Zillow Inc (Z): Is It Digging Itself a Deep Hole?

With a bit of fanfare earlier this year, real estate information provider Zillow Inc (NASDAQ:Z) launched a new service aimed at homeowners who are remodeling their houses. Called Digs, the service purports to give fixer-uppers an idea of what remodeling costs run in their area, which they can use as a basis for comparing bids from contractors.

Garbage in, garbage out
It’s similar to their traditional home pricing business. I get a (dreary) monthly report from Zillow Inc (NASDAQ:Z) telling me how much my home is worth based on sales and listing activity in my neighborhood. Because the database for such information is so dense, it (sadly) lets me see how far underwater I am on my mortgage.

Trulia Inc (NYSE:TRLA) provides similar information to homebuyers, sellers, and owners, but, unlike rival ZipRealty, there are large holes in the information Zillow Inc (NASDAQ:Z) and Trulia Inc (NYSE:TRLA) provide, because real estate brokers can withhold information from them at will.

ZipRealty gets its data directly from multiple listing services that are part of its IDX database. A brokerage can only withhold data from ZipRealty if they withdraw from the IDX, which they’d be loathe to do if they want to properly serve their customers. While Zillow and Trulia Inc (NYSE:TRLA) also get some of their data from MLS brokers, the brokerages can hold back data from them, and ZipRealty suggests that 15% of the homes its rivals show as being for sale actually aren’t even on the market. Moreover, as many as 30% of homes that were listed for sale in an MLS database were not identified by the two pricing portals as being on the market.

Dig, dug, done!
Well, there’s a similar gaping hole in Zillow Inc (NASDAQ:Z)’s Digs service. In the latest issue of Remodeling magazine, a publication targeted to contractors, it says Zillow admits that the numbers it provides for items like kitchen and bath jobs are based on figures provided by just a few dozen contractors. The magazine further alleges that the numbers those contractors came up with are derived by simply looking at photos of kitchen and bath redos, and then coming up with their estimates.