Friday, July 26, 2019
A Case Study: Zillow estimates of home value are NOT accurate -- but they pretend to be...
Over the last decade I have written several posts about the inaccuracy of automated website estimates of home value, and recently I noticed a situation with one of my listings I feel I must put out there for all to see. This is the perfect illustration of the current state of automated website estimates of value.
There are several websites out there that purport to be able to estimate home values, and the one most commonly referenced seems to be Zillow. Many of my clients love Zillow and often I hear "well Zillow says the value is $x". Admittedly, it's a cool website. It has robust search features and great mapping tools. But very rarely do I find that the value estimated by Zillow to be accurate, and often I have conversations with my clients about the disparity between reality and the Zestimate price.
But what happens when a Zestimate is way off? It seems Zillow is now radically changing Zestimates based on property listing prices. Basically the way I interpret this, they are relying on an agent's assessment of value to adjust their own faulty estimate of value.
A few weeks ago, I listed a property for sale that I would call a major fixer. I had some pre-listing inspections completed, and it needed a new roof, had about $20,000 in dryrot and termite damage, and was cosmetically in rough shape and very dated. After analyzing comparable sales I suggested a listing price of $225,000. The house went on the market July 10th, 2019.
I happened to look at Zillow that afternoon, and noticed the Zestimate was WAY higher than the listing price at $291,413. That is a substantial difference of $66,413 --over 20% more. Now, if this property were to have been in stellar condition, it would be closer to the value of the home...but this home needs major renovation.
I tweeted about this price difference, noting the significant difference and that Zillow posted a little disclaimer. I got several offers on the property and the seller accepted one later in the week. My seller was really pleased as the listing price of $225,000 I suggested was more than she figured the value would be given the condition of the property.
Then on July 21st, I happened to look at Zillow again. I was shocked to see that practically overnight Zillow had lowered it's estimate of value to $225,001.
WOW. There are so many things I that irritate me about this.
(1) So now does Zillow get to claim accuracy for its Zestimate for this property? It closed on Tuesday of this week, July 23rd for $226,000. For what it's worth, I did have some higher offers, however the seller selected an all cash and completely non-contingent offer (meaning no loan, no formal appraisal, no inspections) with a very quick close.
(2) I believe the new owner plans to do a major remodel and then resell the home. I'm sure he will be thrilled to have what will then be a ridiculously low Zestimate for the property when it eventually goes back on the market. Or will Zillow substantially change the value again at that time?
(3) Is Zillow going to freak out nearby homeowners and potential buyers when they see the "Last 30 Day Change" on this property is -$62,682? Do people trust Zillow so much they will falsely think the market is crashing in this neighborhood? (Coincidentally, can Zillow even do simple math? I noticed $225,001 + $62,682 is $287,683, which is $3,730 less than the Zestimate from 11 days prior.)
Anyway, people, PLEASE realize that this website has nothing on licensed agents and appraisers who know the market, can see the property, and accurately estimate value. If you would like an accurate estimate of your home's value, call me and I can help you. Or I can connect you with a licensed appraiser who can also help you if your situation calls for that.