Why You Don't Want to Use an Zestimates Aren't in Your Best Interest

CAUTION

SMOKE & MIRRORS AHEAD! Why Using Zillow & Zestimates Are Not in Your Best Interest

Question the Source & Know the Facts

Background: Zillow is an online real estate database company founded in 2006. In their financial statements, they state that they are a media company that generates revenue by selling advertising on its website. The overwhelming portion of Zillow’s data is available from other public sources for free. Zillow Group simply aggregates multiple listing, public tax record, census, and other publicly-sourced data (all of which is frequently inaccurate) and packages it for sale to whomever will buy it. Zillow’s primary source of income is real estate agents who pay Zillow to become Premier Agents. Premier Agents pay a monthly fee to receive buyer and seller leads from Zillow in specific Zip Codes.

Who owns Zillow?

Zillow Group is a publicly held company with class C stock selling on the NASDAQ exchange using the symbol Z.

How profitable is the Zillow Group?

Not at all. For the first quarter of 2018, they lost $18.6 million on revenue of $299.9 million. Interesting that $213.7 million (71%) of revenue was derived from selling leads to Premier Agents. The majority of the remaining revenue came from rental and new construction advertising. For 2017, they posted a $94.4 million loss.

Do they sell their data?

Yes. Zillow sells data derived from other sources and information entered into their website by consumers to their Premier Agents and anyone else willing to purchase it.

This includes your information, too!

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Zillow reports that they generate over 17 million leads a year to their Premier Agents That is more than three times the number of residential sales in the U.S. Given that the majority of sales in the U.S. Do not involve Zillow, they are clearly churning out leads to the highest bidders, regardless of real intent to sell or buy. The fact is that the overwhelming majority of sellers and buyers prefer to work with professional sales associates with high level of local market knowledge who they like and trust.

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What is a Zillow Premier Agent?

Premier Agents are any real estate agent who agrees to pay for leads in specific Zip Codes. There are no other qualifications to become a Premier Agent. Fifty-eight percent of these subscribers pay Zillow more than $5,000 month.

How do they choose their Premier Agents?

Obtaining Premier Agent status is easy, just pay Zillow for a subscription. There are no requirements for local market knowledge, proficiency, skills, reputation, or past success. Zillow obtains more than 70% of their revenue from their Premier Agents, the program and Zillow’s ad practices are under scrutiny from government officials.

Zillow’s only qualification for Premier Agents is that they are willing to pay a monthly fee to Zillow, not that they have any level of expertise in your area.

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What is a Zestimate?

Zestimate is one of many options known as an Automated Valuation Model (AVM). These software programs use public and prior sales data to estimate the value of a property. The accuracy of these algorithms varies wildly.

Are Zestimates accurate?

Generally not. Zillow reports that in Atlanta, the likelihood of their Zestimate being within 5% of the actual sales price is 51%. They also report that it is as low as 11.1% in other parts of Georgia. The likelihood of a Zestimate being within 10% of the actual sales price is 70.4% in Atlanta and as low as 22% in other parts of Georgia. In fact, Zillow’s own numbers show that even with a 20% margin of error from the actual sales price only occurs 83.4% of the time in Atlanta and all the way down to an astoundingly low 38.9% in other Georgia areas.

Most residential properties in the metro Atlanta area sell for around 95% of the list price. If a seller relied on Zillow’s valuation model, the typical Atlanta area seller would have left money on the table 49% of the time!

Keep in mind, these are numbers reported by Zillow. There are thousands of other examples where Zestimates were different than the actual sales price.

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Should I trust that Zillow will come up with the correct value for my home?

Absolutely not! Even they admit that their Zestimate is highly inaccurate. The fact is that no automated software takes into account the special features, condition, livability, finishes, and many other non-data driven features that are part of the home pricing formula. If you want to obtain the best estimate of your home’s worth, you should either hire a licensed appraiser or a real estate agent that you trust. It will save you time, money, and heartbreak.

Do you have examples of erratic Zestimates relative to actual sales price? Yes. The following are randomly chosen closings that occurred in the Atlanta area from July 1, 2018 – July 31, 2018. These 10 closings represent a $438,187 variance of actual sales price versus their Zestimate - $43,818 average per home!

Address

Zestimate*

Actual Sales Price

Difference

2216 Smoke Stone Circle

$438,926

$475,000

$36,074

3874 Cochran Lake Drive

$763,440

$775,953

$12,513

52 Russell Street

$558,860

$590,000

$31,140

$3,898,302

$3,950,000

$51,698

$635,953 $635,582

$660,000 $665,000

$24,047 $29,418

$2,093,276

$2,240,000

$146,724

$1,667,582

$1,726,485

$58,903

1268 Reeder Circle

$716,305

$725,000

$8,695

351 Leland Terrace

$635,025

$674,000

$38,975

1845 River Forest Drive 41 Candler Street 52 Kirkwood Road 130 The Prado 2817 Stone Hall Drive

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Other interesting examples include: Zillow’s CEO, Spencer Rascoff. In February 2016, Mr. Rascoff sold his Seattle home for $1.05 million. The Zestimate was $1.75 million! This is a 40% difference. Months after the sale closed, the Zestimate was still at $1.75 million. Shortly thereafter, he purchased a home in the affluent Brentwood area of Los Angeles for $1 million more than the Zestimate! If they cannot get their algorithm correct for their CEO, what is the likelihood that they will do a better job for your home?

What is the best way for me to get the highest return on my investment?

Work with a real estate licensee with a high level of local market expertise. Harry Norman, REALTORS® sales associates are highly trained and are subject-matter-experts in their markets. They understand the nuances to effectively price your home to sell at the highest price and in a timeframe that meets your needs.

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