God-Zillow is Attacking the Housing Market Again! Run for Cover!

So today Yahoo! writes an Article about how Zillow’s reports show that our real estate market is down 8% since last year.  While the writer thought that the decline was probably actually a good thing and that the end of the decline is near I have to take a minute to stop and wonder…why are we taking real estate price analysis from Zillow in the media?  They are, for anyone who knows anything about the industry, one of the least accurate sites for home valuations ever.  They were given the nickname of God-Zillow from our friends at www.thinkbigworksmall.com comparing the damage they repeatedly do to our industry with their faulty reporting algarythms with Gozilla’s repeated attacks on Tokyo. 

What is so bad about their system and why is this statistic so likely inaccurate?  Well first, it pulls comparable homes (also known as comps) from too wide of a time range to have an sort of accuracy to a current market.  When an appraiser determines comps for a home they are discouraged from taking anything that sold past 90 days ago.  Zillows system uses home sales from anywhere up to a year ago in their calculations. This means that they are using data points that are well beyond expired for the purpose of making a real valuation of a home in their calculations. 

Not only are they using out of date home statistics, but their algarythm does not adjust the value of a home if it is a short sale, a foreclosure, or if one home has different features from another.  When an agent or an appraiser does a valuation they make adjustments to the sales price of a home upwards or downwards based on its condition compared to the subject property.  If the subject property is a regular home sale in good condition with hardwood floors, granite counters, and upgraded bathrooms you would not directly compare it to a foreclosure down the street that hard carpets that were badly stained, the kitchen appliances were removed and the cabinets and counters were badly damaged, and the bathrooms still had blue tubs and toilets from the 1970′s.  You would probably adjust whatever that foreclosure sold for upwards by at least $20,000-30,000 if not more, to take into consideration the differences in condition if you were to use it at all when trying to determine a value for the subject property.  Zillow’s system does not take any such adjustments into account, so if there were any foreclosures of a similar home in the area in the last year or any homes that were sold in less than perfect shape it will often make the home’s value seem much lower than it really is.

Finally, the Zillow Z-Estimate pulls from homes that are in a simlar area even if they are very different home styles or are different neighborhoods.  You can have two streets of townhouses right next to each other but one could have been built by a low end builder and the other could have been built by a custom home builder with a much higher level of standard features.  If you are doing a price analysis for a home in the custom builder’s neighborhood you would not use homes from the other builder’s streets as they are simply not the same level of quality, but this is exactly what Zillow does.

For an example of how this can work I will reference a home we just listed in the Emerson area of Laurel, MD (click the link to see the video tour of this home) last week.   As you can see in the video this home is in good shape and has some upgraded flooring on the main level.  After doing our analysis we had decided with our client to list the home at a price of $422,500.  We felt this price would help her to get her home sold quickly but at an appropriate price since the other sales in the neighborhood over the last 3-6 months were all above $410,000, and those homes were lacking some of the features that our listing had, leading us to believe that it could adjust for $15,000-20,000 more in value over the lowest sales in the neighborhod. 
What does Zillow value this home at? $398,000.  Why?  There is another neighborhood of townhouses a few streets over that were built a few years later that are a little smaller and were built during the downturn of the market.  In that neighborhood there are several homes that sold as foreclosures or short sales at prices between the $379,000-$390,000 range.  Rather than make adjustments for those homes to take into account their condition, or that it is a different location, the Z-Estimate just plugs them in as if they were the same condition and street as our listing takes an average of all of the sales, and reports that result as if its an irrefutable fact on their website. 

Considering that they under-valued our listing by 6% on their site does it really surprise me that they report an 8% decline nationwide?  No!
Do I think this has any legitmacy?  No, again! 
Do I wonder why the media chooses to use their figures as a basis of reporting?  I sure do! 

So yet again God-Zillow is Attacking RealEsta-Tokyo, and there is nothing that the media loves to report on more than a disaster so they eat it up.  I just hope our industry doesn’t get crushed in the rush to escape this monstrosity…Keep Dreaming!

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About Todd Moyer of dreamhomedigest
I am a Realtor in Howard County, Maryland with RE/MAX 100. My family's team and I specialize in assisting new homes construction buyers to find and build their dream homes, in addition to helping all manner of real estate clients. More on our team and our services can be found at www.howardcountyhomesteam.com or by calling me at 443-745-1593.

2 Responses to God-Zillow is Attacking the Housing Market Again! Run for Cover!

  1. Harold West says:

    Good luck fighting the Internet. The data zillow uses are public records. The records do not record anything but the parties and the price. If there weren’t foreclosures and short sales depressing prices the market would be better. In an up market zillow will help drive prices.

  2. Either direction that Zillow artificially helps to move prices is damaging to the market. We fought against what Zillow reported in the other direction in 2006-2007 as people would get their Z-Estimates, feel that Zillow’s price was the only number they should listen to, and since it was pulling from houses that sold a year before they were insisting on pricing their homes as much as $50,000-100,000 over what the market would actually bear at that time. As bad as Zillow is, I find it worse that they are given legitimacy by the main-stream media with articles like the one from yesterday’s Yahoo headlines. By using Zillow’s statistics as a basis for a major news article it re-inforces a false opinion that their Z-Estimate statistics are well founded and should be used over data from more legitimate sources in the industry.

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