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Why the Zestimate is broken

February 11, 2019 by Karen Liester Leave a Comment

Things I trust more than any automated valuation model:

  1. Gas Station Sushi
  2. An elevator ride with Ray Rice
  3. Bill Cosby as a bartender
  4. A seasick crocodile
  5. A prostate exam by Captain Hook
  6. 3M Strips on a freshly painted wall…

One of the greatest evolutions in real estate in the last decade has has been the power of the internet. With countless sources of information available at the click of a button, it’s no wonder more than 90 percent of home buyers begin their home search there. It’s fast, user-friendly, portable, and available 24-7!


A lot of home buyers say that they begin their search on large internet platforms like Zillow, Trulia, or Realtor.com. Many of these sites offer what is called an “automated valuation model” -AVM for short- that will offer their prediction of the current market value for many homes. Zillow has dubbed their AVM the “Zestimate” and it is seen on almost every property that is listed in the state of Idaho. Now, to their credit, they have done an amazing job creating technology, utilizing complicated prediction algorithms, and have an ever-growing brand awareness with consumers. However, there is one thing that they do fall short on: accuracy.

Now, I do want to clarify that I cannot attest to the AVM accuracy in other states, but here in The Gem State, they seem to fall short on both accuracy and consistency, and there IS a reason why.

As a real estate agent, one of the most difficult tasks I face, is pricing a home. It is not a task I take lightly when there is so much at stake, for both buyers and sellers! The market is ever-fluid, and pressure can change from week to week, or even from subdivision to subdivision. Motivation, condition of the property, available inventory are all factors that must be considered when pricing a home. Poor curb appeal, or a newly remodeled kitchen are simply not things that can be valued through automation.

The state of Idaho is what is considered a non-disclosure state. We are one of only twelve states that are considered non-disclosure, where transaction sale prices are not available to the public. Not even the county records the sales price of homes. The only place that sales prices are recorded are in a private version of the MLS that is available only to realtors and appraisers. Without having access to final sales prices of homes, even Zillow admits that the information is sketchy at best. “Since we rely on public county records as our primary data source driving our Zestimate algorithms (which take comparable sales prices into account), it poses a challenge to calculate accurate Zestimates when sale prices are not available.” (Taken directly from their webpage). Furthermore, they can rate (by state) how accurate the information they have access to is in determining a home’s value, and Idaho is ranked as the lowest level for accuracy.

 

How does an inaccurate estimate affect me?

As a seller: Whether a Zestimate, or any AVM, is off of the current market value of your home, you will be affected by it. It may seem obvious that having a zestimate listed for your home at $322,000 while it is actively being marketed at $350,000 may be detrimental to your selling success. Buyers tend to believe the estimate and assume you have overpriced your home and may even chose not to see the home in person. They don’t want to make a purchase that could cause them to overpay, or be upside down immediately upon moving into your home.  Some buyers will go into negotiations feeling confident you should take a lower price, thus beginning the emotional roller coaster of low-bid offers. However, have you considered how an over-priced estimate may affect you as a seller as well? As consumers, we go into a “bargain mentality” when we view that something is a “steal”. Homebuyers have called me and asked if I think a particular seller would take an even lower price since the estimate indicates this seller is already motivated! Think of the phrase, “It never hurts to ask…”. Other buyers, however, may wonder what is wrong with the property? Why are the sellers are giving away so much equity? There must be something wrong with it…

As a buyer: Counting on the information that is provided by the automated systems is not the most wise way to go into making one of the biggest investments of your life. Emotions can be stirred in many directions based on the information you are seeing about perceived value on a home. A home that looks under-priced may cause you to act rashly, and proceed without due consideration. Offers are written, inspections avoided, and timelines rushed so as not to miss this “amazing opportunity”. Inversely, the perception a home’s price has been inflated may also cause you to proceed emotionally. “They’ll never get that!” or “I’d never pay that, it’s clearly $28,000 high!” Either of these responses may just cost you your dream home! Bottom line: do not feel overly confident about a potential price you would offer to a seller until you have talked with an agent about the home’s value.

Only a Realtor

Don’t be fooled into thinking access to a mountains of information is the same thing as access to accurate information. Reliable sold data, active and pending inventory, and a deep insight of neighborhood trends is the only way to get an accurate reading on a homes value. Additionally, having a (real, live) person that has seen (and sometimes more importantly, smelled) the home is far superior to questionable and antiquated date being fed to and interpreted by a computer! You deserve to know that what you are paying for a home is fair. Contact a realtor (me!) to make sure you have someone in your corner, invested in your interests with access to correct information. You simply cannot beat this expertise!

Filed Under: Hunting for Housing, Real Estate, Staging + Selling, Uncategorized

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