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Starting With Zillow's Zestimate May Not Get You Very Far

Written by on Tuesday, 17 February 2015 10:55 am
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A couple of weeks ago real estate columnist Kenneth Harney reignited a heated real estate conversation about the use and value of "Zestimates" -- the automated property value estimates that appear alongside otherwise objective property information provided by Zillow, the dominant real estate information site on the Web.

Throughout the real estate community agents complain about these Zestimates, which -- despite Zillow's disclaimers -- are often taken as gospel by both buyers and sellers. (Typically, of course, the Zestimate is accorded such status when it happens to support the position of the concerned principal. Buyers quote Zillow when the Zestimate is low, Sellers when it is high.)

Agents around the country have weighed in on comment posts and the blogosphere. Some say Zestimates are consistently too high, some say too low, and some say they are just too often erroneous -- giving both low and high valuations.

In my own experience, a decidedly unscientific sampling of recent closed sales showed that the Zestimates had tended to be on the high side, with a median error rate of 10%. But, credit where it's due, some of the Zillow estimates were, as far as real estate valuations go, right on the money. One Zestimate indicate a $480,439 value for a property that ultimately closed at $484,000. Pretty impressive for a remotely-located automated valuation system.

Zillow -- which makes its money on advertising purchased by real estate agents who have supplied it with critical information (listings) in the first place -- is sensitive to the problems that Zestimates can cause for agents. (It's awkward to be an agent who appears to be endorsed by Zillow when your CMA indicates a value $50,000 lower than the Zestimate.) To that end, Zillow recently made available to its agent-customers a document entitled "Talking Points: Scripts for Explaining the Zestimate to Clients".

Zillow spokespersons are fond of saying that Zestimates are not appraisals; rather, they are "a good starting point" or sometimes "just a starting point."

But what is that supposed to mean? Any number picked out of the air could be a starting point. Especially if we don't even know if the Zestimate is liable to be high or to be low, how does it help us to start?

Presumably, the Zestimate is a "starting point" for a conversation that aims to get to a reasonably accurate evaluation. But, as a starting point, the Zestimate provides precious little help in that regard. Sure, if it is incorrect about some of the few public records characteristics (e.g. age, number of bedrooms, square footage) adjustments can be made accordingly. (There is a process for correcting such misinformation on Zillow.) But, outside of that, the Zestimates, allegedly based on "millions of data points", provide no help as a so-called starting point. That is because Zillow doesn't say what those data points were or how they were factored into the result.

If you have a disagreement with a CMA, or even a full-blown appraisal, you have something in hand that you can work with. What comparables were used? What might have been overlooked? How much value was attributed to this feature or that? Are features of the comparables (e.g. view, street location) adjusted in an appropriate manner?

A Zestimate doesn't allow for those questions to be asked. That is because you don't know what data the Zestimate was based on; nor do you know how adjustments were made. So what help is it as a starting point? You just have a black box with a number on its output screen. Good luck with that conversation.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.

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7 comments

  • Comment Link Troy Erickson Wednesday, 25 February 2015 11:16 pm posted by Troy Erickson

    Zestimates have always been difficult for real estate agents to discount to their clients. Consumers just believe Zestimates to be the truth. Just the fact that nobody outside of Zillow knows what data goes into calculating the Zestimates. Even Zillow says it is just a starting point, but nobody knows how they reached that starting point.
    It would be much better to start with a CMA, Appraisal, or BPO based on recent comparable sales and factual data about the specific property.

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  • Comment Link What do you think Monday, 23 February 2015 8:06 pm posted by What do you think

    Its good as your other blog posts : D, appreciate it for putting up. "A great flame follows a little spark." by Dante Alighieri.

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  • Comment Link Surbiton Saturday, 21 February 2015 1:36 pm posted by Surbiton

    I take issue with Zillow claiming "Zestimates are a Starting Point" as they refuse ALL homeowner requests to correct substantially erroneous Zestimates thereby making Zesimates an "End Point".

    It begs the question as to what motivates Zillow to refuse all requests to correct Zestimates? Surely having more accurate information would improve the quality and accuracy of the data on Zillows website. One has to wonder do they deliberately compute inaccurate Zestimates because the controversy generates substantially more interest and revenue for Zillow than if the Zestimates were accurate.

    When Zillow treats homeowners so badly it is time it was subject to some form of Regulation with a DoNotZestimate Opt Out a minimum requirement to protect homeowners from Zillows nonsense.

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  • Comment Link charles berge Wednesday, 18 February 2015 2:40 pm posted by charles berge

    Zillow is simply another tenuous business model ripe for disruption. Already, smart money is 'shorting' their position on Zillow. The core premise of Zillow is simply not sustainable. Without real estate content, i.e., listing data, there is nothing. Absent becoming a brokerage, Zillow is not viable. Another real estate business model will likely emerge that hopefully bypasses antiquated irrelevant MLS aggregation platforms. Somewhere there's an app for that. Perhaps Google, Apple, News Corp. or..?

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  • Comment Link Joan Coleman Wednesday, 18 February 2015 12:51 pm posted by Joan Coleman

    Zillow can be useful as one tool we can use to help customers and clients understand what is happening overall and in some cases it's information will be current and correct. There are so many tools for the consumer to "get an idea" of value, but the ultimate answer comes down to how well one knows the neighborhood, specifically what updates, renovations and maintenance have been done property by property. Lots is being said about functional obsolescence these days in resale inventory so to really know the values, you have to see the property. Real Estate is local and these days very local.

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  • Comment Link Lorre Wednesday, 18 February 2015 5:53 am posted by Lorre

    Zestimate is only useful if Zillow is pulling the information from your area. They do NOT pull any information from my area - and so, Zestimates, schools, even property locations are consistently incorrect.

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  • Comment Link Karl Tuesday, 17 February 2015 12:04 pm posted by Karl

    Great article. I agree to the fact that the Zestimate is a rather vague and inexact means to appropriately value homes, however I don't think it is entirely useless. I used the zestimate feature over the past several years to see whether it was a good idea to sell/buy a home. Zillow is a great resource to research homes and see what others are selling at/have sold for, or estimated to sell for (zestimated?). Without having to bug a realtor (who might pressure that "this is the time to sell" for selfish reasons) I was able to keep tabs on an estimated value of my home. I had inherited a townhome that my wife bought at the peak of the market in 2007, doubled down in 2012 and bought a house. We were (and still are, renting...) under water on our townhouse. The zestimate feature has allowed me to get daily tabs on an estimate for where we were at on the townhouse and our starter home which was steadily increasing. With low interest rates and what appeared to be a substantial increase in our home value we looked at selling our starter home and buying a larger house this spring. To our shock the Zestimate (which we thought was perhaps overvaluing based on research) was actually lower than what our realtor said we could list for. We ended up selling our home in a day for list price and couldn't be happier. Ultimately this ended up being a best case scenario and I'm not trying to brag, see still underwater on townhome but without the Zestimate feature I wouldn't have likely connected the dots on when was a good time to look at selling. My take away is to use the Zestimate for directional purposes to guide your thinking pre-buy/sell and enlist the professionals realtors/professional appraisers to help you get a better picture of reality.

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