Should You Trust Zillow Property Value Estimates?
As the entire world already knows, Zillow launched yesterday. The very first thing that I estimate over 500,000 people did (when the site was not down… maybe a great marketing ploy?) was enter their home address to see what it was worth. (BTW - nice IP to mailing address collection tool, but that’s another post). Most users were either pleasantly surprised or disturbed by their estimates.
The general public who knew nothing about Zillow until yesterday were impressed (unless their estimate was lower than anticipated), yet most who have been following Zillow appear to be initially under-whelmed, until you consider the long term possibilities… again another future post.
I spoke to a lot of friends who looked up their places and found estimates that seemed fairly accurate while others appeared to be dramatically off. This got me thinking about how accurate can it be and should people take the estimated value as gospel. So a few hours later, here are the results of my small test.
The Accuracy Test of Zillow Estimates.
First off, let me say that this is a very small random sample. In reviewing the Zillow site, they claimed they were best at the mid range properties on the West coast. So I based my random sample on the following:
25 Properties that were listed for sale by REALTORS on my local MLS and sold between 2/01/06 - 2/07/06. I took the mid-range (in California) of $500,000 - $700,000 for various cities in the San Gabriel Valley and western San Bernardino and Riverside Counties. I obtained the data via my MLS. I also removed the High and Low to give a more accurate average.
I then plotted the listing price, sold price and the Zillow estimated value data on a chart.
Here are some highlights of my test.
It appears that Zillow is in fact within its claimed margin of error. In fact it appears (from my small sample results) that they are typically off by 2%.
There was some major discrepancies where Zillow was either high or low by over 21%. I removed these anomalies from my sample data but here are the properties in question in case you’re curious. (Note I did not do further research to see why such a big swing and why both properties where in Monterey Park)
Property | Zillow Est. | Listed Price | Sold Price | Error Margin
438 Sefton Monterey Park, CA | $794,134 | $638,000 | $615,000 | 129%
3054 S. Addrienne MP CA | $397,137 | $539,000 | $505,000 | 79%
As you can see from the results, overall they were pretty good. Would I take this as gospel… not. I would not suggest clients to price their home exclusively on the data Zillow provides but a combination of Zillow results and active and current listings from both realtor.com and homepages.com where available.
A trend that I do see this creating is prospective home sellers ordering property appraisals before listing their homes for sale. This only makes senses and it’s incredible that it’s not more common place considering how many real estate transactions blow up for this very reason.
The biggest issues I see with Zillow (which is obvious) is that it does not factor in certain aspects of a property such as specific location, views, improvements, lot slope, etc. that will make a specific home more valuable than another… but this is expected. As for traditional track housing, it’s pretty good.
The real reality of this tool is that it does a better job than most real estate agents can do at presenting the information in a clear, concise manor that is easy to understand to the general public. This will lower the overall perception of the value of the REALTOR, which will most likely lead to long term decreases in real estate commissions. This appears to be what Zillow had in mind.
Real Estate “Super Consumers” will become the norm. They will spend months understanding the nuances of the community they are interested in buying or selling. They will know crime rates, property values, school district information, job rates, etc… better than most REALTORS in their own communities. This consumers will be able to demand lower real estate transaction fees.
I also think that it is one of the biggest advances in real estate in years (although AVM have been around for at least 5 years, it was not publicly available for free and on this scale) along with current mapping technologies such as Google Maps, Google Earth and what A9.com is doing. I think that it will be a boon to the “for sale by owner” community as they are now armed with both pricing tools and easy effective advertising for their real estate listings.
I believe that FSBO market will gain some serious traction over the next few years (easily reaching 20% market share like in Madison Wisconsin) because of these “super consumers”. I also predict that the national average real estate commission will come down to 3% total but hey, time will and I’ve been wrong before.
Download my PDF paper & chart of this test
If you have any real life data samples, please post them here. We are looking for recently "Sold" listings & the Zillow Estimate, to make a running list of how accurate or flawed Zillow is.
posted by Jessie B at 1:20 PM
5 Comments:
In the vehicle industry, informed consumers using data from web sites like Edmunds were able to determine what they should pay for a vehicle. The difference between Edmunds and Zillow is that it is much easier to reach the invoice price of a car than it is to appraise a house you have not seen. That being the case, do you think the change to the real estate industry, and realtors' commissions, will be as dramatic?
I think the challenge to lower real estate commissions is the perception, of the buyer, that using a real estate agent is (1) free, and (2) establishes that the price you are paying is appropriate.
Currently, when I see a For Sale By Owner sign, I assume that the property is overpriced because, I tell myself, how would this owner know the value of his / her property. Now comes Zillow . . .
If Zillow tells me that the property is worth $500,000, and the owner has listed it for $485,000, (“Zillow less 2.5%”), then I don't need my real estate agent to tell me that the property is not only appropriately priced, but is actually cheaper due to the avoidance of the real estate fee.
So I think if there becomes a recognizable trend that houses listed as For Sale By Owner list below Zillow, and houses with real estate agents list at or above Zillow, then the market may start to see real change. So owners selling their own houses should start branding them as "Zillow less 2.5%" - then the concept becomes recognizable and quantifiable, and both parties save. Zillow can facilitate this by offering an appraisal which you could print out, as buyer or seller – formatted perfectly, with a place to insert pictures of your house – that could become the default real estate document included in every For Sale by Owner transaction.
I, like many others checked out the Zillow site. One major problem that I can attest to is that the data they use to create a value is not always accurate. My own house appriased in January 2006 for $300,000. Zillow dropped in at $245000. I made some modifications to the evaluation and it jumped up to $296K One problem is the land itself. Zillow showed 1.5 acres, per county tax records, there are 2.59 acres. When and is selling here at $35K per acre, it becomes relevant. You cannot alter the acreage for the evaluation.
A REALTOR is still great because most will provide the CMA at no charge.. Yes, they will probably bug you for a listing, but we all nothing in life is really FREE.
I think Zillow is indeed, a great tool to use. However, I guess like most startups, they would still have to perfect their systems as there are going to be flaws unforeseen when they started it.
With Zillow, or maybe other companies that may follow suit, the objective is to lower commissions for real estate agents. What Zillow provides though, take note, are tools. The need for agents though should not be discounted by "super consumers".
Buying and selling a home is still as complicated a transaction as it could be. For spending hundreds of thousands, or even millions of dollars for that matter, don't you think you would want the peace of mind that you did not miss a single point in the "tons" of disclosures that both buyers and sellers need to know? When you use the services of a real estate agent, for the most part, you are transferring the risk of a lawsuit to the agent, since that agent represented you in the transaction. The reason why agents are licensed and regulated by the state of California is the fact that real estate transactions are complicated. Agents are held to a higher standard and are expected to be knowledgable. True that there are unscrupulous agents trying to get your business just to get a commission, but there are some who do provide good and honest service.
In essence, Zillow is great. And some real estate agents are great too. But arm yourself with the tools of Zillow and the services of a true real estate professional and you will come out a winner in the end.
Realtors are fine if you're trying to sell a vacation home in a city where you don't live, or if you're out of town a lot and can't fit showings into your schedule, or if you're in a high crime city where a FSBO would be a home invasion risk.
Aside from that, they are pretty useless and never, ever use a buyer's agent as the 3.5% that a buyer's agent would eat can be deducted from your offer as an independent buyer.
If you run into a realtor who won't accept an offer from an independent buyer, pass them and their property buy.
This is a buyer's market in every market in the country, and don't let anyone tell you differently.
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