January 23, 2008

Zestimate Shmestimate

by Irene Nash

dog next to owner on computer

OK, here’s an example of why I believe Zillow’s home value estimates should be used primarily for recreational purposes:

A few days ago a friend called me because his kids are selling their home in one of the cities near Seattle.  It’s been listed in the high $200’s for over a month, down $20K from where it started a few months ago, but it still hasn’t gotten any offers.

Bad Real Estate Decisions are Expensive

Now some serious questions are coming up:  With divorce looming, should they keep it on the market?  Re-list with another agent?  Have one person buy the other out, and if so, what’s a fair price?

If they keep it on, they’ll need to sell quickly.  Should they drop the price and risk coming up short?

Or are they leaving money on the table?  According to Zillow, the property’s worth $21,000 more than the current list price!

Big decisions.  Potentially expensive decisions.

Realistic Comps Are Not Optional

My friend sent me the Zestimate page, and that’s when I found myself fuming.

The property was 3 bedrooms, 2 baths, 1300 square feet and built in the 1960’s.

Of the four main “comps” (comparable homes, supposedly) listed on the primary page,

– One was 2 bedroom, 1 bath
– One was 3 bedrooms, 2.50 baths, 1500 sq. ft. and built in 1990
– One was 4 bedrooms, 2.75 baths, over 1600 sq. ft and built in 1997

And the fourth one was even bigger.

What is going on?

I did a multiple listing service search and there were six or seven really similar comps from the last three months in that immediate area.  Those showed that the home was not worth $311K, and in fact was much better priced where it was at.

(I realize the fact that it wasn’t selling indicated it still might be high at the current price, but the photos of this home were really sub-par and missed a lot of the desirable features.)

It’s Nothing Personal – It’s the Algorithm

OK, I’m not a programmer – I think it’s the algorithm.

Here’s the thing – I have nothing against Zillow personally.  (In fact, the more I learn about online-based home valuation, the more I’m convinced of the job security of a good real estate agent.)

But it does really bother me that people make important decisions based on this kind of information.

My friend, who’s a smart, computer-savvy person, was enthused about the higher valuation and pointed out to me that the comps supported the Zestimate.  I had to point out to him that of course they did, since the Zestimate was a product of the comps.

(It’s like taking the average of a bunch of numbers, and then saying that the numbers support the average.)

After all this time, why can’t Zillow at least exclude homes that are clearly so different in age and size that they’ll never provide an accurate reflection on price?

Bottom line:  Crummy comps = crummy numbers = crummy market valuation.

(That holds true for Zillow and agents alike, of course!)

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