The Zillow of Oz: You Sure About that Home Appraisal?
Greco wasn't surprised recently when a study by three University of Texas at San Antonio professors was published in The Appraisal Journal found that "it might be wiser to go trust the unenlightened shot in the dark from a mere human when it comes to estimating home values -- at least when it comes to Zillow."
Zillow, the Seattle-based online real estate information service, offers its users a "Zestimate" for each house in its listings.
"The Zestimate home valuation is Zillow's estimated market value, computed using a proprietary formula," according to its Web site's FAQ section. "It is not an appraisal. It is a starting point in determining a home's value."
The problem, according to Daniel R. Hollas, Ph.D., Ronald C. Rutherford, Ph.D., and Thomas A. Thomson, Ph.D., is that these estimates are usually too generous, many times by very significant amounts.
The study, titled "Zillow's Estimates of Single-Family Housing Values," used the sale prices, housing characteristics and location data from the MLS for 2,045 homes sold in Arlington, Texas during the last six months of 2006, and compared them with Zestimates in early 2007.
Here's the shocker: For 40 percent of the homes in this sample, Zillow's Zestimates overshot the actual value by more than 10 percent (0.88 percent of these homes were underpriced by more than 10 percent). The study also notes that 59 percent of these Zestimates fell within +/-10 percent of the sale price.
"The average overestimation is 11.66% or $13,576, with a median of $9,717 or 7.92%," the study notes.
For instance, this single-family home listed in Chicago with a Zestimate of $346,500 might actually be worth $319,054, if the median overestimation is assumed.
According to other studies referenced by the authors of the Zillow study, the average homeowner overestimates the value of his or her house by 5.1 percent, while recent buyers overestimate by 8.4 percent compared to the stated sale price. "It appears, based on results from prior research and the current results, that homeowners are able to determine the value of their own homes better than an automated system such as Zillow," the study concludes.
A spokesperson from Zillow responded by saying, "It's unfortunate this limited paper is being published and publicized so far out of date."
On its FAQ page for Zestimates, Zillow reiterates that they are not appraisals twice and reminds users that they are a "starting point" four times. The company recommends that buyers, sellers and homeowners seek out a Comparative Market Analysis from a real estate agent, a professional appraisal, an actual visit to the house and use the site's My Estimator tool to complement the Zestimate.
Some others are siding with Zillow. "I think whoever was doing the study was trying to make a point and a point was made, but the study wasn't appropriately done," said Ken Shuman, a spokesperson for Trulia, a San Francisco-based online real estate search engine.
While Shuman called the study an "unfair shakedown," he did note the risks associated with trusting Zestimates, since users don't know the algorithm, or "the wizard" behind it. He suggests that those interested in home values look at Trulia's "Comparables" tab when looking at a particular home to see what other similar homes in the area are listed for.
Around the time the study was released, Zillow posted an entry titled "Have a Question About Your Home or Zestimate? Check Out Zillow FAQs" on its blog. Zillow, the second most popular real estate site after Realtor.com, according to Experian Hitwise, also maintains a Data Coverage and Zestimate Accuracy table on its site.
Want more info on home values? Visit theHome Value predictor at AOL Real Estate.