Real Estate Marketing Specialists

Why Zestimates Are Zillow’s Weak Spot

Why Zestimates Are Zillow’s Weak Spot

😠 Why Realtors® Dispise Have Strong Feelings About Zestimates

Zillow is a popular site for consumers to see homes for sale, no question. If you are looking at homes for sale in your local market, however, I recommend using a local real estate website search, like ChrisHighland.com. Zillow has some good information, like demographics and statistics on an area and maps. But, as the meme points out below, Realtors have strong feelings about Zillow. 

inaccuracy of zillow

 

😏 Two Aspects of the Zillow Website that Have Low Value

There are two aspects of the Zillow website that I don’t find value in:

  1. ‘Zestimates’, and their lack of accuracy in listing information.  The listings many times can be out of date as to their status, and the
  2. Zestimates are very often off by a significant percentage.

[In a  Washington Post article, a Washington D.C. brokerage was quoted for documenting that Zestimates are getting worse. Of 500 estimates, the values ranged from 62% under, to 150% over the actual sold figures.]

😳 The Flaw is in How Zestimates Are Calculated

Zestimates have been wrong more than they’ve been right. Because they use an algorithm to formulate values all across the country. The same computations in every location. It’s not even remotely feasible that a “one-size-fits-all” mathematical equation could get it right, when determining a home’s value is dependent on so many local and subjective variables.

zestimates are zillows weak spot
Even children are aware there is a difference in housing!

A complicated formula can come up with a uniform value, but the problem with that is that all real estate is not uniform, it is local. ‘Bricks and sticks’ in one neighborhood can have a different value than the ‘bricks and sticks’ in another location, due to all kinds of subjective factors. Proximity to highways, power lines, and unsightly commercial areas are an example of things that affect a home’s values in a subjective way.

All real estate is local, even micro-local. Values for similar homes in one neighborhood can be completely different in a neighborhood only blocks away. Zillow can’t get inside a home and see the differences in amenities…like an updated kitchen with pristine hardwoods, granite countertops, custom maple cabinets and top-of-the-line appliances; compared to a similar home with basic builder grade finishes and 15-year-old carpet.

 

Any online valuation is just a rough estimate of value. The best thing to do is contact your local REALTOR® to determine true values.

 

☺ Local Realtors Know Values

Only a local Realtor who knows the area can provide a realistic estimate.  He or she knows the local neighborhoods and values based on everything that is objective as well as subjective.  A local Realtor knows what the trends are in the neighborhood. Some areas hold their value better than others, due to a lot of factors: Type of construction, age of home, added amenities, and what’s going on in the neighborhood or area.

🤔 Case Study on Home Values of Frederick Neighborhoods
Realtor

Our recent experience is that some neighborhoods are more effected by the downward drag of foreclosures and short sales on the market than other neighborhoods are. Two particular neighborhoods here in Frederick were primarily built during the years from 2003 – 2006, and the majority of the homes were financed with Adjustable Rate Mortgages (ARM’s). Unfortunately, when the rates adjusted after the values had fallen…these neighborhoods were filled with short sales.

Comparable home sales were difficult to calculate with a generic mathematical equation. As a local Realtor we monitor the trends in the marketplace and know how to determine market values.

😇 Pricing Accuracy is the Key When in Listing Your Home

Consumers using Zillow think the estimates are real. The aspect of listing accuracy doesn’t cross their mind when they are looking online for homes for sale. Zillow is the most trafficked website in the real estate sphere, but the least accurate in almost every respect. (Popular doesn’t always mean it’s valuable)

However, consumers regularly find inaccuracies. We get contacted osten about homes that are listed on Zillow as active, but have either been under contract for even weeks, and many times have sold weeks or months ago. The inaccuracies include a lot more than status; consumers often find many details wrong, including the number of bedrooms and baths, the square footage, and even the information from the tax records. Among the different categories of “potential listings”, the pre-foreclosure category is very misleading.

As Bill Gassett points out in his article, Some Zillow Listings Are Not For Sale, the data Zillow collects on these homes comes from Realty Trac, a site that collects data on distressed housing, these homes are most often, not even on the market.

 

Data can be faulty. It happens. Sometimes it’s no one’s fault, it’s an imperfect system that data engineers are still perfecting. But sometimes it’s by design. The longer homes are listed as available, the more traffic the website gets. The more homes listed, like pre-foreclosures, the more “eye candy” on the website to attract visitors. Add to that more push notifications that people get on the Zillow app as they search neighborhoods.

 

Zillow is, after all, a marketing site that makes money from advertising. It is not a site designed or monitored by licensed real estate professionals. They aren’t bound by the Realtor® Code of Ethics, which requires that any information agents publish be accurate, to the best of our ability.

🤓 Why Does Accuracy Matter When It Comes to Real Estate Data?

“If I just want to see houses, who cares?” Fair question. Let’s consider the Zestimate…

When a seller contacts an agent to list their home for sale, the agent conducts a Comparable Market Analysis, or CMA, to get a close estimate of what the home will likely sell for, based on comparable home sales, local trends and market analysis. Experienced Realtors who have local knowledge have been helping buyers and sellers in the local market and have been active in your neighborhoods. They’ve probably even seen firsthand many of the comparable homes in their market as they’ve worked with buyers and sellers.

“But Zillow Says…”

So imagine when the agent presents their hard-earned knowledge about the home’s value in the CMA (comparable market analysis), only to hear from the seller: “But Zillow says my house is worth $50,000 more?!” That seller is already set up for failure because of the inaccuracy of that Zestimate, sometimes a gross inaccuracy.

First of all, it puts doubt in their mind about the Realtor®. Secondly, if they disregard the agent’s advice and they overprice their home, they will do damage to their prospects of actually selling the home for the highest amount in the shortest time.

How False Estimates Affect the Buyer

It’s easy to see that the expectations of the buyer will also be skewed when they see an inaccurate Zestimate. Right below the list price you can see the Zestimate, so at the very outset of seeing the home, a buyer will have it in their mind that the seller is asking too much, or too little.

If the list price is lower than the Zestimate, imagine the buyer’s disappointment when they get to the home and realize it’s not the bargain they thought it was. The expectations that Zestimates give buyers a false sense of home values, many times grossly false, and can result in a lot of wasted time.

If they believe the list price is high, it will be hard for them to take the Realtor’s advice about what price to offer. We’ve seen our share of lowball offers from buyers who just didn’t take their buyer’s agent’s advice. We’ve seen just as many offended sellers rejecting those lowball offers!

😡 Lousy Expectations Caused by Inaccuracy of Zestimates on Zillow

mortgage shoppingBecause of inaccuracies, we regularly see missed opportunities, discouraged buyers who show up at a home that’s already sold, and lots of wasted time looking at homes that are nothing like the buyers thought they would be. We’ve seen wasted time on the market for sellers, and we’ve seen these sellers fire very good agents for things that are not their fault.

In my opinion, that is the real damage of inaccuracies…Lousy Expectations. Zillow discloses the percentages of their inaccuracies…way over on the page that you can barely see for the small print. It’s there. But most buyers and sellers never see it. They are unfortunately, subject to the disappointments of lousy expectations.

So contact a local realtor to find local values.  And use Zillow for other useful information. Take Zestimates with a grain of salt…if you even look at them at all.

 

Sellers: Did you know you can help improve your zestimate accuracy?

 

😭 Zillow Lawsuits Are on the Rise

There have been several lawsuits against Zillow in recent years…this time they are being sued for their Zestimates violating federal Antitrust laws. A New Jersey management company just filed yesterday (Jan. 15, 2017) claiming Zillow is giving preferential treatment to preferred brokerages, by selectively allowing certain brokerages to “conceal” the display of Zestimates on their listings. Wow. If that is true, that does seem like it may be an antitrust issue. I’m not an expert, but antitrust means restraining free trade.

In last year’s lawsuit, the Consumer Financial Protection Bureau (CFPB) is still pushing Zillow to settle RESPA claims, regarding their co-marketing program under which a lender pays Zillow to appear in advertising alongside a real estate agent. The CFPB is under scrutiny under this administration, but it still has a lot of scary power.

In 2016 Zillow settled a $130 million lawsuit with competitor Move Inc. over stealing trade secrets and poaching executives. (Zillow and the executives admitted no wrongdoing as part of the settlement). These lawsuits and payouts seem to not be affecting Zillow’s business at all. But it does indicate a lot of dissatisfied people.

Also in 2017, Zillow had a lawsuit dismissed. A group of homeowners sued over the alleged damage to their home selling prospects by inaccurate Zestimates. Judges have dismissed a total of four lawsuits to date, according to Forbes.

🤨 Three Things I Wonder About Zillow

How do these continual lawsuits and settlements affect Zillow’s business? We see that in many recent quarters they operated at a loss.

A second thought, I wonder if these multiple lawsuits from people claiming damage, even though dismissed, brought on the attention of the CFPB? Just a wondering real estate agent…

For buyers and sellers who may not be aware, Zillow charges agents and lenders advertising fees for placement on their website. When you see a house listed, you see several professionals listed with the house. They are there because they paid to be there.

Over the last few years, the amount they charge has skyrocketed in a lot of areas of the country. I keep wondering if this is because of the enormous settlements they keep paying on these lawsuits, and if at some point, agents and lenders are going to say, “enough”, the return on investment is not enough to warrant it. What will happen to the quality of Zillow’s website, which in many real estate agent’s opinions is already gone down the tubes.

🤯 Bottom Line

Lawsuits aside, Zillow is the public’s favorite, with over 160 million monthly visitors! As I first said, the website has a lot of great information for consumers. Real estate professionals advise their clients to take Zestimates with a grain of salt.

All online algorithms like Zestimates and valuations from other platforms are inaccurate. They are machine computations. Estimates are just that, estimates. Similarly, a lot of the appraisals that are conducted by licensed appraisers are also inaccurate and often come in lower or higher than what they should. Nothing beats local market knowledge. “Boots on the ground” Realtors® are the ones behind all of the stats and demographics, not an online algorithm. Count on a local, experienced professional, like Chris Highland with eXp Realty, to give you the most accurate data.

🤩 Additional References on Zillow and Zestimates

But don’t take my word for it. Here are several articles from some excellent real estate bloggers that have much to say about Zestimates and Zillow:

 


This article was updated January 16, 2017, from it’s original publish date of May 4, 2015.

To see your central Maryland home Value (an accurate one!), we’ll be happy to do a complimentary CMA for you. Contact the Highland Group today: 301-401-5119

 Related Reading: 15 B.S. Facts About Real Estate That AREN’T True


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Chris Highland, Broker eXp Realty Maryland
Cell:  301-401-5119  Broker:  888-860-7369
Chris@ChrisHighland.com

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Summary
Why Zestimates Are Zillow's Weak Spot
Article Name
Why Zestimates Are Zillow's Weak Spot
Description
Nothing can conjure up strong feelings among REALTORs like the subject of Zestimates! Zestimates are so often wrong, that we wonder why they bother. Not to mention the false expectations that arise...
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Chris Highland with eXp Realty
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