Zillow is the real estate agent’s worst enemy. And it isn’t any kinder to buyers and sellers.
So is their basic home pricing structure, cleverly called “Zestimates,” which feeds the public’s need for information with blatant inaccuracies that misinform buyers and sellers, exacerbating an already widely held opinion that real estate agents are: greedy, are idiots, don’t have clients’ best interests at heart, or all of the above.
The growth of third-party websites like Zillow, which has reported up to 75 million unique visitors in a month(!)—far more than lesser-known cohorts Trulia and Redfin—might seem harmless. But in a business where more than 90 percent of potential clients are using the Internet for research and to build a profile for what they can afford or how they should price their home, accuracy is just slightly important. Unfortunately, accuracy and Zillow’s Zestimates go together about as well as an L.A. house and a ‘70s kitchen.
A story in the L.A Times earlier this year broke down the issue. “Shoppers, sellers and buyers routinely quote Zestimates to realty agents—and to one another—as gauges of market value. If a house for sale has a Zestimate of $350,000, a buyer might challenge the sellers’ list price of $425,000,” they said. “Or a seller might demand to know from potential listing brokers why they say a property should sell for just $595,000 when Zillow has it at $685,000.”
Zillow CEO Spencer Rascoff himself told ‘CBS This Morning’ co-host Norah O’Donnell “that nationwide Zestimates have a ‘median error rate’ of about 8%. On a $500,000 house, that would be a $40,000 disparity,” said The Times.
The Washintgton Post used 5% as a benchmark for their research based on Zillow’s earlier accuracy assertions—with, umm, questionable results.
“Not a week goes by that we don’t encounter a consumer who is fixated on a particular value for a home because that’s what Zillow says it is. Kudos to Zillow for making this kind of impression on the public—brilliant marketing. But our research shows that, on average, those ‘Zestimates’ are within 5 percent of the actual value of a home just half of the time,” they said. “Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. For example, in New York County—Manhattan—the median valuation error rate is 19.9%. In Brooklyn, it’s 12.9%. In Somerset County, Md., the rate is an astounding 42%.”
The post also found discrepancies in California’s more rural counties up to 26%. And in San Francisco, “It’s 11.6%.” Based on the median home value that was $1,000,800 at the time, “a median error rate at this level translates into a price disparity of $116,093.”
Just how bad is the Zillow problem? In Inman’s recent in-depth report on the challenges facing the real estate industry, “third-party websites” was the runaway answer (at 56%) to the question, “What entities do you think are a hindrance to the real estate industry?” It was also the No. 1 answer to the question “What single entity do you think will be the biggest hindrance for the real estate industry in the coming years?
The real issue is this: Zillow isn’t just a portal for information. It’s an industry influencer—one that’s breeding mistrust in an industry that’s got enough to deal with already.
So what can be done about it? Consumer education is critical. Pointing clients toward information that explains the problem with Zillow and details why Zestimates aren’t an accurate representation of home prices is a start.
Industry participation is also key. Two Colorado MLSs just joined together to sidestep Zillow with their own public site, ColoProperty.com. That’s promising. Remains to be seen if others will follow, but, for now, the site says it gets more traffic than Zillow sites provide.
There are other issues with Zillow beside their questionable Zestimates (more on that here and here). But those are conversations for another day. I’m too busy today trying to help a client understand why his house is actually worth a good $80,000 less than Zillow says it is.
Zestimate? More like Stressedimate.
Tripp Jones Real Estate for Santa Clarita and San Fernando Valleys, Call 661-733-4555 or 818-527-6292