Unless you live in a cave, you are no doubt familiar with the Zillow phenomenon. Zillow is an on-line real estate service that allows users to obtain a free valuation of any property, or “Zestimate”. In addition to the on-line valuation feature, they are now rolling out Zillow Moblie, which allows users to get “almost instant” Zestimates via their cell phones. While most of us in the industry whine incessantly about the questionable accuracy of the Zestimate, I do give these guys props for developing a complex algorithm and a fun tool. The question is, is it fun or is it a tool? Well, a little of both, I suppose, if you keep the information they provide in perspective.
Zillow uses public records in arriving at their valuation estimates, so from that standpoint, the data has value. But, Zillow (not being of the human persuasion) is totally objective and, as we all know, subjectivity is a large component of home valuation. So, LET’S PLAY ZILLOW! I chose the four most recent closed sales in my community as a little test of Zillow’s home pricing savvy, figuring they would not have picked up on the recordation price yet. Here is what I found:
Home A: Sale Price $600,000; Zillow Price $702,837 (Ouch)
Home B: Sale Price $650,000; Zillow Price $643,813 (Not bad)
Home C: Sale Price $1,055,000; Zillow Price $1,010,645 (Close)
Home D: Sale Price $1,169,500; Zillow Price $1,389,248 (After four months on the market, I might add. Don’t those buyers know value when they see it? 🙂 )
Now, Home D is an interesting case study in that two weeks prior, an almost identical model match sold one street away. Both homes had nearly identical views and lot sizes and virtually identical floor plan and square footage. Upgrades were comparable as well. We will call this model-match “Home E”. When Home E sold, the principals signed a non-disclosure agreement so that no sale price would show on the tax stamp or in the MLS. (Why that was the case is the subject of another post). Therefore, Zillow’s algorithm has no way of taking advantage of this sale as a comp. Since it is public record, however, we can tell you that Home E sold for $1,085,000. Zillow’s estimate? $1,158,057. Why did Zillow value two identical homes $230,000 apart? Beats the heck out of me.
So, was that fun? Sort of (if you are a real estate junkie like myself). If I had relied on Zillow to price these homes, would it have been a useful tool? Not so much, I’m afraid. What have we learned? What every real estate agent out there already knows; pricing is a combination of art and science. Proper pricing requires experience, market knowledge and human reasoning (which Zillow can not provide). Most importantly, perhaps, Zillow is not the “market”; your buyer is the market, and they will be willing to pay what they perceive the value to be, Zillow be damned. I am not suggesting that you shouldn’t continue to play Zillow, but remember that in the department store of Real Estate, Zillow is the toy department. (P.S. Zillow says that the value of my home dropped $10,000 since yesterday. Bummer. I told Steve it was time to repaint).