Zillow.com got itself a ton of new venture capital yesterday, so today seems like a fine time to deconstruct its praxis.
When Zillow was brand new, Catherine Reagor, the dippy local real estate reporter for the Arizona Republic wrote:
Want a reality check? Go to zillow.com, a new Web site with a program that calculates a home’s value for free. It values several Valley homes for tens of thousands less than the price listed on them.
At the time, I said this in response:
If you want to know what your house is worth, do not go to Zillow.com, which delivers completely useless estimates of value for free. Even Net Value Central, a tool used by professionals, lags the market by a month or more. The only way to price a house is to work as rigorously as possible from current and recently-sold listings for extremely similar properties. If you price your house to sell from sources like zillow.com, you will give thousands of dollars away. If you rely on zillow.com to tell you how much to offer on a home, you will see it sold to someone else.
(You can prove all this to your own satisfaction, if you like. Most of Ms. Reagor’s mistakes seem to come from falling in love with ideas she doesn’t check out. Here she tells us that she ran Zillow.com on live listings and found it came in much lower than the listed prices. How did it do against sold listings? She didn’t check, but you can. Run Zillow.com on the sold homes documented in your local section of the Republic. You’ll see that, time after time, Zillow.com is substantially under real-life market results. It’s a useless toy, which Ms. Reagor might have discovered on her own had she bothered to test it properly.)
Just lately, I needled the Zillowites a little more:
All right, here’s the deal with Zillow.com:
I decide I’m going to buy you a pair of designer jeans, nothing but the best for you. I know that fit is important, so I go to three of your best friends to get their sizes. Not yours, theirs. I strike a happy medium amidst the diversity, reckoning that — what the heck! — you can’t be that different from your friends.
If the jeans I buy for you actually happen to fit, this will be a happy accident. More likely, the jeans will be a close but not perfect fit.
You understand why, of course. Epistemological error was built into my sizing algorithm. I chose a method that might have been convenient, but which cannot possibly produce objectively accurate results with any degree of confidence. Arguably, the more of your friends I measure, the smaller my margin of error. But I am still pursuing an inherently erroneous sizing methodology.
For Realtors, a perusal of the tax records, the equivalent of a Zillow Zestimate, is the first step in comping, the step known to be least accurate. The next step is comping the house one-for-one with recent past sales and currently-marketed (competitive) listings. The last step is working all those numbers against the subject property in its current state of upkeep and upgrades.
In the same way, if I don’t take a tape rule to your inseam, the chances of my getting jeans that fit your unique physique are very poor.
A very nice flak-catcher — everyone at Zillow.com seems to be very nice, and they are all over the Cluetrain idea — had this to say in reply:
I obviously can’t share any secret math but can let you know that you’ve only got one part of the process captured in this story – for example, you forgot to mention that you also took last pair of jeans I bought from my closet and recorded its size – and you did the same with all my friends who bought jeans around the same time . . . etc.
That’s cute, but it’s not responsive. The main charge stands: Zillow.com cannot do what it promises and purports to do, because it is simply not possible to price a home you have not seen. That the algorithm they’re using might be better than I envision it to be means nothing. That it might be successively revised through time to become even better means nothing. The entire methodology is based on a fundamental — and painfully obvious — epistemological error, and if particular results happen to be more or less consonant with objective truth, nevertheless, Zillow.com cannot ever achieve — nor even approach — objective truth.
Want proof? Let’s look at some houses.
These houses are all from an historic neighborhood in Central Phoenix called the F.Q. Story Historic District. This is the first true suburb of Phoenix, the first organized, subdivided stretching out from the original square mile of Downtown Phoenix. Story was a commuter suburb: Residents rode their horses to town, or took wagons, automobiles or streetcars. The homes were built mainly in the 1920s and 1930s, and they were all one-off, custom construction. Further north, you can see the beginnings of the techniques that became production, tract-home building, but in Story the homes were all built like custom-tailored gowns, each builder expressing his own ideas of what a home should look like. In consequence, these homes are highly prized and sell at a huge price premium over later-built tract-homes with comparable space and amenities.
To be fair to sellers and other Realtors, I’m citing either homes we listed or which are not currently for sale.
We sold this house in February of this year for $480,000. Zillow has it at $493,712, a reflection of the process my correspondent was talking about. If fact, this Zestimate is probably too high, given that nothing is selling in the neighborhood right now. Don’t worry, though. This is as close as we’re going to get to reality.
We have this house under contract right now. The list price is $495,000. Our price is based on a complete appraisal. Zestimate: $297,319 — only off by $200,000. Realtors on the ground can see the value that computers can’t. You can barely see the house for all the trees, but that is a huge bonus in scorching Phoenix. The house also has a huge sun room, which we excluded from the appraisal but which sells the house to everyone who sees it. It’s the ultimate family space, a vast retreat for playing foosball or watching TV. (Addendum: This house sold for $475,000 on 10/12/06.)
We have this home listed for $450,000, again backed up with an appraisal. This is two doors west of 1102 West Culver Street, but evidently the Zillow algorithm doesn’t lift all boats with a rising tide. This home is also larger, eight years older and has a second bathroom, all of which are worth money. On the down side, it lacks a pool and doesn’t have elaborate desert landscaping. We are very confident the price is reasonable. (Addendum: We reduced the price to $424,900 after I wrote this.) The Zestimate: $311,648.
This home is listed at $519,000. It’s a breath-taking restoration of a 1935 Moroccan Revival home with a sybaritic master suite and a spacious guest house. Zestimate: $377,483.
Now, to this point, you could say that this is all so much sour grapes. Zillow.com doesn’t like our listings. Boo hoo! I invite you to pay close attention to the next house, which is not currently for sale:
925 West Willetta Street
The brown stuff you see where the roof should be is planking. The gray stuff showing through the planking is sky. The roof has been off of this house for a long time. Until this spring, there was a tarp over the planking in back. That failed in a storm, and I can’t imagine how much water was dumped into the house. It rained hard last night, too, so, whatever the home was worth yesterday, it’s worth less today. But don’t think for a minute that it’s worthless: It’s Zestimated value is $337,725, more than 922 and 1110 West Culver Street.
But here is my favorite:
1142 West Culver Street
The bamboo fencing is so demure, providing that added little bit of privacy. Can you see through it? Let’s take a closer look:
1142 West Culver Street — close-up
When we pull away the veil, we reveal… Nothing. The house burned down about 18 months ago. Our friend Jerry Kadansky was the demolition contractor, but the neighbors pitched in by hauling away much of the undamaged material, including every last piece of what was once a very impressive slate roof. But where you see a vacant lot, Zillow.com sees the house it has absolutely no way of knowing is no longer there. Zestimated value: $325,787, again beating out 922 and 1110 West Culver Street.
This is shooting fish in a barrel, but that’s not the point. The point is that, whatever it is that Zillow.com might be doing, what it is not doing — what it cannot be doing — is evaluating houses. This simply cannot be done by the methodology Zillow.com has employed.
The real estate industry is beset by a sea of troubles, not the least of which is the reputation some Realtors have earned by telling lies to their clients. Zillow.com does not tell lies. It simply does not tell the truth. By the nature of its methods, flowing without opposition from its underlying epistemology, Zillow.com cannot possibly, cannot ever, cannot under any circumstances tell the truth.
Technorati Tags: arizona, arizona real estate, blogging, phoenix, phoenix real estate, real estate, real estate marketing
Greg Swann says:
Oh, bless you for that!
The Zillow mystique is analagous to the aura that surrounds the nutritional supplements business. No can possibly confuse a clerk in a GNC store for a physician, but people like the idea of being liberated from the dictates of their doctor while going one up on him at the same time.
July 31, 2006 — 6:55 am
Dan says:
Read the interesting blog on http://www.realblogging.com “Can Existing Real Estate Brokerages Reengineer Themselves?”
Zillow appears to be the #1 topic of dicussion everywhere. Why is that when their Zestimates are so poor?
August 27, 2006 — 6:11 pm
Greg Swann says:
> Zillow appears to be the #1 topic of dicussion everywhere. Why is that when their Zestimates are so poor?
For what it’s worth, that’s not the problem I have with Zillow. The issue is that they represent one kind of information (statistical results from an Automated Valuation Method) as though they were a categorically different kind (a broker’s or appraiser’s opinion of value). If a real estate licensee did this, you would have no trouble recognizing it as fraud and malfeasance.
August 28, 2006 — 5:29 pm
Gene Whitaker says:
Just a quick note about what I saw this evening in Zillow.com. I work the Lakewood, CA area extensively. I looked at the value of a client’s home who withdrew their listing in March, citing the “Zestimate” and bad marketing (and no offers). It was about 40K over market. It is now “zestimated” to be up 30K more, while the sales prices in their tract have declined 25-30K below March pricing. (Their re-fi appraiser called me up to ask the particulars of the listing) It strongly appears that Zillow is disseminating fraudulent information to net users to try to run the knowledgeable agents out of the market.
August 30, 2006 — 8:59 pm
Anonymous says:
epistemology — wow, good word!
September 7, 2006 — 1:12 pm
Don Lieberman says:
We have just started a real estate investment business
we will be buying forclosures, What would you suggest if
zillow is so far of base, Thanks Donl
September 11, 2006 — 1:12 pm
Greg Swann says:
> What would you suggest if zillow is so far of base
Realtors comps like this: 1. Tax records (what Zillow uses). 2. Recent sold listings. 3. Active/pending lstings. 4. Visual inspection of the comped homes, as much as is possible. The more you know about the particular homes you’re dealing with, the tighter your comps will be. There are neighborhoods where I can tell you to the dollar what a home will sell for.
And that’s a possible strategy: Even if you’re not working with a Realtor, you might pay one or more to do tight comps for you when you;re ready to buy or sell. The alternative is a spot appraisal at about $300.
September 11, 2006 — 6:57 pm
Sheron Cardin says:
I currently have Zillow on my website. After reading this blog, should I write a little ditty below their link to take the valuation with a grain of salt?
September 15, 2006 — 6:46 pm
Greg Swann says:
> should I write a little ditty below their link to take the valuation with a grain of salt?
I’m expect that would violate your license agreement with Zillow.com. Don’t worry, though, this one page gets over a hundred unique hits every day. The truth will out.
September 15, 2006 — 7:27 pm
Lee Ovington says:
I appreciated your examples of how Zillow can badly miss the mark. Take a look at my blog article about my on-going study into the Zillow Valuation Method.
October 1, 2006 — 10:06 pm
Rich says:
The fundamental problem is that the only way to know the value of a home is to record a transaction. That’s why bid-ask spreads are so far apart on any home transaction. Statistically speaking, AVM should be just about as accurate as a realtor’s estimate. By that, I mean that neither will be very accurate at providing a transaction price, but both can and should be used to find an expected transaction price. Bottom line, the sale of a home is incredibly hard to value, because the market for that specific property is thin and illiquid.
October 28, 2006 — 8:31 pm
Gene Whitaker says:
I can’t speak for others, but I can usually determine an offer price for buyers(I love buyers!!!)or listings within a 5K spread. This is done just like an appraisal- i.e. what comp. properties have sold in the immediate area in the last 6 months; what are the particulars of the properties listed and sold; what “sales” in the area appear to be fraudulent (no listing, odd transfers, sellers becoming buyers, pricing out of line with the neighborhood comps., etc.)so they can be ignored; asking the lender to review with a desktop appraisal; and review the other homes listed for sale in the area. You do it the old fashioned way, by doing your homework, and you can get real close to the right price-what the buyer will pay, and the seller will take. There is no magic bullet, you do the work!
October 29, 2006 — 9:34 pm
Sonja Blocker says:
You have all the wrong information on the site zillow.com My house is appraised by state certified appraiser. It is appraised at 1,200.000.00. zillow.com has its value at 491,000.00. They are worst than someone with no experience. My house is 3792 sq ft main house with all brick construction. We have 4 large bedrooms 3 baths in the main house.New roof and ac, all new plumbing
and eletrical. Guest house all brick 550 sq ft all electric, plumbing and air and heat. Two docks on the st johns river which our property is on it 42 feet on the river government maintained channel. We have sprinkler, zoned system. Landscaped yard with gardens , patio, barbarcued areas balcony over looking the river with statley Oaks and moss. Circular Drives and many walkway.
I am going to contact my lawyer to see the possiblites of sueing you for your lying estimates
November 5, 2006 — 2:07 pm
Sheron Cardin says:
I am an interior designer who creates perceived value to resale properties through updating and staging them to model home status. I am also a consumer. The properties shown at the onset of this blog have a perceived value that you are talking about. Zillow is blind? Yes. Perceived value to a buyer is what pulls the wallet out of their pockets. But I have to admit that I would rather pay Zillow’s valuation over the inflated prices that I see.
Here is my question; Are Zillow’s evaluations ever less than the mortgages on your property listings?
December 31, 2006 — 8:32 am
Gene Whitaker says:
…”If Zillows guesstimates are ever less than the mortgages on your property listings?” the answer is yes…and no.The point of this blog, and the comments are that the Zillow “Value” is usually meaningless,since it’s uses a flawed formula that gets it wrong about 95% of the time. Values in neighborhoods (especially tract builds)are based on sq ft, conditions and updates.
For DIY-a RE Agent DOES NOT SET THE LIST PRICE OF THE HOUSE,THE SELLER DOES.The Agent advises a seller of the values in the neighborhood,but the Seller has the final say. But…the price of a home is what the buyer will pay,and be able to get a loan approved for!
FSBO-Purchase agreement/disclosures needed to buy a home here in CA are 50-60 pages of legal, binding docs.Only a fool(with deep pockets)would try to sell or buy a home by themselves.
PRICING-If you use the Zillow “value” you will offer too much and wonder why you can’t get a loan approved for that amount,or too little and wonder why you can’t get an accepted offer on your new home. It’s your choice!
December 31, 2006 — 11:07 pm
Laura Kaan says:
This was by far the best example I’ve seen regarding the Zestimate’s. Most of us know that they are not always good, but having it in plain sight to see exactly how far off they can really be is great. We’re not talking about thousands of dollars in some examples, but hundreds of thousands of dollars! The ufortunate problem is that many of my cliants will look at Zillow to get a feel for what there home is worth, and I have to tell them why it is not a good idea. Thanks for the information.
February 11, 2007 — 7:52 am
Laura Sutfin says:
Hello Greg,
I was browsing some of your previous blogs and came across your post on Zillow. I think that you’re right on point with their varying accuracy and the consumer’s tendency to assume it is correct.
I work for a company for a company called HouseFront, that uses text messaging to deliver real estate property values via the cell phone. We offer a rage of values instead of an exact value for the same purpose you inferred on your blog. We are trying to be a Realtor centric company.
You are a respected blogger on this topic, and we’d like your opinion. Could you please give it a try.
To use the service, simply text any address to 46873, which spells out HOUSE. Check out the website too, http://www.housefront.com
Laura: 303.623.5500
lsutfin@housefront.com
March 30, 2007 — 1:57 pm
Al says:
The flap about whether zillow.com can provide an accurate home value brings me back to the sale of our home 6 years ago.
Various “qualified”, licensed agents gave us appraisals that came in between $127,000 and $140,000. (small ranch) Everyone of them laughed in our face when we said it was worth at least $150,000. We were told “not in this neighborhood – the people around here can’t afford it.” My wife and I said, this home will sell to someone looking for a starter home from the overheated housing market in the county next door and compared to the prices there for a similar structure, it will seem like a bargain.”
With great misgivings the agent we decided contracted with listed the home for $157,000. “We can always go down” he said with a sigh.
It was sold the day before it’s first open house to a couple from the neighboring county with a bid of $160,000.
Zillow may under value homes, but it can’t be any worse than the “experts” we dealt with in this instance.
April 26, 2007 — 12:59 pm
John Wieland says:
Finally people in the know are rising up against Zillow, who value my historic district
house with those (way) out of the historic district, as well as giving equal value to unrestored homes amd those that have been completely restored!! They miss my
appraisal by over 100,000-and that is an up to date appraisal based on a burst bubble! Thanks Bloodhound!
September 24, 2007 — 3:25 am
Robert says:
Hi,
Zillow may not be that accurate, but it does give one a convenient place to look for recently sold house prices and it has a decent mapping feature. What does Realtor.com do for a buyer but give them the rediculous values owners/realtors would like to get. It also has had a lot of bugs recently and does not provide the information in a convenient manner. You realtors have been controlling the market for too long, your commissions are nothing less than outragious and may even be partly to blame for the quick rise in housing prices in the last few years. In my opinion, a sellor or buyor gets little for all the moola they both shell out for those services.
Sincerely,
Robert D.
September 24, 2007 — 3:04 pm
chris says:
Zillow is a major headache for me when I get calls from customers who think that they can “low ball” offers on homes that are clearly worth what the asking price is.
October 3, 2007 — 7:23 pm
Wayne Long says:
I find Zillow to be irrelevant in my area. No one even brings them up. There was a lot of buzz to start with and then nothing. I think Realtor.com is really a bigger problem as people do know them but get poor info from them. JMO
November 10, 2007 — 11:47 am
Shari Posey says:
Zillow.com is tremendously successful at public relations. They have gotten press coverage like crazy and it looks like millions in venture capital money from crazy investors. I am so glad I’m not one of those investors because unless Zillow.com can provide some meaningful content beyond listings like Realtor.com it will go bust. Zillow’s Zestimates are a BIG FAT ZERO.
November 11, 2007 — 7:30 pm
Las Vegas Guy says:
Very spot on “devaluation” of Zillow. There should be a huge disclaimer, just like on the TV ads for psychics, “for entertainment purposes only”.
November 17, 2007 — 6:08 pm
Bill Gassett says:
Greg – I know you have covered the zillow topic endlessly. Whay is most amazingto me is how some of the most intelligent highly educated people see their foolish “zestimate” and actually believe that it is accurate. In my area of Mass, the zestimates are almost always substantially higher than the true value. You would think that with so much press written about them they would at least be working on making their estimates better.
November 27, 2007 — 6:32 pm
Lee Carlson says:
I am a Realtor and have my own home for sale. I did extensive market research on my own neighborhood and came to the conclusion that it was worth about $179,000.
I then looked up the zillow est. and found that they valued it at $158,000.
I got a full price offer of $179,000. within 2 months. ! So much for Zillow accuracy.! I my opinon, Zillow is so full of misleading info, they should be banned form doing business. They have even shown aerial photos of one section of my subdivision, 2 blks. away from me, that has been built out for about 15 years, and Zillow shows it as vacant land !!
Please,..don’t waste your time with that site. It will only make you angry !
December 5, 2007 — 10:12 am
Asmodeus says:
I’ve been reading this article and the discussion quite fervently and based on what I’ve been reading, I’ve formulated a question that has just struck me as odd and I’m wondering if anyone has thought the same or similar thing. Do any of you think the comp system of valuation of homes, be it from appraiser, bank, or website is actually valid or should a home and it’s property be valued on it’s own merits outside of having comps used to derive an apply a value to it?
December 6, 2007 — 4:33 pm
Vancouver Washington Real Estate Guy says:
Zillow is just a tool. Many fixers and foreclosures in the are can have a negative effect on home values, the opposite is true for remodeled and new home in the area. Zillow cant look inside a home.
December 18, 2007 — 12:29 am
Bill in Florida says:
I have to admit, I am NOT a real estate professional.
I am just a person who is in the middle of this Real Estate Crisis trying to sell a home.
I have watched my property go from $1.65MM to a heart breaking $700K. While my agent still has me at a much higher value, there is NO WAY I can achieve his quote. That is, not if I want to sell the property anytime soon. I can tell you that at least where I am located Zillow has been very accurate in true values. Selling prices are as close as 4% in most cases where sellers understand what the market place can deliver. I notice that the people who find fault seem to be agents of sellers. Could it be that they can’t handle the reality of their paychecks falling back to what their services are really worth?? As I see it they are taking the easy way out and blaming the messenger (Zillow) and Not understanding the message.
February 24, 2008 — 8:09 am
Shari Posey says:
I am a real estate agent but I was also a seller last year. Don’t get me wrong, Zillow has some value because it does show what the last recorded sales have been in the general area however it does not show remodeling, upgrades, or additions to homes. In our case, we purchased the home was sold as a complete fixer for $525,000 and we remodeled extensively over two years including electrical, plumbing, a showplace kitchen, etc. At the time we put it on the market, Zillow set the value at $575,000 and it was pulling comps from a neighborhood that was only a few blocks away but not as desirable. Becaues I have access to detail comparables through the multiple listing service and I had seen the interiors of most of the homes on the market and recently sold, I priced it to sell at $689,000 and we actually sold for $675,000 within 3 weeks. Zillow was way off because it didn’t know the condition of our home. In another example, Zillow had one of my listings valued at $850,000 but actually after several months on the market it sold for $785,000. Zillow is a curiosity for homeowners not a tool for professional real estate agents and investors.
To Bill in Florida, real estate agents tend to be optimists–we have to be to work in this competitive and crasy industry. But it sounds like you need to stand up to your agent or fire him. Usually it is the other way around, sellers want to keep the price high at the agent’s recommendation of a reduction.
February 24, 2008 — 10:38 am
Sue says:
I am a realtor and have had several clients bring up Zillow as a reference. My feeling is that its interesting, but not accurate. Zillow may hit the target once in a while, but more often it provides a wide ballpark for buyers and sellers which a realtor can use as a starting point for the conversation to talk about comps both sold and active in the area and varying factors.
March 30, 2008 — 8:06 am
Cheryl Stimac says:
I don’t hear much in the Tampa Florida market about Zillow. It doesn’t appear to me that many of the prospects I deal with are using it at all as a valuation tool. Just another automated process that is about as accurate as anything else done in a vacuum instead up close and personal by a trained and experienced local Realtor or Appraiser.
April 28, 2008 — 11:29 am
Sue says:
I had someone refer to Zillow again the other day. I believe it to be a bad tool as its inaccurate and makes my job harder if Zillow is putting a higher than deserved price on the home. Some understand that there are other factors, some want believe the higher estimate.
May 20, 2008 — 8:43 pm
Cash Back Real Estate says:
It is a tool that can be useful though it is best to use a licensed appraiser who can inspect the subject property and properly analyze the local market and comparables. You always need someone who can inspect the subject property.
June 26, 2008 — 10:51 am
Larry Romo says:
Unfortunately there is actually NO ACCURATE valuation service in existence. Zillow is just a guide line, like all the others, no better, nor any worse.
An example, I just had my home appraised by a professional appraiser for the purpose of getting a refi. This supposed professional appraiser could not even figure out where to look to find out if it was actually a land/home package which I owned or if it was a mobile home on a leased property. I had to send him the county records to show the property and my ownership thereof. These were just copies of publicly available data available to anyone with an internet connection. This “professional” did not have a clue. Then to top things off, I had to provide him with comparable local sales for him to base his appraisal on. Then he proceeded to appraise the property for 75% less than what I could sell the property for even in today’s trashed market. If I were to list it at the price he quoted in his appraisal, it would be sold in 1 hour to the listing real estate agent or their brother. Because they would know they could flip it for double that in a few weeks time.
There is no such thing as an “Appraisal expert” and any estimates of property value should actually be termed “Guesstimates”.
Is there any regulatory agency controlling appraisers? If so, and if I can find out this idiots license number I will be filing a complaint of gross incompetence against him. Maybe he’s just doing supper low appraisals so he can buy the property and flip it?
September 11, 2008 — 1:07 pm
carlos meza says:
I use zillow to see recently sold homes, only. The information on the recently sold home such as date and price cannot be adjusted. there is a small difference in price for closing and such. But, don’t take zillow as fact. certainly zillow cannot look inside homes to see if they have granate countertops or upgraded fixtures.
October 9, 2008 — 1:16 pm
Eric M says:
It’s especially bad for condos. Most of the condos in my part of Chicago don’t even have the number of bedrooms or bathrooms listed in Zillow’s description, let alone square footage. Br/Ba counts are pretty critical to even start a price estimate, and square footage can give a nice basis for certain areas.
January 26, 2009 — 2:38 pm
BF says:
I took a look at Zillow to see what they thought my house was worth….they zoomed in on what was supposed to be my house but was a neighbors! My house is located behind the neighbors on 2 acres and we have spent thousands on plants, trees, and landscaping. When I saw the picture I about fainted..it was before they had even landscaped, no sod, no trees, no driveway! How do they account of all of the bells and whistles we added to the inside of the home (like the 11.5 x 22 ft. mancave upstairs with a home theatre, etc.?).
March 6, 2009 — 7:30 pm
Paul says:
it does give one a convenient place to look for recently sold house prices and it has a decent mapping feature.
Zillow is weak on what an indivudal home is worth cause so many factors,they can’t see inside a house.
But as tool for what recent homes sold in your neighborhood/town it great.It is a good general median home price estimate in your town..
March 7, 2009 — 10:26 pm