As the real estate website Zillow gains more and more popularity, the real estate community grows concerned. Not because they are taking the place of your friendly neighborhood Realtor®, but because of the misconceptions that the public has about Zillow and its products.
First of all, Zillow gains its housing data from lots of different places (listing syndication partners, brokerages themselves, virtual tour companies, multiple listing services, marketing vehicles like magazines or online publications, tax records, etc.). These sources might not have come directly from the real estate agent, and likely did not come directly from the home owner. This leads to misinformation, and gaps in information provided. Zillow tells you that (on a page that you have to search their site to find, or click through multiple pages to get to). Zillow does not claim any responsibility for the accuracy of the data found there, in fact they say this, “Since our data comes from public records, the information can be outdated or missing. Since the amount of data we have for a home affects the Zestimate accuracy, it is important that you review your home facts and update the information, if necessary.” Zillow believes it is the responsibility of the real estate agent or the home owner to come in and make sure the facts are correct and the home is being represented accurately. Many agents and homeowners do not know this.
So while much of the public now assumes Zillow to be an authority on the data they are gathering from their site, Zillow themselves will tell you that their data is not always accurate. What complicates the relationship often between Zillow, real estate agents, and the consumer, is the belief in the “Zestimates” that are provided next to every home, whether they are on the market or not. Here’s what Zillow says is the definition of their “Zestimate”: “The Zestimate® home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user submitted data; your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:
- Getting a comparative market analysis (CMA) from a real estate agent
- Getting an appraisal from a professional appraiser
- Visiting the house (whenever possible)”
They do offer an accuracy rating, which is key to whether your Zestimate holds any merit in your community or not. It is a star rating as follows:
However, when one dives deeper into the local ratings, here is what they will find for the Charlotte area. North Carolina as a whole is given a four star rating, meaning it is good, but only 45% of the Zestimates are within 5% of the sales price. When you dive to the county level, you find in Mecklenburg that only 47.6% of the Zestimates are within 5% of the sales price, and only 74% are within 10% of the sales price. As you begin to consider what this means, coupled with the fact that often their sources of information are incomplete, it begins to make the Zestimate seem a bit useless.
Fourth from the bottom, Mecklenburg County is shown with their rating and accuracies.
Zillow claims that “Occasionally however, someone will come along that insists on setting the price they are willing to buy or sell for based solely on the Zestimate.” Our agents tend to disagree with this sentiment. More and more we are encountered with seller clients who are outraged with how low their Zestimate is, or why it is so much higher than what the agent advises them to sell for. More and more we are finding buyers who only want to pay the low price shown as the Zestimate for properties they find on Zillow.
In a recent panel discussion of listing syndication presented in Charlotte, NC, Errol Samuelson, Chief Industry Development Officer for Zillow answered questions on the Zestimate by directing agents to go in and leave a “comment” on the Zestimate that explained why it was or wasn’t accurate. However, as Zillow gains more and more traction and power in the real estate world, why would a Zillow.com visitor believe a single real estate agent? They will think it an attempt to get more money out of the consumer, and with the general public sentiment of finding the best deal prevailing more often than not, this seems it will not help the seller’s attempt to defend their chosen price in the long run. Nobody wants to feel like they’ve been cheated, and Zillow’s Zestimate is often seen by the public as a way to uncover the “true” price of a property. On their website, Zillow instructs that you should update your data to improve your Zestimate, they say this: “It’s important to remember that Zestimates track the market, not drive it. People ultimately have more fundamental reasons that drive what they choose to buy or not buy. Our data shows that half of all sales are generally above the Zestimate. To provide more data on your Zestimate, you can post your estimated value and comments in the Owners Estimate section. The purpose of the Zestimate is provide data in a user-friendly format to promote transparent real estate markets and allow people to make informed decisions.”
They claim throughout their site that while the Zestimate and other Zillow offerings are meant as jumping-off points, one should always consult a real estate professional. But is the public listening to these claims? Are these claims prominent enough on their website? Real estate is hyper local. Even in the city of Charlotte, homes and desirability vary from neighborhood to neighborhood, and sometimes from street to street. In the last 18 months, appraisers couldn’t even keep up sometimes with the changing values of some homes. Demand (as always) drives the prices, and one has to be on the ground and know what the public is demanding to help set that price. That’s where the local real estate agent comes in.
As more and more concerns are voiced in the real estate community about the quality of both Zillow’s data and information, it often comes back to the turmoil surrounding the accuracy of the Zestimates. Errol Samuelson himself admitted that they get frustrated that their data is incorrect, and that more and more people are complaining about the Zestimates. If this is the thorn in everyone’s side, why not remove them? Would their site not still be a great resource without this tiny piece of (mis)information? They could even turn it into a profit center – sell it to local agents to be the “Zestimator” for specific properties. They’re already selling back advertising space to agents next to their own listings. If they claim they can never get it right, why have it at all?
For more reading on the topic of Zestimates and the accuracy of Zillow, check out these articles from The Washington Post, one written from the real estate perspective of David Howell, Executive Vice President and Chief Information Officer at McEnearney Associates, and one, a rebuttal of his argument from Zillow Chief Economist Stan Humphries.
Whatever you take away from any of the articles written for or against the Zestimate, know that the next time you see one, you should think twice about its accuracy.