Imagine you own a home and you decide to sell it. You hire a real estate agent to help you and the agent crunches the numbers and determines that your home, which overlooks a golf course in a high-demand community, is worth $629,000.

The home is listed in the MLS, the agent goes about marketing it, but nothing happens. Or, when offers do finally come in, they are for $100,000 less than the list price. Both the agent and the homeowner are astounded since other homes in the neighborhood with more square footage sold for $100,000 MORE than this home.

How can this happen?

Fake news. Yup, it even happens in real estate and the results can be catastrophic.

If you are familiar with Zillow you know about the website’s “Zestimates.” The site defines these as “automated evaluations of home values.” Now, Zillow isn’t a licensed appraiser. In fact, to come up with the Zestimates, the company uses what it calls “a proprietary formula,” which utilizes a combination of “public and user-submitted data.” Who the users are, they don’t say.

Appraisers and real estate agents, on the other hand, use hard data from the Multiple Listing Service to determine the current market value of a home. After all, market value is based on what a willing buyer will pay for a home and the only statistics that tell us the answer to that are sold listings. Not public data and not user-submitted data. And, the only place to find the data about these sold listings is the MLS and Zillow doesn’t have access to the MLS on a nationwide basis.

So, they guess. They estimate. Or, more accurately, Zestimate.

But it’s not real

When real estate consumers search the Internet for listings of homes for sale, specifically via Google, the entire first page of search results is dominated by Zillow, Trulia and other large real estate aggregator sites.

Since real estate agents DO have access to the MLS and they have a feed directly from the database posted on their websites, the only way these consumers will get actual MLS listings is on a real estate agent’s site (which typically is relegated to page two, at best, of Google search results).

Sadly, most real estate consumers don’t know this. So, they click on the results on Google’s first page and, lo and behold, see that the home that they are thinking of buying, according to Zillow, is worth $100,000 less than asking price.

Or so Zillow says

The homeowner mentioned at the outset of this post is a real person. She lives in Chicago and she has filed a lawsuit against Zillow. It was bound to happen sooner or later and, quite frankly, I’m surprised it’s taken this long.

Her lawyer has learned that Zillow's automated system used newly-constructed homes as comparables when determining the value of her home. Not only that, but these homes were in an entirely different part of town (remember, all real estate is LOCAL), where homes cost far less. Zillow valued her home at $562,000.

She isn’t seeking monetary damages, only an injunction against Zillow, demanding that the company take down the Zestimate or amend it to reflect reality.

Zillow fights back

Kenneth Harney, reporter with the Chicago Tribune, picks up the story. “Emily Heffter, a spokeswoman for Zillow, dismissed Andersen's litigation as ‘without merit.’”

But, if we follow the money, we get to the crux of the matter.

“The Zestimate feature is the cornerstone of Zillow's business model since it pulls in millions of home shoppers, allowing the company to sell advertising space to realty agents,” Harney explains. “Zillow makes big money with the help of its Zestimates: In the first quarter of this year, it reported $245.8 million in revenues — a 32 percent jump over the year before — including $175 million in payments from "premier" agents, who pay for advertising,” he concludes.

It’s been going on for years

Real estate and appraisal professionals have been complaining for years about Zillow’s Zestimates and how they mislead real estate consumers. Even Zillow admits that they are error-prone.

According to Harney, “Zestimates are within 5 percent of the sale price 53.9 percent of the time, within 10 percent 75.6 percent of the time and within 20 percent 89.7 percent of the time, Zillow claims.” 

But that doesn’t stop Google from serving up Zillow’s garbage, front and center, on page one of just about any real estate-related search query.

“Sadly,” Harney continues, these “ . . . errors can translate into tens of thousands of dollars — hundreds of thousands in high-cost areas.”

Which brings me back to Google, who cautions its quality raters to downgrade any site that negatively impacts a searcher’s finances. “Google wants to ensure that these types of pages that impact a searcher’s money or life are as high-quality as possible,” claims Jennifer Slegg at Moz.

Yet, Google eagerly and consistently serves up the one site that, for years, has negatively impacted the finances of real estate consumers. Amazing.

I’m not an appraiser

Nor do I play one on TV. In fact, there are laws against me calling the Comparative Market Analysis that I compile for my listing clients an “appraisal.” I’m not allowed to do it. Despite the fact that the way the appraiser comes to his or her determination of market value being almost identical to the way I arrive at it, I am prohibited by law to call my CMA an appraisal.

Yet Zillow can cavalierly throw out estimates of market value based on second-hand anecdotes and some secret-sauce sort of “proprietary” algorithm.

Or, at least, they have been able to, until recently. Hopefully, the courts will see fit to slap them with the injunction the homeowner has asked for. Frankly, I hope she gets financial relief as well.

I’ll keep you updated.



Posted by Jolenta Averill on
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