Zillow is an online real estate marketplace for finding and sharing information about homes, much like Realtor.com, Trulia.com and Homes.com. What sets Zillow apart from the others is that they developed their own Automated Valuation Model (AVM) called the Zestimate. Using their proprietary algorithm, they combine several data points to establish an estimated value on one’s home.
Homeowners either love the value Zillow places on their specific property or despise it, but the tool itself has propelled their brand. They are now considered to be the dominate real estate search engine. They have combined forces with Trulia.com to further cement their standing. The question is, how accurate are the results, and what does Zillow do with their influence over the home search audience?
Zillow makes no bones about the fact that their model does not replace a professional valuation. Or that the results may be off significantly depending on a multitude of variables. Here in Idaho, I can tell you the Zestimate is not accurate at all. We as REALTORS® spend much of our initial Buyer’s consultations directing our clientele to the most accurate property search aggregators. Zillow seldom makes the cut.
In fact, Zillow has decided in many cases not to even publish the Zestimate on many Idaho properties. Why, you may wonder? It is because Idaho is a non-disclosure state, meaning that the amount for which a home closes escrow is not disclosed publicly. They may know when a home comes on the market and its listing price. They also may be able to see the current assessed value at the county, but they have no specific knowledge about the final sales price. Keep in mind the county assessor’s office doesn’t have that information either, making that valuation suspect as well. Idaho is not alone in this privacy act; there are 12 states in total that have some form of non-disclosure. For more information refer to Candace Taylor’s recent Wall Street Journal Article – The States Where Home Prices are Secret.
A Closer Look
I reviewed the closed sales information for one day in the Coeur d’Alene Multiple Listing Service (MLS) and found the following: There were 22 homes that closed escrow. Of those, Zillow only provided a Zestimate on 9 of those properties. The other 13 said the tool was unavailable as they did not have enough information to calculate the estimated value.
How did they do on the 9 homes for which they did publish the Zestimate? To answer this, you have to know how they publish the results. First, they give you the Zestimate – their assessment of the home’s worth, then they give you the range they believe the actual value will fall. This is the interesting part, as some of these properties have ranges of over $100,000. In fact, the average range provided for the 9 valuation provided was $116,000.
Of the 9 valuations, they were either high or low on average by 22.4%. Only 4 of those valuations fell within the wide ranges they provided. That’s less than half.
Why does Zillow spend so much time creating a tool that by their own admission is not accurate? Consumers love it! Love or hate, agree or disagree, consumers love to track that number. It’s a way to gain insight as to what their home’s value and the market as a whole is doing. Consumers flock to the site on a daily basis, whether or not they are looking to buy or sell a home.
How do these aggregators make their money? What do they do with the data they collect from the consumers? Here’s a hint: When you look at Zillow and put in your search parameters, you get a list of homes that match. If there’s a specific home on which you would like more information, they have a big “Contact Agent” button in the upper right of the page. Clicking this button links a Buyer to who they think is the Listing Agent, who knows the most about the property. That is not always the case. In fact, that is seldom the case. Zillow received the information about properties currently for sale from agents or Multiple Listings Services to which they belong. Listing Agents provide this information to make sure they are casting as wide a net as possible when marketing a home for their listing clients.
Zillow (and all the other aggregators) sell access back to a limited number of agents who pay tens of thousands of dollars for the leads. WHAT? That’s right—when you click on the “Contact Agent” button your request may go out to any one of four agents who have paid to gain access to your information. One of these may or may not be the Listing Agent. That depends on how much they or their respective brokerages have paid. What is your information worth? Well, you be the judge…in 2018, the Zillow Group reported total revenue of more than $1.3 billion, up 24% year-over-year.
What to Do?
What’s the take-away for buyers and sellers across North Idaho? If you are considering selling your home, ask for a free Comparative Market Analysis (CMA) from a local real estate agent. In fact, ask three different agents (including us!) and see how they compare. If you are looking for homes in the area, let us set you up with search results more closely fitting what you are looking for.