Zillow has gained tremendous popularity since its launch in 2006, by Rich Barton and Lloyd Frink, both former Microsoft Executives. This tremendous hub of housing information, is one of the nation’s leading information centers for a mass population of home buyers and sellers. Buyers and investors, look to this site for new homes on the market, pre-foreclosures and potential opportunities. Sellers on the other hand look to Zillow for a basis of home value for their property, which in lies the areas of discrepancy and misinformation. Here is the skinny behind the “Zestimate” and the information that Zillow really provides, when you do the research.
How The Valuation Works
Zillow breaks it down on their website. They use a “proprietary” algorithm which incorporates the county and tax assessors records along with direct MLS feeds from multitudes of brokerages. Included as well are the home facts and features and clearly state that “the homeowner has the ability to update the home information” with link to do so. It is with all of this information that they determine the estimated value of homes.
Zillow’s proprietary algorithm is how they determine home values on more than 97,500,000 properties and arrive at their Zestimate
The percentages per area are actually what should be looked at. For example, San Francisco is shown as having 8,300 homes with Zestimates. But the actual total of homes in San Francisco is over 230,000 (not including multi-unit), which shows that Zillow only has information on roughly 3,6% of that market.
Zillow’s Percentage of Accuracy
The figures that they report, on all accounts, don’t look so bad. The percentages are based however, on the properties that they have done Zestimates on and actual sales. Keeping with the state of California and Zillow’s records of metropolitan cities they keep stats on, the city of Los Angeles for example, has a 99.3% accuracy rate of getting the value within 20% of the actual sales price. If the home were $700,000, they would be off $140,000, which is actually quite a bit when you think about it. As you move closer to 5% within the sales price, their percentage goes down to 85.5%. But the figures to really look at would be the percentage of the actual homes they do capture records on, which for Los Angeles is 1.7% or 33,200 homes out of over 1.9 million homes there.
Reliability Of Information
The reliability of using the tax and/or county assessors records is where the issues may arise. The information filed with both of these is only as good as the information given or updated. From my own experience as a real estate agent, from time to time, these records do not show the accuracy of the property information. Square footage footage can be off, lot size incorrect and improvements or deferred maintenance does not taken into account. This can be a source of difficulty when the records are not correct, furthering the passing of misinformation and inaccuracy, which can have a costly affect.
Example: A client was purchasing a home based on a 1700 square foot home size, which was represented by the selling agent, based on tax records. When it came to the appraisal, the basement, which was not a completed room, was eliminated from the square footage, thereby, reducing the home size to slightly over 1100 square feet and brought the value down as well as the final sales price. Somewhere the information had been given to county or assessors office as to the size of the home being 1700 square feet, when in reality, the information was not accurate, therefore reducing the actual value of it.
Example: A client was selling their home and was basing their desired sales price based on a home that sold down the street about 3 months earlier. The home that sold was a single family residence that had been updated and was in good condition. The client’s home was an attached home or duette. It also had a serious amount of deferred maintenance. These factors do not pull into Zillow’s algorithms, which is how the Zestimates can confuse possible home sellers initially. The closing sales price was about $90,000 lower, roughly 20%, when it was done.
Zillow As A Starting Point
This blog is in no way, discouraging anyone from using Zillow. I look at it from time to time as well as my clients do. It is a great resource for all parties when it comes to buying and selling real estate. It has a lot of information and to reiterate, is one of the most widely used sites for homes sales as well as rentals that there is.
It is to keep things in perspective and to shed light to how it actually works and the data that it really has for its users. Zillow is a good starting point for research on the housing market or in trying to gain an estimated value for your own home. They clearly state:
“The Zestimate is not an appraisal and it should be used as a starting point. We encourage buyers, sellers and homeowners to supplement the Zestimate with other research such as visiting the home, getting a professional appraisal of the home, or requesting a comparative market analysis (CMA) from a real estate agent.”