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Why Zillow is Usually Wrong

By
Education & Training with The Melanie Group

This blog was inspired by a cartoon which shows a couple sitting with a real estate agent. The agent says: “Based on comps, I suggest listing at $350K.” Wife: “But we paid $650,000 for it!” Husband: “And Zillow says it’s worth $675,000!” I found the cartoon on Facebook and reposted.  The sad truth is that most consumers do not understand Zillow—or House Values, or even their county assessment office—all of which use Automated Valuation Models (AVMs) to price property.   The boring stuff first: AVMs use mathematical formulae, including multiple linear regression, to assign values to certain features of houses to come up with a value.  As with any program, GIGO applies (Garbage In, Garbage Out).  The AVMs out there for use today by consumers, of which Zillow is probably the best known, rely on reported and recorded sales data. This is why, if you live in one of the fourteen states in the US which does not record sales prices, the information you find may be sketchy, and derived from Multiple Listing Services (MLS).  You may be thinking: “Well, what’s better than that? A recorded sales price tells me what that house down the street sold for.”

                Well, yes and no. A recorded price will tell you the amount they put in the deed as the transfer amount. It will not tell you:

  • If there were any “side deals” or cash under the table
  • If the seller paid closing costs or other fees on behalf of the buyer, known as “seller concessions”
  • If it was an “arms-length sale”, or one under duress, or between related parties, or any other sale which an appraiser would not usually consider

This is where the AVMs fall apart.  As I always say when teaching pricing and valuation: “All comparables are sales; all sales are not comparables.” Here’s what I mean: in order for any real estate professional to use a comparable (“comp”) to compare to your home to establish a price or value, it needs to have sold.  Houses that are listed and don’t sell indicate what the market won’t pay. Houses that are listed and sold indicate what the market will pay.  However, not all sales are comparables. Here are some examples of houses I would not use for comps, as an appraiser:

  • The sale between two parties with the same last name, and it is verified that they are related by blood or marriage
  • The sale between two parties with different last names, but verification of the data revealed that the party selling the property was acting as executor of her mother’s estate, selling the 2/3 interest she and her sister had to their brother, who already owned a 1/3 interest
  • The property that did not sell at auction, and the next week the owner sold it for 20% below my appraised value to a neighbor, who was a friend
  • The property that sold for at least 20% higher than market, and upon verification, the buyer was not represented by an agent, was from out of town, and was unfamiliar with the market

You will notice the same word in all four scenarios: “verification”. As an appraiser, I verify data. I’m required to. But any real estate professional who is good at his or her profession will verify data, and will only use data which is germane and pertains to the property. Zillow, and other AVMs, don’t verify data. They throw it all into the mix. Some is high, some is low, and some is just irrational.   So, before you decide to sell your house based on a “zestimate”, do yourself a favor and get an opinion from a qualified real estate professional.

Bryan Robertson
Los Altos, CA

The Zestimate is the worlds greatest marketing juggernaut.  No matter how wrong it is, it keeps going and gaining among consumers.

Apr 23, 2013 12:41 PM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

This is an excellent post.  I wish that folks would understand the pitfalls of AVM and I think sharing this post will help them undertand the issue.

Apr 23, 2013 01:01 PM
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Zillow in our state is a real guess, as only the agents have access to the SOLDS. The public puts way too much faith in Zillow on the high and low side.

Apr 23, 2013 01:41 PM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Melanie - thanks for posting this useful information.  The information is better than what I usually tell clients, which is that Zillow is not a good source because they rely on tax reporting for sales and we don't have the details.  Yours at least says in exact detail WHY!  Thank you!

Apr 23, 2013 02:11 PM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Melanie, we show Sellers how to go down to the bottom of the page on Zillow and bring up the Zestimates which can drill down to their County and there are stats for what % of the time they are within a certain range. Zillow is great fun to look at, but we have to educate Buyers and Sellers as to the limitations of an AVM.

My favorite AVM story is the house on navigable water that the bank wouldn't lend on because of an AVM that took into account houses in the neighborhood off the water. We ended up going to another lender because they wouldn't come off their AVM.

Sharon

Apr 23, 2013 02:18 PM
William Johnson
Retired - La Jolla, CA
Retired
Hi Melanie, Congrats on the Feature. I personally use Zillow to get a perspective on the neighborhood. The Value for the property in question is easily ascertained by using good neighborhood comps. But unless you include tons of properties, you can't get the relative value or changes in value for a whole neighborhood. I use the term relative value and when shown in context with the neighborhood of like homes, it gives a pretty good understanding.
Apr 23, 2013 02:32 PM
Praful Thakkar
LAER Realty Partners - Burlington, MA
Metro Boston Homes For Sale

Melanie, explanation on why Zillow is not reliable. And Zillow does have a disclaimer for the Zestimates.

Apr 23, 2013 02:37 PM
Gary Frimann, CRS, GRI, SRES
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
REALTOR and Broker

Yes, Zillow's disclaimer for estimates is that it can be off by a factor o 25%, plus or minus.  I know some people base their entire net worth on the Zestimate...

Apr 23, 2013 02:47 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Melanie - This is a great explanation, and even Zilow will say that they recommend using a real estate professional.

Apr 23, 2013 04:50 PM
Scott Fogleman
New Home Team - Richmond, VA

great Post, there are so many reasons records dont reflect the actual price...

Apr 23, 2013 08:01 PM
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation

Melanie, great explanation, but I find that most people are satisfied with a much easier explanation - i.e., Zillow, Trulia, and other websites that claim to report property value rely on public record which may be incomplete or inaccurate.  An accurate estimate of property value requires a personal visit by a real estate agent or appraiser who has the knowledge and experience to evaluate the property's size, condition, features, location and other factors in context with the most recent comparable sold properties.

Apr 23, 2013 09:02 PM
Marc McMaster
RE/MAX Centre Realty - State College, PA
Putting my clients before myself

Great post and great job on the feature Melanie!  Always great information.

Apr 23, 2013 09:52 PM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Zestimates! Ha, ha, ha! So notoriously inaccurate, as are most of these types of value estimates! The public will use them, but it's critical for us to educate our clients as to why not and to hone our skills in valuing a home.

Apr 23, 2013 10:10 PM
Greg Nino
RE/MAX Compass - Houston, TX
Houston, Texas

Zillow is off by more than 70k on my home. I think Zillow is way more repsonsible for bad decisions than good ones. Period.

Apr 24, 2013 02:08 AM
Helen and Larry Prier- Re-Max Gateway - Residential Real Estate
RE-MAX Gateway- Residential Real Estate Sales - Anacortes, WA
Anacortes & surrounding Skagit & Island Counties

great information. I will be re blogging this one out to my future sellers. Thanks for the info

Apr 24, 2013 06:06 AM
Brad Andersohn
Retired Executive Director of Education at eXp - Boulder Creek, CA
ActiveBrad - 707.646.1876

Christine Donavan above is correct.  We do recommend that consumers who start their research and journey online (and at Zillow) should always seek the advice of a local real estate professional or appraiser. Or someone who can help them get the closest to true market value for their home. 

NOTE: Homeowners and agents can also post their own property value estimates:

Apr 24, 2013 07:45 AM
Kristin Hamilton CA REALTOR
Berkshire Hathaway California Realty - Beaumont, CA
(909) 557-6966- Specialize 55+ Communties Banning
Great post and congrats on the feature. I just had someone call me about a listing hat was closed 3 years ago and someone called me and said it still shows ACTIVE in Zillow.
Apr 24, 2013 03:51 PM
Melanie McLane
The Melanie Group - Williamsport, PA

Kristin Hamilton, thanks for your comment--Zillow folks who commented, please read! I get this comment ALL THE TIME from agents in class--long sold listings (or long expired) are still showing active in Zillow!

Apr 24, 2013 08:34 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Hi Melanie,

Great post and many comments are priceless!! Your explanation of why Zillow is mostly wrong or inaccurate is excellent. Congrats on the well deserved featured post!

Apr 24, 2013 10:27 PM
Anonymous
aggie shehadeh

...would love to hear your comments on RPR AVMs as well...

Apr 24, 2013 11:00 PM
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