a way to drive the asking price lower. You're going to see some of that jockeying for position on Zillow now, yet it's a more productive approach with rival industry pros trying to sound as credibly marketable as possible.

Just as the popular Yahoo! (Nasdaq: YHOO  ) Answers format engages the community through a point system for the best responses, the Scooby treats here come from the leads that may be generated -- for free -- by appealing to the spectators.

It ads up
EZ Ads is a clearer monetization strategy. If you're a real estate agent, mortgage originator, or even a mechanical mower-riding lawn care specialist, how can you resist the ability to target ads by Zip Codes? Paid search giants like Yahoo! and Google do that, but you're talking about a Zillow crowd that is often looking to make a move.

According to Zillow, half of its visitors plan on buying or selling their homes within the next two years. In a soft real estate market, you can never be too proud to advertise contextually. If you're trying to sell your home without a broker, it's hard to dismiss EZ Ads as a way to stand out over your local paper's classified ads.

As a consumer who has no intention of buying or selling a home, I may not like these changes. The ads on the right-hand side of the pages will clutter the site. The self-promotional ways of Web-savvy listing pros -- or Pimp My Agent as I'm calling it -- may grow overbearing in time, as more real estate agents flock to this free form of networking.

However, Zillow needed to evolve in this direction. The original site prided itself on the 70 million estimates. The latest incarnation of the site loves to show you the homes that are for sale in any given area. With agents and FSBO (for sale by owner) types already taking Zillow up on its generous offer to tag nearly 70,000 homes -- and counting -- as available for sale, how can it lose?

Zillow walked in as a disruptor, but is walking away as a savior.  

HouseValues is a Hidden Gems newsletter service recommendation. Yahoo! is a Motley Fool Stock Advisor pick. Each one is having an Open House at the moment, offering up free 30-day trial subscriptions to any takers.

Longtime Fool contributor Rick Munarriz isn't interested in selling his home, even if he recognizes that the once red hot South Florida market is cooling off quickly. He does not own shares in any of the stocks mentioned in this story. He is also part of theRule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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