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ZILLOW IS DAMAGING HOME VALUE PERCEPTION ON SELL AND BUY SIDE
We've all been there before: "but Zillow said my home is worth $638,000 - why are you recommending we list it at $599,000?!?!" Or, "the Zestimate on this home is only $329,000. Why in the world is it listed at $359,000?!?! I am not going to pay $1 more than what Zillow says it is worth.
Having only been in existence for 11 years, Zillow has become the ULTIMATE AUTHORITY on what real estate is worth in the eyes of many buyers and sellers. As many in the real estate business have known for a long time, Zillow is often wrong. As Realtors, we have to battle daily with Zestimates and the deep trust some clients have in them. While not always drastically wrong, they seem to really miss the mark often, if not most of the time.
According to Zillow CEO Spencer Rancoff, Zestimates are "a good starting point" but nationwide, they have "a median error rate" of about 8%. On a $500,000 house, that is a $40,000 disparity - a lot of money on the table - and that could create problems.
Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. Though it's not prominently featured on the website, at the bottom of Zillow's home page in small type is the word "Zestimates." This section provides helpful background information along with valuation error rates by state and county — some of which are stunners.
For example, in New York County — Manhattan — the median valuation error rate is 19.9%. In Brooklyn, it's 12.9%. In Somerset County, Md., the rate is an astounding 42%. In some rural counties in California, error rates range as high as 26%. In San Francisco it's 11.6%. With a median home value of $1,000,800 in San Francisco, according to Zillow estimates as of December, a median error rate at this level translates into a price disparity of $116,093.
Zestimate issues have caused one homeowner in Illinois to file a lawsuit against the online real estate giant, claiming Zillow's controversial “Zestimate” tool repeatedly undervalued her house, creating a “tremendous road block” to its sale.
So what do you do now that you've got the scoop on Zestimate accuracy? Most important, take Rascoff's advice: Look at them as no more than starting points in pricing discussions with the real authorities on local real estate values — experienced agents and appraisers. Zestimates are hardly gospel — often far from it.
Source: Kenneth Harney, Los Angeles Times and Washington Post, May 2017
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