Kate defends Zillow's Zestimates

We are always happy when the weekly post from house-hunter Kate in the Valley shows up in our email inbox. We never know what to expect, and we're never disappointed. This week Kate blogs in defense of Zillow. Enjoy:

"I was reading Zillow's discussion boards today, and I happened to click on the 'Zestimates' topic. (Zestimates are home value estimates prepared and presented by Zillow.com).  Nearly every one of the over-200 post to this category this month was from an angry seller.  These sellers were convinced that a low Zestimate is: (1) categorically wrong; and (2) the main factor preventing them from selling their home.  A lot of sellers went so far as to demand that their home be completely deleted from Zillow's database (something that Zillow does not do, by the way).

"Personally, I don't think a stray Zestimate ever kept anybody from buying a home.  To the contrary, Zestimates, coupled with the other information available at Zillow, gave me the confidence to bid when I first started my house hunt (before y'all run to the comment section to tell me not to buy a house right now: I know!  But try and focus on the topic for a minute.  Focus…. Focus….).  While Zestimates are automated, and not based on personal inspections and evaluations of individual properties, I find them to be a helpful yard stick.   I don't think Zestimates are infallible by any means; if I visit a house and I think it's worth $600k, and it's listed at $600k, I'm not going to walk away because Zillow says it is worth less.  Indeed, a cursory review of the site reveals that an unusually low estimate sometimes happens when a home hasn't changed hands for decades and, as a result, the tax basis is a bit lower than the neighbors.  But I do think Zestimates are helpful especially when combined with the four-direction aerial views of the home and lot.

"Looking at the aerial maps, you can see (without ever leaving your desk!) how close a home really is to the freeway, whether it's on an alley, close to commercial developments, or on a tree-lined street.  You can see how the home is situated on the lot and whether the pool takes up the whole back yard or just a small corner.  I will mentally adjust the Zestimate based on these facts.  And, after I've visited a home, I might come back and enter additional information I have gained about the home to create a personalized estimate for the property.  This information, combined with my own market research, gave me a little more peace of mind.  The bidding process is so stressful, a little peace of mind can do a lot cure cold feet.  With that in mind, I find it really hard to believe that anybody was about to bid on a house, glanced at a single Zestimate, and just changed their mind and walked away. Indeed, I can guarantee that at least one house hunter was eased into bidding by Zillow."

Thanks, Kate.
Comments? Insights? Other -- informed -- opinions of Zillow?

Comments

[investorguy]

Zillow is a joke among professional investors. It's rarely close. RealEstate ABC and DiTech are much better. Forget BofA -- the bank doesn't even accept its own numbers.

[Rob]

Lets all remember that Zillow is based on artificial intelligence and does have it's faults. In my neighborhood for example, a neighbor who has the same house plan as we do shows up a story short and about 700sq ft short as well. In our area Zillow tends to be on the high side. As a note the founder of Zillow sold his house this past year for a price higher than the Zillow zestimate. His house was also in a highly desired area in Seattle (Queen Anne).

As a certified real estate appraiser, I get questions regarding Zillow all the time and have had to point out certain flaws within it's system, from the age range to differing building styles that it compiles and calls comparable sales. Yet alone looking at historical sales. (countrywide has a similar ai device that tends to lump everything over the past 2 years). Hmm could this be part of a problem?

Large lenders have changed their standards for comparable sales, most would perfer a 3 to 6 month window as to the 6 month to year old window that was ejoyed during the boom. Some of these lenders even want to see active and pending sales so as to better chart the market.

When researching for your new home, Zillow is a point of reference to start, due your full due dilligence and research the subject property through piublic records to help verify the square footage age etc. Also, search not only historical sales within the market, but also search for active, pending and cancelled sales to see the days on the market within the market to help establish a value on the property.

[D]

Zillow bases a lot on how much a home recently sold for. If a house sold last year it's Zestimate will be MUCH higher than a near identical house on the same street that hasn't sold recently.

[Jose Turner]

A Question for our esteemed Blogger:

Why do you use the word "we" when referring to yourself? Is it intended as the "royal we", or is are you literally expressing the opinions of more than one person?

Perhaps if it's just you writing the blog, as the blog advertises, you could change the "we" to an "I" in order to be more accurate. Otherwise, consider adding the profiles of the other bloggers.

Sincerely,

A huge fan of the LA Times' "Web 2.0" efforts

[Mary G.]

Zillow tends to be really high for lower and middle end homes, which are the ones that are losing the most value now, as a rule. I'm not sure how they are for higher end homes. I've also seen neighborhoods where they have houses across the street from each other having a $200,000 price difference, when it makes no sense for them to do so (in a modest neighborhood, an extra bedroom rarely adds that much to the price). If real estate people get upset at Zillow, they're just looking for a scapegoat for why they're not continuing to get inflated prices.

[Sam]

I think Zillow is great and I use it for benchmark pruposes only at this point. To me local comps are critical. I just bought a house in CO for $420K and Zillow had that sales price on thier site 2 days after it closed. Get real the appriaser is obsolete and typically bias because they know they will not be used again unless they qualify the loan. Sites like Zillow is the future for appraisals. A good portion of the current sub prime problems today is directly caused by bias appraisals.

[Go Browns]

Zillow lets you customize your appraisal by letting you pick your comps and adjust for extra bathrooms, I tend to look at only at comps that have sold in the last 2 months and always include any obvious sheriff sales. Still many people just use the automated valuation which no doubt puts too much emphasis on sales from 2 years ago. You can use the customized feature to figure out the bits of the automated valuation process for what its worth.

[Willie]

Zillow is a crap shoot! Some values are on the high side and others are on the low side. In my case my townhome is worth more than anyone will be willing pay. Most condos in my complex are selling between 450 to 500 while is valued at 600 to 700 go figure. Good information, but flawed valuation.

[Mike]

I love Zillow. It is a great tool for house hunting. I know I have found something good when every realtor I meet absolutely hates it.

[emmaco]

My townhome is worth more than anyone will be willing to pay?

Huh?

[Pete Viles]

Jose Turner wrote, "A Question for our esteemed Blogger: Why do you use the word "we" when referring to yourself? Is it intended as the "royal we", or is are you literally expressing the opinions of more than one person?

Thanks, Jose. Yeah, it's just me. The "we" is an affectation. I've had one or two questions/complaints about it, so maybe I should re-think it. On the other hand (all economists and economic columnists are two-handed), it's a habit, and I'm sure there are one or two people who think it works. So it's a tie.

[John Haberkorn]

I like Zillow, it's one tool in a whole bow of tools I use.

It's not perfect but what's the alternative, talk to a realtor?

Over time I've noticed the values and pictures seem to be improving. So it's an electronic work in progress.

[CD]

Zillow, like many new "do it yourself" real estate tools on the internet is a great way to inform yourself without having to lesson to the snake oil salesmen and Koolaid dispensers. All real estate agents hate zillow.I always mention Zillow when I do my round of open houses on week-ends, it drives them nuts... Do not catch that falling knife Kate, more bad things to come in the months ahead. Brand new numbers today from our heroes at BUBBLE MARKET INVENTORY TRACKING. It's the wild west all over again.

[Jose Turner]

Thanks for the clarification, Peter!

A couple of other thoughts on the blog:

--Consider putting your email address up somewhere so there are other ways of sending you questions rather than via comments.

--How about a little background on your personal stake in the "LA Land" situation? Are you a renter? Owner? Are you originally from Southern California? If not, how long have you lived here?

Thanks!

Jose

[caliguy2699]

Zillow is a very interesting site - including their message boards. It's very entertaining, actually. It's one of the few places I've seen where realtors, bulls and bears all square off on the same boards. If you were on the debate team and/or enjoy making arguments, by all means check it out sometime.

And, in case you're taking any votes, I say stick with the "we." After all, we are all in this together, right?

[david heim ark]

Wow.
With some of the grammar I see when reading these posts, I am not at all surprised that there is a general mess concerning real estate.

If you can't read, write and speak clearly, how can you comprehend and comment on more in depth information concerning real estate?

The genie is out of the bottle, here's another cheap lunch box for your children. The lead is gratis, you do like cheap right?

[john]

Mr. Vile, it's not a matter of "a tie." It's about truth in blogging. If you're the blogger, speaking for yourself, then have the courage to say "I" and not hide behind a fictional group. This is supposed to be LA Times 2.0. Get with the program.

[Pete Viles]

Jose asks, "How about a little background on your personal stake in the "LA Land" situation? Are you a renter? Owner? Are you originally from Southern California? If not, how long have you lived here?"

Thanks, Jose. I'm surprised no one asked earlier. My wife and I rent a two bedroom apartment in Santa Monica. I grew up in a small town in nothern Vermont, and we moved to LA three years ago from Brooklyn. We would like to buy a house in LA, and my wife's business is based in Santa Monica, but currently the math just doesn't work (it's not even close), so we're not actively looking. Right now it's more likely that we would rent a house than buy one.

During the summer of '05 we looked very seriously, and put down bids on three houses -- we bid twice on two of them, in those weird bidding wars -- but came up empty. We realized we were bidding higher each time, and that eventually we would bid high enough to get a house -- a house we probably could not afford, so we dropped out of the market.

[Toby]

I found Zillow to be on the high side but an "OK" tool to give you a frame of reference.

[AL]

I think ZILLOW Zestimates are over estimates not below the prices.

But yes it could be a yardstick you could follow.

[jenifer]

Zillow was and is aout 200k to the upside in value of the home we sold in june. Zillow said 1.57M and we got 1.35M. Our house had an excellent location on the west side with in walking distance to the heart of beverly hills, had recently been remodeled, and was and is in perfect condition. I like zillow but you can't expect it to be spot on with the numbers. It's an automated algorithm

[perks]

I love Zillow. I'm on it practically every single day. It's a great resource for finding out basic information and, as Kate says, seeing how the property really looks from all four sides.

However, would I ever trust the Zestimate at face value? Heck no. Zillow can't tell me if the house is a run-down fixer or a gorgeous restoration, or if the comparable houses that recently sold in the same area are either.

It's definitely a good site...for some stuff. But not for everything.

[Kate]

Several people commented that they've noticed Zestimates that are higher, not lower, than actual sales prices. I don't work at Zillow, and I don't have any special knowledge about their algorithm, but in a declining market it makes sense that the estimates would be a bit higher than actual sales. The math is based (at least in part) on the comps and the comps are by definition historical data so they are a reflection of what recently has been.

[Benjamin Brown]

I wonder how realtors in monopolized cities like Manhattan Beach (Shorewood) feel about Zillow. They've been creating their own market values there for a couple of decades and let us hope that Zillow places downward pressure as well as sanity on those ridiculous realtor generated word-of-mouth tongue-in-cheek valutions which prey upon the recently Screwtape/Wormwood victimized and now nu vous rich due to secret settlements.

[investorguy]

Kate: Zillow has been way off since it launched. I once compared 3 identical houses on my street -- 1200 sf, 3 br, 1 ba on similar size lots, all the same age. Zillow came back with three different prices, one in the $500s, one in the $700s and one in the $900s. Zillow couldn't hit the ground with a basketball.

[Eurotrash]

John wrote:

"Mr. Vile, it's not a matter of "a tie." It's about truth in blogging. If you're the blogger, speaking for yourself, then have the courage to say "I" and not hide behind a fictional group. This is supposed to be LA Times 2.0. Get with the program."

hey John, why don't you back off and let Mr. Vile decide how he wants to sign. This question has been asked before and he has never tried to hide the fact that he is solely responsible for this blog. I don't know what his reasons are, but I suspect that his goal is to keep the focus on the market, not on himself or his opinions.

Or maybe it's just the old journo aversion to putting "I" in a story. Whatever the reason, I don't really care and I certainly wouldn't accuse someone of lacking courage over it.

[Greg]

disclaimer: I am a certified general real estate appraiser here in Los Angeles.

we get calls all the time from mortgage brokers who spent the 2 seconds checking values on Zillow and then calling all excited thinking they have a potential new loan to close. In our experience, Zillow is high probably 90% of the time, low 5% of the time and close to the value 5% of the time. I like to remind people of the phrase 'even a broken clock is right two times a day' when talking about Zillow.

Zillow is great for free data and i'll use it sometimes checking on some factual data looking for sales or listings, but anyone that uses Zillow to price a house for a sale/purchase or other reasons is foolish. you get what you pay for.

[Kate]

investorguy:

Wow! I have to say that I'm shocked there are 1,200 sq.ft. houses with one bathroom coming back at $900k (lots of flips, maybe?). But I wonder how long ago you ran that search? And, if it was a few months ago, whether it still comes out the same?

Zillow updates it's algorithm and I find that there has been material improvement.

[Mary G.]

I think Zillow was probably closer to the truth a year or two ago. Now, it's way up in the air, as are formal real estate appraisals. It's hard to find true values when things sit on the market for months. Yet, a few homes will always sell, because there are always at least some people that really want to buy a house. Some buyers are not going to be concerned about price, and pay what seems like too much, and then there are sellers that finally get desperate (or are foreclosed on) and sell their homes for what looks like way under market value. Plus, yes, Zillow does not take a home's general condition into account, let alone whether it's had major upgrades or remodels. If you know a house you're interested in is in great shape, then Zillow might be close. If it's a major fixer, they're still going to give an estimate as though it were in mint condition and filled with modern remodels, even though it might still have a fuse box, leaky windows, and need remodeled and replaced everything.

[Paul Hiller]

I'm a mortgage broker and find all of these sites helpful to a point. Kate seems to have her wits about her [and for sure does not need my investing advice]. I have found another useful site called Trulia.com. It doesn't give an estimate but it gives lots of facts. It seems harder and harder to feel comfortable with value. Things that closed recently may have gone into contract three months ago, and listed property owners are often dreaming of last years price.

[investorguy]

Kate: This was earlier in 2007. But it's been hosed from the start.

[NoCal SC]

Zillow is a joke. It has never valued my house accurately. A year ago it was saying my house was worth $500K, when there hasn't been a single house sold in Walnut Creek for $500K in at least 4-5 years. I just did it for my house. Despite that fact that two houses on my street which are identical in size and floorplan to mine (one with a nicer lot, one with a not-as-good lot) sold for $786K and $750K in the past 6 months, it values my house at less than $540K -- again, there is not a single house in Walnut Creek for that price -- even the trashed fixers in the less-desireable school district sell for more than that.

[investorguy]

I just ran my house. It's 50K high. And on the investment property I just sold, it's $200K lower than the price I just pocketed.

[Inland Empire]

Zillow is good for a general overview. A friend sold her house last year for 250K more than the Zillow estimate. My house is not listed correctly as to brs/baths, size etc. I think that there are other houses out there that also show incorrectly.
Like Carfax, Zillow is often wrong.

[Tex]

I don't have a problem with Pete Viles referring to himself as "we." Actually I find it kind of amusing. It's always been obvious to me that Pete is speaking for himself and not some editorial board at the LA Times -- as should be obvious to all our readers when he refers to "our 3-year-old" (unless he is talking about himself and his wife, which never seemed to be the case). Pete's been very honest in disclosing that his postings on this blog are his sole responsibility and not a collaborative effort with LA Times staff. Also, Pete always discloses when he's received some assistance from someone else on a posting and gives appropriate credit. Folks, give him a break!

I don't have a problem with the laland email address at yahoo. In my experience, Pete checks it regularly and does respond to messages, if appropriate.

Pete is doing us all a service by providing useful information and a forum to have intelligent discussion. He's doing a great job -- lay off of him. Who cares if he refers to himself as "I" or "we"? Pete's got his real name and photo posted (which is much more than what other bloggers do) -- it's not like he's trying to hide the ball.

[sheila]

i like zillow because it shows actual prices, APN numbers and assessor's numbers. i would never rely on their Z-estimates, though. one problem I've seen in the high desert is that it does not distinguish between manufactured homes (which have very little value) and regular homes, so that greatly skews their comps...

since mine was a private sale (non-MLS), it never showed up on Zillow, for which i am very grateful. who wants their neighbors knowing all the details of their business?? or prospective thieves?

[investorguy]

sheila: the details are still public record, MLS or not.

[Rick]

I find the estimates too high in my area.

[Ragnar]

I like Peter's "we." I find it charming and his writing style always gives me a little chuckle because I know it is just him.

As far as Zillow, I have never really looked at it. Those housing databases tend to be black holes for my time. I'm sure I will look at Zillow soon, and Kate's advice about using the site seems to be pretty solid.

[Vegas Living]

I found Zillow to be hilarious. There is one house they have where the Zestimate went up $100,000 in one month. I am not kidding!

then it has houses on the same street by the same builder, built the same year, but different lot and house sizes.

The smaller house and lot sizes had higher Zestimates than the larger house and lot sizes. Yeah I am going to go spend $30K more for a smaller house in the same neighborhood!

Zillow fails in an area where it will never be able to take over as an appraiser. It cannot see inside the house. It cannot see the neighborhood. It cannot see the crime differences or shopping differences that a mile makes. Instead it will value a house shell that is gutted with nothing in it in a dirt lot the same as a similar property next door that is a real house inside.

Until Zillow can do that, I find it shocking that people are dumb enough to use it to get a negotiated price. For every Zillow one can wave, I can find 80 matching houses that can vary over $30,000 within a mile.

[Donna L. Hoffman]

In my opinion, the Zillow Zestimates are seriously flawed. Since Zillow doesn't reveal the algorithm for open scrutiny, we can't evaluate where the flaws are kicking in. That, in itself, is cause for concern.

We've been following this over at the UCR Sloan Center for Internet Retailing, and so far, Zillow doesn't have a very good answer to the discrepancies.

See for yourself: http://sloan.ucr.edu/2008/03/09/why-are-
zillow-zestimates-so-wrong/

Professor Donna L. Hoffman
UCR Sloan Center for Internet Retailing