Why I’m not buying Zillow

April 20, 2011, 8:07 PM UTC

FORTUNE — I nearly sold my house last fall. My wife had landed a new job, and it looked like we were going to move from Bronxville, NY to Philadelphia, PA. I was pretty relieved when her new employer gave us a reprieve and said we could stay put in New York. At least part of that relief came from the fact that I wouldn’t be paying the enormous costs of selling a house, buying another one, and moving. By my calculation, it was going to “cost” us more than $50,000 to make the move, and that’s before you even consider the prices of the houses themselves.

Like anyone with an Internet connection and an interest in real estate, I have been a user of Zillow.com for several years now. In an industry as opaque as real estate — one that’s replete with all sorts of screw-the-customer complexity, including title searches — Zillow has offered a clarity and transparency that real estate agents, for all their “I’m-on-your-side” fakery, never have and never will. But the news that Zillow has filed to go public forces me to admit that I’m not a buyer of this franchise. Despite noble ambition, Zillow is nothing more than real estate porn, and by planning to raise $51.8 million in an IPO, it is merely looking to cash out its beleaguered venture investors, who have to date sunk $87 million into the business.

So what about that business? It looks good on the surface, I guess. Unique users of the site have more than doubled since 2008, climbing from 5.6 million to 12.7 million. Likewise, revenues have their own hockey-stick trajectory, climbing from $10.6 million in 2008 to $30.5 million in 2010. Losses, too, have been shrinking, from $21.9 million in 2008 to just $6.8 million in 2010. All the indicators are headed in the right direction here. So what’s not to like?

First, any company that’s planning an IPO will start shaving costs here and there in order to make the trends look good. I have no idea if Zillow’s technology and development costs should have dropped from $15 million in 2008 to $10.7 million in 2010. Maybe they’re just getting better at what they do, which is computerizing the real estate business. But I doubt it. Everything this company does is on the Internet; their technology costs are going to rise again, probably shortly after their IPO.

Second, it appears to me that Zillow has sold out. The original idea, as I recall, was that the site would bring a degree of transparency to an industry that had long resisted it. When I bought my house in 2005, I sat around a table with about 10 other people at the closing who all seemed to know each other — my lawyer included — and who talked as if my wife and I were not there before handing us bills totaling about $30,000.

Zillow was supposed to blow that cabal to smithereens. But a giant plank of Zillow’s current growth plans seems to involve signing up agents who want to use Zillow as a listing service. I’m guessing the company’s executives are too smart to bite the hands that feed them. If you and I don’t pay a dime to Zillow, and agents do, you’ve got to wonder how ardent they remain about disaggregating the whole process so that you and I don’t get burned every time.

The Zillow filing claims that lots of people are using their mobile devices (phones, iPads) to access its “proprietary” and “living” database. (That latter term is a new one to me. I am guessing it’s just marketing. Who would claim they have a “dead” database?) But who cares how many people sit in their cars and punch in an address on Zillow in order to see the “value” of a house? The fact is that Zillow, which seemingly could have taken a bite out of the action of real estate transactions by scaring the oligopoly into submission, has demonstrably failed to do so. That they are courting real estate agents themselves is as big an admission of defeat as you might ask for.

Did I mention that Zillow has a dual-class stock structure? And guess what? They’re not offering you the B shares. Enough said on that front.

Am I angry that Zillow hasn’t provided a buyer for me using their proprietary “Make Me Move” function and my price of $850,000? No. (Still, interested buyers, see here.) Or that the current “Zestimate” of my house’s value of $479,000 is almost $200,000 below my purchase price of $661,000 in 2005? No, I am not. (That said, I might be happier with the site if it understood the true value of the place.)

What I’m angry about is that Zillow might have been something that it hasn’t turned out to be. The process of buying or selling a house hasn’t changed at all since they arrived on the scene. The only thing that’s happened is that someone else is taking another piece of the action. If you want a piece of that action, go ahead and buy. But there are better ways to bet on real estate than that.

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