A recent article in Fortune Magazine (2/7/07 edition) talked about the explosive growth in the use of Zillow.com by both buyers and sellers of real estate to estimate the market value of homes in their community
The problem is that Zillow.com completely ignores the fact that you simply can not estimate a propertys market value given the limited public information available, such as the age of the home, location, number of bedrooms or bathrooms, or square footage. Many factors such as whether it has been remodeled, the desirability of the floor plan, proximity to schools, street appeal, etc. have a huge impact on market value. Only an experienced real estate agent or appraiser, taking all factors into consideration, can provide a property owner with an accurate estimate of a propertys value. I have seen many instances where Zillow.coms valuations are 50% or more inaccurate, with many of their valuations appearing to be almost random. Zillow.com has not ever set foot in any of the property’s they are providing an estimate of value, so how can they possibly represent that they have any idea what the property is worth?
For instance, Zillow.com values the home across the street from me at a price approx. 40% higher than my home, although it has approx. 22% less square footage, one less bedroom, a less desirable floor plan, a smaller yard, and no ocean view, which my home has, and although recently remodeled, my home has also been remodeled with a much larger new kitchen. Zillow.com also has another home across the street from mine at a valuation at least 40% lower than its true market value, because zillow.com completely ignores the fact that it was recently completely remodeled inside and enlarged.
The business model of zillow.com simply can not provide accurate market value information, as the public information which it uses tends to lag the market, and most importantly, they are completely ignorant as to the unique qualities and details of each home that it appraises. Has it been remodeled? Does the floorplan work well? Are the bedrooms too small? Are the bathrooms and kitchen well designed? How large is the backyard and is it nicely landscaped? Does the house enjoy good curb appeal and attractive and well maintained landscaping? How well maintained is the home, and does it have any issues such as mold, old roof, or other deferred maintenance? All of these factors are important to evaluate in determining a propertys market value, and zillow.com simply can not do so. Only an experience real estate agent or appraiser, taking into consideration all of a propertys unique characteristics can help a client estimate a propertys true market value.
I have actually been contacted by people who have used the listing information on my website and compared it to the valuations used by zillow.com to try and estimate whether a property is over or undervalued compared to its listing price. This is like playing russian roulette with a fully loaded pistol.
When I am working with a buyer or seller, I provide my clients with a Comparative Market Analysis that includes only those homes which through my years of experience I believe are directly comparable to the subject property I am evaluating, taking into consideration all of the factors affecting a property’s market value. Many of the property’s included in the Comparative Market Analysis I have personally visited while they were on the market, and I am able to truly evaluate all of the unique characteristics of each of the properties in order to come to a reasoned estimate of value of the subject property.
Anyone using zillow.com as fact, may as well be using a Ouija board. Another good web blog that discusses this issue about how Zillow.com is a fraud is http://www.bloodhoundrealty.com/BloodhoundBlog/?p=134
Following is an email which I sent to the author of the Fortune Magazine article:
“Your article on Zillow.com completely ignores the fact that you simply can not estimate a propertys market value given the limited public information available, such as the age of the home, location, number of bedrooms or bathrooms, or square footage. Many factors such as whether it has been remodeled, the desirability of the floor plan, proximity to schools, street appeal, etc. have a huge impact on market value. Only an experienced real estate agent or appraiser, taking all factors into consideration, can provide a property owner with an accurate estimate of a propertys value. I have seen many instances where Zillow.coms valuations are 50% or more inaccurate, with many of their valuations appearing to be almost random.”
I received an email response from Jeffrey OBrien of Fortune magazine, the author of the article on Zillow.com, that read as follows:
“Actually, I think youre ignoring the third section of the article, where I discuss this. I agree that the knowledge in the mind of an agent is the best approximation on the true value of any home (which is why I bothered to follow around Brett Barry and experience his knowledge first-hand). But what if there were a central warehouse for all the information that exists in the mind of every homeowner, every buyer, every seller, every realtor? Only then would you have a perfect market for real estate. It sounds far-feteched – until you think of wikipedia. Who ever thought you could have an authoritative encyclopedia compiled not by so-called experts, but by the masses? Whether or not Zillow can pull this off is immaterial to me. But it is coming, some day, and smart realtors are thinking about how their business will change because of it. Anyway, thats what I think.
Thanks for reading – and writing.”
The following was my response to Mr. OBrien:
“The problem is that consumers (buyers and sellers of real estate) are using Zillow.com, thinking that it is an authoritative source of information, and it is not!!! These people are making investment decisions based on faulty assumptions and information, somewhat based on publicity and articles such as yours. The focus of your article should have been on how Zillow.com is perpetrating a fraud on the users of its service instead of on how wonderful it would be if the real estate markets were transparent and efficient like the stock markets. Real estate is not a fungible commodity, and can not be valued like a stock, which is traded on a daily basis, with its market value determined through an efficient marketplace. Because an individual property has its own unique characteristics which significantly affect its value, and is infrequently traded in the market, the real estate market will never be what you envision as including a central warehouse for all the information that exists in the mind of every buyer, seller, or realtor, and articles such as yours just continue to feed the publics misconception as to the accuracy of Zillow.com.
Although in the body of your article, you do address the problem with the accuracy of Zillow.coms valuation estimates, and the fact that an informed real estate agent is well worth his commission, the headline of your article “What’s your house really worth? . . . How Zillow is turning online voyeurism into a real estate revolution”, infers that Zillow.com is a valuable and accurate tool for consumers to use (unfortunately, many people only read the headlines of articles such as yours). The conclusion to your article is that wouldn’t it be wonderful if the real estate market were a completely efficient marketplace with perfect information, and that Zillow.com was leading the way to such a marketplace, however the conclusion should have been that Zillow.com is providing wildly inaccurate information to consumers, and that due to the basic nature of the residential real estate market, that such an efficient marketplace can not occur because of all the variables involved in pricing a home.”
I also received an email from Brett Barry, a realtor in Phoenix, who was the only realtor interviewed in the article, who read my comments above:
I read your comments with great interest, since I was the only Realtor “source” for Mr. O’Brien’s article on Zillow.com
It’s obvious to me that O’Brien had already formed his opinion that Zillow was somehow creating a new “Paradigm” in Real Estate research for the public to devour.
He poked some fun at me (and all Realtors), but the basic gist was that Zillow was creating something truly new. As a Realtor for over 15 years, I have heard these arguments before many times and I think that they are false.
Zillows “zestimates” are consistantly off by 10% or more, and on a $600,000 home that is $60,000+. This is an unacceptable margin to be off, and regardless of how much they fine tune the Zillow site, I highly doubt that it will ever be close to accurate. There are way too many variables, especially in an area like Palos Verdes where you have a mix of older and more remodeled homes. Even the tract homes here in Phoenix can vary widely.
Mr. O’Brien never questioned some of Zillows own goofy numbers quoted in the article – the fact that in Phoenix “Zillow has Zestimates for 99 percent of all Phoenix homes and claims that 72 percent are accurate to within 10 percent.” These are not rock solid numbers, and they never will be.
I agree that homes are not the same kind of commodities as stocks, and the founders of Zillow are overestimating their abilities and misleading consumers in the process.
I honestly feel no threat as a Realtor from Zillow – good information in the hands of consumers is a positive thing. But to think Zillow will be changing the entire paradigm of Real Estate is just dead wrong. Zillow will not do for Real Estate what Expedia.com did for the travel industry, not a chance.
Keep in mind that much of what we do as experienced Realtors is to help manage the emotions of sellers and buyers, especially AFTER the home is sold and going through the escrow process, home inspections, and financing of the buyer.
Let Zillow figure all that out – it isn’t going to happen.
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