I like that Matt Heaton, He put up a great post today in his Active Rain Addiction Blog about the little website that inspires so much ire and rage in so many real estate professionals…and that website is Zillow.  It remains to be seen whether he made this post for pleasure or to stimulate scientific debate, but never the less, he informed Rainers that; this morning Zillow announced on their blog that they now allow homeowners to modify data about their home as well as make comments and provide their own estimate of value.  Matt seems to think this will be a great addition for the value estimation website, but he also put it out there that “It will be interesting to see the reaction from the real estate community, but I'm sure the consumers are going to love it...”

 

These are just a couple of the responses this post has already inspired:

“Example - Home listed this spring for $60,000 more than Zillow said it was worth.  Sold full price.  2 months later this home was still off base.  Now the same home Zillow says is worth $20,000 more than it actually is!!”  “Zillow has helped me! After someone checked the value of their home they called me and I told them it was worth more and got the listing which sold quickly. Thanks for the inaccuracies zillow! Keep it Up!”

Everybody is talking about Zillow these days.  Greg Swann over at the Bloodhound blog has a great post today that basically describes the Zillow experience as “in preference to telling one simple truth, it will propagate thousands of tiny lies”

It is my humble opinion that everybody really needs to take a step back and look at this from an objective and rational standpoint.  Not from the view that as real estate professionals, who believes that we alone are omniscient and omnipotent.

Everyone is quick to point out that Zillow’s estimates (or zestimates) are inaccurate.   Well first of all the name says it all…It is of course an estimate.  They state right in their terms of use that “ZILLOW.COM PROVIDES THE SERVICES "AS IS," "WITH ALL FAULTS" AND "AS AVAILABLE," AND THE ENTIRE RISK AS TO SATISFACTORY QUALITY, PERFORMANCE, ACCURACY, AND EFFORT IS WITH YOU.”

Real estate agents complain that dealing with clients is very difficult if they have used zillow or a similar website, because they have unrealistic opinions of the value of their home.  I ask this:  How many clients that you meet for a listing appointment don’t already have unrealistic opinions of the value of their homes?

As a Realtor, when you sit down for a listing appointment, how do you determine the value of the seller’s home?  Most Realtors I know start by pulling comps and putting together a CMA.  This comparable market analysis usually shows all homes sold (in the MLS) within a given amount of time and what their sale price was.  It usually gives the seller a range marked by a low price, a highest price, and a of course a median price to use as a measuring stick.  You then set a sale price based on what you “think” the home is worth and then buyers come and negotiate with you for the sale.  If you set a price closer to the high end of the scale because you “thought” the house had more to offer, but the house ended up selling for closer to the median price for the area, does that mean your price was wrong or inaccurate, or would you consider yourself accurate because you priced it within a correct range?  The higher the sale price, the more variance there will be between the low end and the high end of the spectrum.  In one example above, the Realtor is complaining about Zillow because they sold a house for $60,000 more than Zillow said it was worth. Does that make the Zillow Estimate inaccurate, or is their some other spurious reasoning for this sale price?  Depending on how big the home is, $60,000 may not be that big of a difference.  You can’t base accuracy or inaccuracy on one isolated sale in an area.  I think you would be better off comparing the Zestimate to the Median value or average value to determine how accurate or inaccurate the data is.  There will always be a desperate seller who dumps their home or an emotional buyer who overpays, but since supply and demand is king, the majority of sales should fall right around the middle and the median will tell this statistical tale.   Was the Zestimate still $60,000 less than the median home value for that area?  If not, then Zillow achieves its goal, it is a good "estimate" of the houses value.  A Realtors services are still needed to determine the "best" (not most accurate" but the best price to list the house at, that will give it the best chance to be sold.   The true value is determined by the buyer, What are they willing to pay for it, and if it is priced accordingly.

Real Estate Agents aren’t always accurate either.  I had a realtor call me today and tell me (not in so many words) “Hey you stupid mortgage guy, make sure you tell your appraiser about all the upgrades my client has done to the house before they inspect it, or it won’t appraise out.”  I had to tell them as politely as possible that the bank does not really care if they have golden toilet seats and diamond studded stucco in the family room, if 4 other similar houses on the same street are selling for less. Then your house will appraise for less too!” (this is after she counter offered my client with a price above what they were already listing at)

To make things worse, currently the accepted standard of determining the correct value of a home is by getting an appraisal done by a “certified” appraiser.  appraisers of course are human and the values they determine are totally subjective, and compounded by the fact that they are hired by and have a relationship with the mortgage loan officer in most cases.  They determine the value of the home by comparing it to 3 other “similar” homes in the “area” and add or subtract value to or from the subject based on the existence of things like square footage, lot size, bathrooms, fireplace, pools, decks, fences, or lack thereof.  This method of valuation is completely subjective.  Have you ever looked at an appraisal closely, it is merely the appraiser’s estimate of value.  Unless you are working with a newly constructed development, you will rarely see 3 exact comps and 3 exact sale prices, they all have variation.  9 times out of 10 the appraiser is merely looking for comps to support the sale price anyway, rarely is he looking to objectively valuate the property.  How else can you explain that almost every appraisal I order for a purchase comes back at exactly the same value as the sales price?  Is it because every Realtor and Seller are super-accurate in pricing and every buyer offers only what the asking price is?  I doubt it.  This is made 100% worse of course, by fraud, silent seller second mortgages, and seller concessions all of which mask the true value of houses. Why is an appraisers “estimate” of a house’s value any more accurate than Zillows?   If appraisals are the “true” and “accurate” method to determine the value of a house, then why are most lenders in the country moving away from this model and toward AVM or Automated Valuation Models that encompass and utilize median housing values to determine more fair and accurate housing values?  Right now on any rate and term refinance for a Freddie or Fannie backed loan, you don’t even need an appraisal if the value of the home falls within Fannie and Freddie’s accepted variances for home values in a given area. They are already tracking this data and putting it to use.   In 10 years the appraiser may be a dinosaur and the Zillow model the accepted tool for home valuation.

Now with all that said, the question is this...would I base the decision on the value of a house on what I found on Zillow? No, but would I use it for a quick idea on ballpark value before taking a cash out refinance application…maybe. 

Do I think Zillow’s latest stunt is a good idea?  For them yes, it is more interactive for their customers who will like the idea I am sure.  Do I think it is the cataclysmic event that many of you are claiming?  No, I don’t if you read it completely, they are going to post the homeowners opinions of their home’s value next to the Zillow Zestimate, and therefore you can still determine what is influenced by the owner and what the opinion of Zillow is. 

Zillow is merely another tool, use it however you see fit, maybe print some of their graphically pleasing maps to awe your clients, but in the end, you are the professional, and you have the knowledge of the market, A house won’t sell for more than it is worth and it takes a Realtor’s knowledge and expertise to explain that.  Maybe you should look at the glass as half full instead.  For every person who looks at Zillow and finds the value of their home (accurate or not) that is another potential buyer who might be inclined to list and sell because of the information he or she found.  It is up to you how you are going to capture that client and how you are going to convince them of the more “accurate” value of their home.   Think about what is really bothering you about Zillow, They aren’t the first company of this nature and won’t be the last.  Are you mad about the accuracy of Zillow, or are you mad about another company providing free information that has been traditionally controlled by Realtors?  There is plenty of room in the real estate market for all types of business models, your own success is a direct result of your own skill and knowledge, not a result of what some other company is doing.