Business & Technology Nexus

In the US if you buy a house (and even when you refinance a loan) chances are you are required to do a property appraisal. And at $400-500 a pop, it sure does add up.

Take the above trend for existing home sales from February 2006 through January 2007. If you  average the monthly data for existing sales you get to around 6MM. In addition there are around 1MM of new home starts to tack on, which starts us off at around 7MM mortgages issued. Add refinancings and you get north of 10MM pretty quickly. So, “the appraisal market” (by this logic) is at a conservative minimum around $4B (10MM * $400).

Enter Zillow – “your edge in real estate”. In many areas where comparable neighborhood sales are readily available to be used by an algorithm to compute a predicted price (called a Zestimate TM), it’s not clear why an appraisal is necessary, except perhaps to check to make sure the property is not in a state of disrepair. And that’s more of a $50-100 house check, not a formal process with pictures and reports.

So will Zillow kill the appraisal business? Well, since Zestimate’s are free I can think of around 4 billion reasons why they just might…