Jun 14, 2017

The Million Dollar Real Estate Question – Zillow Zestimates

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-Drew Grossklaus – Sales Director / BIC

Zillow recently announced their competition to win $1 million dollars in exchange for improving their Zestimate algorithm which is used to determine the value of homes on Zillow.com. Whether looking for the value of a home to purchase or sell, this algorithm serves as the basis of website traffic for Zillow.

Often explanations need to be made to clients, about why we feel the Zestimate is wrong and not a true valuation of their home as a whole. Zillow has a page on their website that explains the estimate’s levels of accuracy based on data collected. The levels go by a star rating of 0 to 4. The interesting fine print regarding Zestimates includes, “Zestimate accuracy is computed by comparing the final sale price to the Zestimate on or before the sale date.” In terms of accuracy, Zillow looks at pricing on or before the sale date that they have been tracking against. You would hope that most properties listed for sale are somewhat accurate to the selling value. Of course if they are having trouble selling, then the property it will be reduced and again the Zillow algorithm will adjust. The most accurate Zillow evaluation would be to look at the Zestimate before the home was listed and then the final selling price.

The Zestimate does use a significant amount of data that an agent would review for a Comparison Market Analysis (CMA). The CMA is an integral tool, however one aspect will seemingly always be missing that changes the value of the product and that is the house itself.  I don’t know of an algorithm that can measure how a house flows. Can an algorithm show the water stains from the leaky roof, cracks in the foundation, or poorly done repairs after a fire? Can an algorithm smell that scent that just can’t be eliminated? All of these things are major parts of the valuation of a product. I don’t know how the real estate agent could ever be taken out of the home valuation process. The valuation of the home combined with the market data will give you the most accurate valuation.

It should be noted for all the areas that Zillow makes available in showing their data, the average overall score on the zero to four accuracy scales comes out to 1. I appreciate their honesty and the fact they are trying to improve with million dollar contests, but there is still no replacing the experienced agent.

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