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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

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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  About the author, Bob Hunt

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