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.
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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!