It’s no secret within the real estate industry that Zillow, and it’s Zestimates are not accurate, and really- they aren’t even supposed to be. Accuracy doesn’t even fit into Zillow’s core objectives. Their business model is not about being accurate at all- its about selling ads. But Zillow does create a real problem for many people who believe the ridiculous Zillow price estimates.
Zillow’s business model is simple;
1- Assign a price estimate for every home
2- Generate interest by showing how “fun” it is to see what it says other people’s homes are worth and satelite images of celebrity houses
3- Sell advertising on the website
Nowhere in that business model is accuracy. They want to be accurate enough that people will go to the site, but that’s about it. The state of Arizona’s lawsuit against Zillow only feeds them more exposure. And I’m a supporter of Zillow’s. I have been from the beginning and I advertise with them. But it’s important that home buyers and sellers realize that Zillow doesn’t know anything about real estate. It’s not a real estate company- and that’s the thing that most people don’t realize.
It’s a technology company disguised as a media company disguised as a real estate company.
The people who own and run Zillow have no experience in real estate, and most of the people working for Zillow have no experience in the real estate industry. They are computer programmers, PR and media people.
Apart from how ridiculous it is to actually believe that a computer program can determine the value of something that is as much about feel and flow as it is square feet and bedrooms, the idea that you could take an algorithm to determine values without even seeing what you are evaluating is absurd.
I haven’t put enough thought into the lawsuit the state of Arizona has filed against them to have an opinion, but I do think it’s a shame that consumers would be so fooled by the website that I do believe they need to make their disclaimers more obvious so people realize that zillow is simply a fun place to check out your neighbors house.
It’s like trying to put a value on a person based on a pre-set group of data points and an algorithym that places value to different attributes you possess. Sure, it might be fun and entertaining, but would you actually believe the values?
Sad thing is, many people would…
So let’s take a look at some actual examples of how accurate Zillow is;
First, let’s look at my house…
The first thing that I notice is the irrational price fluctuations, up and down and up and down. There was a day in November that it showed my home went down in value $20,000 in one day. Then it went up again over $20,000 in less than a month. And it shows that since January my house has gone down about $40,000. It shows that the house has 4200 SF, 6 bedrooms and 3.5 bathrooms.
The reality is my home has about 4800 SF, 7 bedrooms and 4.5 bathrooms and some of the best city and mountain views I’ve ever seen. Zillow says my home is worth about $420,000 today, but my home was just appraised and could sell today for almost $600,000 and has been appreciating every month for the last year and a half. The graph should look like this;
Now let’s look at some more homes to see how Zillow has done with them. I pulled up ten homes in my area that recently sold, and compared them with Zillow’s Zestimates to see how close the website was to actual market value and how accurate the site is with home information. This was not complicated. I simply went to the MLS and pulled homes that have sold in the last 60 days or less within a few blocks of my home. Let’s look at these ten homes.
Here is the MLS sheet showing the home information
And Zillow’s Zestimate’s on each;
Zillow says $467,000- 2490 SF- 3 Bed – 3 Bath
Actual sold $480,000- 3771 SF- 6 Bed- 4 Bath
Difference= -$12,989 (2.7%) Not bad, but shows value has dropped recently?
Zillow Says $618,346 – 1032 SF – 3 Bed – 2 Bath
Actual Sold $499,000 – 2682 SF – 5 Bed – 4 Bath
Difference= +$119,346 (23.92%) Home went up over $400,000 in one month?
Zillow Says $444,173 – 3209 SF – 6 Bed – 3 Bath
Actual Sold $539,000 – 4466 SF – 6 Bed – 3 Bath
Difference= -$94,827 (17.59%) Home took a $50,000 dive?
Zillow Says- $552,257 – 3784 SF – 3 Bed – 3 Bath
Actual Sold $525,000 – 3754 SF – 5 Bed – 3 Bath
Difference= -$27,257 (5.19%) Look at the value jump up and down
Zillow Says- $494,478 – 3135 SF – 6 Bed – 4 Bath
Actual Sold $579,900 – 4092 SF – 7 Bed- 4 Bath
Difference= -$85,422 (14.73%) Again showing price drop
Zillow Says- $525,476 – 3834 SF – 4 Bed – 3 Bath
Actual Sold $600,000 – 3976 SF – 6 Bed- 3 Bath
Difference= -$74,524 (12.42%) Price going up and down 5 times in 1 year
Zillow Says- $469,925 – 3834 SF – 4 Bed – 3 Bath
Actual Sold $650,000 – 5164 SF – 5 Bed – 4 Bath
Difference= -$180,075 (27.70%) Way under value- not even close
Zillow Says- $633,693 – 3299 SF – 5 Bed – 3 Bath
Actual Sold $805,000 – 5300 SF – 7 Bed – 4 Bath
Difference= -$171,307 (21.28%) Major price fluctuations
Zillow Says- $959,341 – 6744 SF – 6 Bed – 4 Bath
Actual Sold $985,000 – 7511 SF – 6 Bed – 5 Bath
Difference= -$25,659 (2.60%) Went up $220,000 in a month
Zillow Says- $1,091,496 – 6350 SF – 4 Bed – 4 Bath
Actual Sold $1,825,000 – 6550 SF – 5 Bed – 5 Bath
Difference= -$733, 504 (40.19%) At time of sale Zillow was off over $1,000,000!
For all ten homes Zillow was off an average of $152,491 (20.36%)and what is really telling about the Zillow charts is how the home values have gone up and down so dramatically, while the area has actually had a steady increase in values over the last 12 months. Maybe Zillow bases it’s algorithms off the stock market? Whatever they are using in Utah, it’s not even close. Not one home had the home information correct and 9 of the homes were off by over $25,000. Four were off by over $100,000 and Zillow was off by an average of over 20%.
Zillow is a fun site to play on, but when it comes to the business of real estate Zillow needs to put it’s little toy away and let the grown-ups do the work.