Friday, August 27, 2010

Just how wrong is Zillow and what do you tell your clients?

With Free Data, You Get What You Pay For
We all have clients who go to Zillow, CyberHomes and other sites to get an estimate of the value of their home. An article in the Sacramento Bee a couple of weeks ago talked about how far off these sites can be. Even Zillow's chief economist says they are accurate to within 10% on their best day. Since it's free to consumers, do these sites do more damage than good. Is the free data offered without the expertise of an agent setting expectations higher or lower than they should be? The value of Zillow and other automated estimating sites is just as they present themselves, a starting point. Where they fall short is in areas where the homes become more distinctive.

It's Just A Step Along The Way
A lot of agents, myself included, feel that in some markets these estimates are so far off the mark as to be at least useless and at most dangerous. Sellers could feel their home is undervalued and decide not to sell. Buyers could get unrealistic expectations on value and press agents to make offers based on those estimates. However, I seldom see these things happen. What is most often the case is that buyers and sellers get an idea of the relative value of the home to others in the area. In general, these estimates are a starting point from which they and their agents can start.

A Local Realtor Is Better
These automated tools will never replace an expert in the area. A Realtor will be able to account for variables the software can't. In the process, the Realtor can educate the seller or buyer about the market and set a price that makes sense.

In the local market of Los Altos and Los Altos Hills, Zillow is often very wrong. A few times it has been very accurate, but 9 times out of ten it's way off. It's often wrong because an entry-level rancher with 1800 square feet can appear on Zillow to be worth $1.2 million because it hasn't been fixed up. However, with some updates it may be worth as much as $1.5 million. The 25% discrepancy is huge and requires a Realtor to discuss and explain. There's a piece of property on Loyola Drive in Los Altos that Zillow shows as worth $902K. It has a 672 s.f. house and a 20,000 s.f. lot so it's really worth at least $1.2M - based on my expertise.

This problem is even more pronounced in Los Altos Hills. It's easy to find examples of valuations where updated homes with $3-5 million are given estimated values of $2-3 million. Just remember to check with your local Realtor to get the most accurate estimate of the value of your home.

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