“But Zillow says my house is worth….”. That’s a fairly common statement, and it highlights how much the public trusts Zillow these days. I’ve written other posts comparing 10 actual appraisals with Zestimates, but today I want to show you a property in Sacramento that is over-valued on Zillow by more than 100%. While Zillow is a neat tool, let’s consider some of the important factors that go into making values accurate, and where things went wrong with this property.
Case Study: Let’s look at 5309 Broadway in Sacramento located in the Greenfair townhouse complex. You might be thinking, “C’mon, let’s cut Zillow some slack since this is a complex of only 45 units, and sales have been sparse for two years”. But Zillow sits at the adult table, and should have access to data from previous years. Moreover, notice above that Zillow actually shows the subject property sold in 2008 for $138,000, which gives Zillow a context to measure value.
The Zestimate: The Zestimate for this property is $321,679. The graph above shows all sales since 1998 in the Greenfair subdivision. As you can see, there have never been any sales above $300,000 in this complex – even during the height of the housing bubble in 2005. In this case Zillow is frankly wildly off since market value looks a whole lot closer to the red trend line.
Where did Zillow go wrong?
Choosing the Wrong Comps: The image to the right shows “nearby similar sales”, but these sales are single family detached homes, and NOT attached townhouses. When there are no recent sales in a townhouse subdivision, it doesn’t mean you should borrow from the single family detached market. Either you can use VERY old townhouse sales in the same subdivision, or maybe find a competitive complex somewhere in the market area. Again, it’s easy to cut Zillow some slack here since they might not know the units are attached, but even in that case the TINY lot size and history of sales should be given much stronger weight then.- Data Fail: Zillow clearly didn’t consider even its own data in this situation. Despite an understanding that this property sold in 2008 for $138,000, something in Zillow’s algorithm is obviously not crunching the numbers correctly since the market has not increased from $138K to $322K. Moreover, not considering a listing in the complex that expired at $186,000 this month is also a failure. When there are few recent sales, sometimes much older sales and expired listings can tell us about the market.
- Wrong Neighborhood Boundaries: Zillow is considering single family detached homes in Elmhurst and other parts of Tahoe Park as you can see by the addresses in the “similar sales” image. These areas have far higher prices compared to the Greenfair subdivision. If you use the wrong neighborhood boundaries, there’s a good chance the value might be off-base too.
- Problems with Less Data: When there is little data to consider, it looks to be a struggle for Zillow. To be fair, it’s relly not easy for humans to crunch numbers either when there are not many numbers to crunch. Yet data is available. It’s just a matter of seeing the numbers in their proper context.
One Buyer’s Reasons for Using Zillow: I asked a current buyer how she is using Zillow as she hunts for a home. I thought her response was interesting and insightful. What do you think?
At first, it helps me get an idea of overall neighborhood values, so it helps me know where to look or not look. Then, when we do look at specific houses, it gives me a general value of the house. I like the low-high range tool better than the “Zestimate” because it helps me get a feel for the overall values of a neighborhood. So, if a house is priced near or less than the low end, I figure it probably needs a lot of work, and if not, it might be a good deal. If it’s priced near or over the high end, I expect it to be in very good condition or have some kind of bonus features. Likewise, if we really like a house and it appears to be a good value according to Zillow, we’ll consider making an offer.
We also use Zillow to see a price and sale history of the house (our realtor can do this too, but it’s easy for us to do with Zillow rather than constantly calling her!). We can see when it first came on the market and various price changes, whether it’s a flip or not, and sometimes even if it was a rental.
One thing I don’t like is that it doesn’t have very accurate listing information. There are many houses on Metrolist and Redfin that aren’t on listed as “for sale” on Zillow. So, I find myself going back and forth between the three resources and our Realtor’s updates! If Zillow and Redfin merged, I’d be happy!
I look at Zillow as a range or estimate. I know that it doesn’t replace a person on the ground, but we can’t bring an appraiser with us to each house! 🙂 Zillow can’t see a smelly smoker’s house or a house full of old wall paper that needs to be torn down, or a crazy neighbor with three boats on the front lawn, or a dog that barks at all hours. It also can’t see a potential great neighbor with kids our kids’ ages, or a shade tree that’s perfect for a tire swing or tree house. It also doesn’t understand that I’m OVER granite countertops! Enough with the granite!
Zillow isn’t usually off by 100%, but cases like this are worth noting because they highlight some of the issues a “machine” can have when valuing a property.
Quick Advice:
- Take Zillow with a grain of salt.
- Don’t excuse Zillow when it’s wrong. If it’s off-base, call it what it is. You can look at Zillow’s own accuracy rates and be the judge whether this is reliable data or not.
- Home owners, realize Zillow doesn’t know neighborhood boundaries, the condition of your home, all the same listings that are in MLS, and it may not even be comparing your house to the right type of property.
- Agents, be sure to look up the Zestimate before listing presentations so you can be prepared to answer when your potential client says, “But Zillow says….”. Consider some of the positive reasons why consumers like Zillow (there are some for sure), but then talk about the things you know as an expert – neighborhood boundaries, the mood of the market, sales and listings in the immediate neighborhood, expired listings, how long it it taking to sell in the neighborhood, the direction of values, the condition of the house, and what buyers are willing to pay more for in the neighborhood.
I hope this was helpful.
Question: Any stories to share, or any other points you’d add?
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Great post! I like to direct my clients to Zillow’s accuracy rates, like you linked us to above. For the Sacramento area, they only give themselves 2 stars. I might give them only 1 star based on my personal experience with their values on my home. Thanks Ryan!
Thanks Lori. I hear our MLS does not share data with The Big Z. You are only as good as your data (and then your interpretation of that data of course).
Great post Ryan. I think it is very interesting that Zillow publishes it’s inaccurate zestimate along with the actual sold price. This illustrates their disconnect with the market and how far off they can be. Zillow does a lot of things right and they are one of the biggest players, if not the biggest player in the market, but estimating home values is not what one of their strengths. There is no substitute for an appraisal by a live person with much reasoning reasoning skills.
Thanks for your insightful comment, Tom. Zillow is very powerful. You are right about that. Many in the real estate community don’t want to speak out about them too. I should say to any onlookers that I don’t have a problem with Zillow. Like you, Tom, I I actually enjoy hearing their take on the market, and some of their regional or national stats. It’s just on the local level it’s too bad to see estimates like this. When I saw this property, I thought it was an opportunity to help illustrate some of the disconnect between the market and Zestimates.
Great post Ryan! I’ve seen Zestimates that were off but never 100%! That’s quite the example. Way to break it down and explain it.
Thanks so much Shannon. I really appreciate it.
Hello Ryan,
As always, your post this morning is timely, and so valuable. Zillow’s valuations are a particular hot button of mine, and I so wish there were some way our industry could disallow them from publishing valuation information. They are good at many things, but NOT valuation, and it is truly irresponsible. They HARM our clients, and cost us time having to repeatedly explain why “Zestimates” cannot be trusted!
Here’s just one of so many examples that demonstrates how Zillow can harm both sellers and buyers…in this particular example it was a neighborhood boundary and knowledge issue that no computer can deal with:
A listing of mine in a pocket of homes that are significantly superior to the surrounding neighborhood was on the market for a very fair price $389,000…the Zestimate valued it at a ridiculous $290,000 due to using inappropriate comps from the inferior surrounding area.
Enter the wonders of today’s technology:
* Many companies use For Sale signage at the property that includes a way to instantly receive property information on a cell phone (Coldwell Banker uses the Virtual Agent technology).
* Everybody and their brother now have smart phones, and can access Zillow on the internet in their hand.
* Many buyers even have a Zillow app on their phones.
So let’s play this out…a modern couple with a smart phone love the curb appeal of my very nice listing…they stop the car for the quick minute it takes to call the number on my sign post, and they learn the list price is $389,000. Being Zillow fans, while they are parked there on the side of the road they request a Zestimate, which tells them the property is worth $290,000. One of them turns to the other and says “Forget this one…it’s way over-priced, and the sellers must be off their rockers”. The other one responds “I’ve heard Zillow isn’t always accurate…”, to which the first one says “Yes, but let’s say Zillow is only HALF right…this property would still be over-priced by $50,000…forget it, let’s move on!”
The property sold for the full price of $389,000 but those buyers wouldn’t have had the opportunity to consider it.
Of particular concern is the problem seems to be worsening…sadly, I’m hearing it more and more, not less and less, and Zillow seems to becoming a standard place for the public to check for property value information. People often even tell me they KNOW Zillow isn’t all that accurate (so perhaps our patient educating efforts are making a little headway?), yet still they often rely on it…go figure!
We’re talking to the choir here…if only there were some way we could get this information out to the public, or band together to stop Zillow from providing a “service” they should never be attempting. Perhaps there’s a way to educate more broadly…like maybe having it included in NAR’s Nationwide advertising? Something like “Want the real deal? Don’t be cheated by Zillow…trust a Realtor”. This may be unnecessarily rude…maybe “Don’t rely on Zillow for important decisions” would sound better, but.you get the point.
Thank you for putting this important issue on the table!
🙂 CJ
Thank you CJ for such a thoughtful comment. I really appreciate it. I sure hope buyers are not relying on Zillow to weed out listings. It would be tragic to see that happen over and over again. It’s interesting to hear your take. I have found some consumers to say the same thing. It’s as if on one hand they acknowledge Zillow is not accurate, but on the other hand in practice they still hold The Big Z up as the gold standard. This might not make logical sense, but it’s where consumers are at. What’s the itch that Zillow has been able to scratch for consumers? How has shopping for real estate changed in recent years in light of Zillow? These are big questions. I’m curious to see in coming years how NAR positions itself to offer value to consumers online.
By the way, what a vivid picture of your $389,000 sale. I wonder if the Zestimate will now be changed to reflect the sales price.
Great example of how bad Zillow can be. Zillow can be pretty close in a development of newer properties if the subject fits in with the other properties in terms of condition, quality, and size. However, I see Zillow being way off in areas with older homes where there is more variation among condition and quality. Also, in my area, the county records on basements are way off. Sometimes garages get double reported as unfinished basements and garages. Also some basements are daylight and finished where others are more like cellars. This is an example of where you will see Zillow very confused. I plan to blog on this soon.
Well said, Gary. That must be a real monkey wrench for Zillow in your area. I bet it’s interesting for you as an appraiser too to find out how big a house really is. I look forward to your blog post.
Great article, I think the component that is missing that removes alot of the bite when it comes from MLS etc is that the key reason the system doesn’t work is because the MLSs do not share the current data. This could be a double edged sword if we ever were to debate it openly with the consumer in the crowd.
It would appear like MLSs instead of striving to resolve the issue and provide the accurate information, holds the information to themselves. The reality is Metrolist does not provide a direct feed to any portal accept Realtor.com. In its absence though almost every major franchise submits the listings directly to the portals through ListHub.
The consumers value Zillow & Trulia for their non lobby features which we fight from our side when Realtor.com wants to add them. Franchise leaders scream foul because the data is wrong, and in many ways it is BUT we as agents put the data in wrong. Look at any condominium complex in Natomas and West Sacramento and where there are only 4 models built, the data put in wrong based on square feet, bedroom count etc starts the bad data.
Boundaries are always going to be an issue right? Wrong, there are development deals write now with several major companies to literally outline each neighborhood, “community” and housing type…and your seeing major companies buying into the licensing, that will make the values more accurate for sure.
All the more reason to start adding comparisons to Just Sold post cards to educate the consumer that certain features will require a physical agent and on our side we need to get real with the data like concessions, rent backs that affect value, condition issues because those will never be reflected in the public data and many times agents don’t put it in or put “call office”
Point being, we can razzle Zillow & Trulia day after day and sometimes warranted but if you look at the Millennial Generation trends reports and data, that generation coming up is more apt to insist on FSBOs, Fee for Service plans etc and many of those companies instead of putting the home in the MLS may instead put them directly into Zillow/Trulia and we are removing a great deal of inventory stats from the MLS.
Not to mention the pocket listings and the current trend for less than transparent agents, withdrawing the listing so that the property doesn’t show as a sold comp so it doesn’t show that the property was doubled ended etc. So we are actually on our side, creating the bad data that will affect our market in the next 3-5 years.
But I could be wrong, what do I know…. 🙂
Another great post Ryan
Bruce
Thanks Bruce. I always value your insight. I think you’re right about the approach to take here. The real estate scape is changing. How buyers want to buy is going to look different ten years from now compared to the current time. Things won’t stay the same. This means the real estate community is going to need to change, diversify, compromise some things, and hold fast to other things. As consumers do more shopping online and feel like they are holding the reigns of the transaction, real estate professionals are going to need to prove their worth and offer real value to the consumer. Soon robots will be doing real estate transactions… Okay, I’m kidding about that, I think. 🙂
Interesting post! As a buyer who is hopefully wrapping things up, I can say that yes, this is how we initially used Zillow, but eventually, once we narrowed down our neighborhoods, we stopped looking at Zillow much. After seeing about 15-20 houses in locations we liked we could walk in and decide what we’d be willing to pay for that home. Once you see enough of the competition in a price range for an area, you just know if it’s right or not.
Congrats on wrapping things up (hopefully) Deana. It sounds like you are a savvy buyer, and you definitely put in time to hunt down a property and make a very informed decision. And Zillow was a part of the process for you. Thanks for the comment.
With Zillow Zestimates being notorious for inaccuracy, and causing chaos & confusion in the marketplace, it is time that Zillow was Regualted to protect homeowners. As a minimum there should be a DoNotZestimate opt out in the same way as ‘phone users can opt out of unwanted spam calls by registering with DoNotCall.
Zillow has demonstrated that it cannot be trusted to act in a fair minded way towards homeowners by refusing all reasonable requests to correct or delete erroneous Zestimates.
Thanks for your take Surbiton. Have you tried to get some information corrected before?