Today, I witnessed a revealing interview on CNN with Richard Barton & Lloyd Frink, the brains behind the successful Expedia.com Travel site and more recently Zillow.com. Barton referred to Zillows entry into the real estate market with it's on-line home evalutations, Zestimates and Make me a Move Price as "turning on the lights in a dark room". "We're here to give home owners more control, more information and better education".
When questioned by the host of CNN Newsroom about the error rate for Zestimates, Barton passed the baton to Frink who indicated that the Zestimate is a starting point. He explained that if there were no updated home facts available or if the tax assessment did not reflect recent updates, the Zestimate could be "off". In a related article entitle What's Your Home Really Worth? Fortune Magazine senior editor Jeffery M. O'Brien, indicates that an on-going urgent priority for Zillow.com is improving the site's accuracy.
"Overall, Zillow has Zestimated the value of 57 percent of U.S. housing stock, but only 65 percent of that could be considered "accurate" - by its definition, within 10 percent of the actual selling price. And even that accuracy isn't equally distributed. For example, 85 percent of homes in Los Angeles have Zestimates, and two-thirds have been accurate. But only 53 percent of homes in metropolitan New York have Zestimates, and only half of those are accurate. In Louisiana, where one in 50 homes is listed on Zillow, the site is just about worthless".
Barton and Frink both vigorously denied trying to eliminate the services of the "middle man" aka Realtors in the real estate transaction in a similar fashion to the end result of the Expedia.com model which decimated the travel agent industry. They indicated that they are working diigently to perfect their current model. The pair agreed that people need professional assistance in selling their home; "we are just trying to create a new kind of marketplace".
O'Brien's article suggests that Zillow.com is really after another huge asset, the real estate advertising dollar.
"It's clearly in the company's short-term interest to maintain the current power structure. Brokers, agents and developers spend upwards of $8 billion in advertising a year. By 2010 a greater percentage of that money will go to the Internet than to newspapers, according to the media consultancy Borrell Associates. So Frink spends his time convincing the professionals that their ads on Zillow will attract new clients"
And what kind of marketplace might Zillow be intent on creating? Right now in Zillow World, anyone can access information about a home listing AND anyone can change or manipulate it. There is no consistent or coherent way to check to see if the information being used to update a home listing is accurate or if the individual doing the updating is in actual fact the seller. Zillow.com claims its goal is to enhance transparancy in the real estate transaction. Blurring the lines between truth and contrivance by allowing anyone to do anything without appropriate verification is similar to the age old parable of the fox guarding the hen house and promising not to have any chickens for dinner....ever! In my opinion the lights haven't been turned on...we've just fast tracked the descent into a bottomless black hole.
As the segment prepared to wind up, the camera focused on a listing on Zillow which was listed in the Local MLS for 3+Million dollars but had a Zestimate of just over 1.5 Million. The home was located in Seattle, headquarters of Zillow.com. The inevitable question about accurate pricing loomed large as the camera panned over to the two men in the Hot Seat. How do you LOSE 2 MILLION DOLLARS ON-LINE IN HOME EQUITY? Lloyd admitted that Zillow.com has an error rate of 7.2%, but this should be qualified. As the Fortune article points out, the error rate of 7.2% must be framed within the context of discrepancies in value projections of within 10% of the true home value for so called "on target Zestimates". So now we are really talking about a compounding of potential error.
Mark Lesswing, a senior vice president at NAR is quoted in the Fortune Magazine article. "Many realtors don't fear Zillow anymore. They use it as a way to show how their services are more valuable than something you can get for free on the Web."
As the show concluded the the host summarized the intervew to the television audience with the following salient counsel "Don't cry if you don't find your home is worth what you think it is" . I echo the sentiment...don't cry indeed my friend; for no one will see your tears within this present darkness. Now, it is possible with just a Click to wipe out 2 Million Dollars of Equity in this brave new world on on-line fortune telling.
*Interested in Zillow estimates for the rich & famous, for whom presumably a few Million dollars Loss of Equity may not require any tear shedding, click and hold your breath here....
*For related discussion and comments on Active Rain Network about trends in 75 metropolitan areas in the 4th Quarter of 2006view this post entitled Zillow Releases Raw Data behind 4th QTR Housing Reports.
© Audu Real Estate 2007 All rights reserved
Lola Audu, is the Designated Broker & Owner of Audu Real Estate. Our company specializes in helping people buy and sell homes in the greater Grand Rapids, West Michigan area. We've had the privilege of helping hundreds of clients succeed in their goals of purchasing and selling property including demonstrated success in the negotiation of Short Sale Transactions. You can contact us via e-mail @ info@auduhomes.com or by phone at 616-791-0511.
Well thought out and written article. I think that what you quoted:
"Mark Lesswing, a senior vice president at NAR is quoted in the Fortune Magazine article. "Many realtors don't fear Zillow anymore. They use it as a way to show how their services are more valuable than something you can get for free on the Web"
...is very true. Zillow is an interesting tool (that could cut deep someday) for consumers, and for RE agents to show their value for analyzing property values. In suburban areas with large developments of similar houses, Zillow is able to do a better job than it can in older, more mixed neighborhoods, but overall there needs to be an experienced real estate agent to provide a meaningful valuation.
BTW...catchy title!
It appears that Zillow has an impossible task.
"Fortune Magazine senior editor Jeffery M. O'Brien, indicates that an on-going urgent priority for Zillow.com is improving the site's accuracy." really says it all.
The only way Zillow can improve the accuracy of their valuations of real estate is have qualified real estate practitioners actually VISIT THE PROPERTIES and do the valuation as we have done for about 100 years.
Some things cannot be done in the abstract.
Zillow IMHO does have some Useful Information, as in any tool it the user that yields the results.
1 - Zillow is great for home values in Developments that have several models with or without upgrades then it all about location, Condition and view.
2 - Zillow has all sales including for sale by owners, since it update from the property appraiser.
3 - Zillow is a enhanced AVM and it for free
4 - Zillow allows you to select the Comparable for a value
5 - Zillow is not good for Unique properties or properties near defining values I.E. on the east side verses the west side of the Inter-coastal in Florida east side has access to the beach
6 - Near a boundary for two Neighborhoods
7 - Not great for new developments and slow to update the data
just my Opinion
I think Zillow needs to always put a disclaimer on any ads and on their site similar to the drug company ads that have to state all the negative side effects when they market thier drugs. Instead of "ask your doctor" it should be "ask your real estate agent to see if Zillow is right for you"
Personally, I would be embarrassed to even come out public with such an inaccurate model. By the time they get it right, the standard attitude will be that Zillow can't be trusted to give accurate results.
Zillow isn't very accurate here in NYC.
Very well written entry!
Deborah,
I think any area in which there is differentiation will be a difficult comp for the Zillow model...what about condominiums, mixed style community neighborhoods, luxury enclaves within established neighborhoods in addition to those you mentioned
Mitchel hit the nail on the head.. the very nature of Zillow means it can only hope to be accurate when looking at a new development of conforming homes.. anywhere else it is way off.. I checked on the value of my house and only wish I could sell it for their estimate of value..They really do need a big disclaimer on each evaluation that the figure given may be off by XX%... too many people think it is accurate because all their home information is there..
As with all things internet related.. it is a tool.. maybe someday a good one.. but as with all things internet related... garbage in is garbage out.. a live person needs to interpret the information before it has real value. For now Zillow wants our money... but their ultimate interest is to get our money and everyone else's in addition.. I think their first thought was to eliminate real estate agents as they did travel agents but the soon found out that wasn't going to work. So now they want to play nice..
When you go to a Doctor with an ailment, do you want him to diagnose you from the other room?
Real estate is a local business. Sites like Zillow can help people get the facts about a property, but a true evaluation of the property needs to take into account things that the computer may never see. Real estate is a local business with bits and pieces of information that may never become broadcast news or fit for the web. These bits and pieces could have a big impact.
Besides, Zillow does not buy and sell products in the local town like the Realtor does. As long as they sell the advertising they don't care where you buy or sell or if you even buy or sell. People should realize this when buying and selling.
Information is important, the local agent provides the proper interpretation of the infomation. They make the information useful.
Many months ago an agent in our office sent an email telling me about this new "Zillow" site. I checked it out right away. The numbers were so inaccurate that I couldn't imagine anyone taking it seriously. I was wrong.
As it turns out, some people are using this information to make decisions about the buying or selling. What a shame.
Mark, I agree with you about the light in the darkness Zillow style...goodness, it's so bright that it's creating mind numbing blindness...:)
Interesting way to use Zillow to get to the truth Chris....
Lenn...in more ways than we can probably imagine, the Zillow model is job security for good real estate professionals. There are some things that can only be accurately evaluated on the ground...A medical evaluation over the phone is malpractise....so is real estate on-line without professional assessment on the ground.
Thanks for visiting and the comment, Cynthia
Maggie, I got a good chuckle from the cartoon....couldn't believe my good fortune when I found it on my Print Shop graphics library. Interesting comment about your experience with the land purchase overseas.
Diane, your comment: "Now how is Zillow going to discern the difference in a wooded versus a lagoon view?"....precisely my point as well.
Tim, your thoughts in reference to your comment MAY be Consumer Advocacy at it's best... "I think Zillow needs to always put a disclaimer on any ads and on their site similar to the drug company ads that have to state all the negative side effects when they market thier drugs. Instead of "ask your doctor" it should be "ask your real estate agent to see if Zillow is right for you" Leigh & others seem to agree with you!
Carol & Luke...Thanks
Lloyd...Zillow as it stands today is confusing for everyone...buyers, sellers, appraisers, agents....
Kaye, Interesting commentary...thanks
Lola,
Great post about Zillow! We've come across problems in listing homes where the sellers had used the estimate and came up with prices much higher then the actual home was worth. As we all know, people want to be told what they want to hear and not what they need to hear.
On the flip side, we've also come across situations when the estimate comes in with a value much lower then what the home is actually worth. I would be very surprised if there was nobody out there taking advantage of this with uneducated FSBO's.
Paul, I saw the "flip side" with some listings for my local area in Grand Rapids, Michigan. I was astonished at some of the prices the sellers had been willing to take... sometimes 50% below prevailing market prices in the area. As we have a significant foreclosure crisis in the area, I was not sure if the seller in those cases were banks or organizations...this was the only plausible explanation for why a Seller would be willing to sell themselves that far short when other homes in their community HAD SOLD for much more. The prospect of an uneducated seller being taken advantage is very real.
Thanks Stephen...All the more reason for a balanced perspective and analysis on the validity of the pricing "model"
Lewis, I can imagine from a mortgage standpoint that inaccuarate information given to unsuspecting homeowners might be interesting to have to deal with particularly when it comes to appraisal values...
Pete: Ditto, have found this on many homes in GR, MI area...