Zillow is the big fish in the online value estimate sites, so naturally it would be the first target of criticism. Many real estate agents are frustrated with Zillow across the country, claiming that “Zestimates,” Zillow’s estimate of value, is too low and that buyers are sometimes insisting they will not pay more than what Zillow thinks they are worth.
Since more than 90% of home buyers say they begin their search on the internet, this is pretty important.
However, according to an article by David Howell, EVP and CIO of McEnearney Associates, a Washington, D.C. real estate firm, writing for The Washington Post, “… to its enormous credit, Zillow has done a tremendous job in reaching “top of mind” status with consumers. There’s just one problem: Those predicted values are wildly inaccurate and inconsistent.”
It turns out they did a study of 500 homes that came on the market. They ran a “Zestimate” of each one, and compared that to the ultimate sale price of the home. As it turned out, the Zestimate was within 5% of the eventual sale price less than 50% of the time. The results mirror those of earlier studies.
Zillow acknowledges the limitation of their data and algorithms, and has a pretty thorough disclosure on their site – but it’s buried; you have to look for it.
This makes confident decision-making tough for home buyers, and life very difficult for real estate agents.
In a rebuttal to the article Stan Humphries, Chief Economist for Zillow, agreed with the results but insisted they be put in context. He writes, “One way of providing context is to compare Zestimate accuracy to the accuracy of initial listing prices set by real estate agents themselves. We have conducted such a study in the past for all homes nationwide, and recently conducted a similar analysis for the Washington, D.C., metro, based on 38,438 closed sales over the past year. We found that initial Zestimates — the Zestimate at the time the property was first listed for sale — were within 5 percent of the ultimate sale price 46 percent of the time in the D.C. area. Initial list prices set by agents in and around D.C. came within 5 percent of the final sale price 76 percent of the time. The median error rates for initial list prices and initial Zestimates was 2.2 percent and 5.5 percent, respectively, in the D.C. metro. The margin narrows to 3.5 percent and 5.5 percent, respectively, when you remove listings that may have potentially underpriced the home.”
In other words, “Take that, humans!” (Or something like that.)
It is clear that Zillow is not Watson, IBM’s super-computer that kicked the tail of the two top Jeopardy champions. But it is improving, and that’s something.
There are three issues with Zillow that can probably not be solved. First, it must rely on publicly available data points. Not all relevant data points are public, and not all publicly-available data points are relevant (or accurate.) Humans can sort that out; Zillow cannot.
Second, there is an old saying “All real estate is local.” This acknowledges that every property is unique, and location, condition, updating, amenities all combine to create very large differences in value even between two homes of the same model in the same tract. By its very nature Zillow has a tough time reconciling these differences, especially the changes in value attributable to recent remodeling or new amenities.
Finally, Zillow looks backward; not very far, to be sure, but it is still backwards. In our area with multiple bids and rapidly rising home values the sale price of a home is old data by the time it becomes public record. As far as I can tell, there is little that can be done about that.
If you are looking to buy or sell a home, Humphries (of Zillow) advises you that “The Zestimate is…designed to be used in conjunction with many other pieces of information because we know there are decisions when sometimes you need more than a Zestimate. In these cases, we always recommend supplementing the Zestimate with professional advice. Great agents provide services far beyond just pricing a home: assistance in negotiation, help with marketing and priceless peace of mind. A computer will never replace that.”
Where can you go online to get an idea of market values in your neighborhood and where your home might fit? (Notice how carefully I worded that?)
Zillow – http://www.zillow.com
Tulia – http://www.trulia.com
RealEstate.com – http://www.realestate.com
There are many more, but many of them require you to have an agent call you, and I suspect simply use Zillow or Trulia as an engine anyway.
As an ex-appraiser I can tell you that if you really want to know what you home is worth, hire an appraiser. I know some good ones and can give you a referral.
Casey Fleming, Author, The Loan Guide: How to Get the Best Possible Mortgage (On Amazon here.)
Mortgage Advisor, C2 Financial Corporation
(408) 348-3442 / firstname.lastname@example.org / http://www.loanguide.com
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