Have you ever wondered “just how accurate are Zestimates anyways?” Zillow is now publishing the data for all to see.
Agents used to have insider knowledge. Now much of that knowledge is on the web. But I find that the public often misconstrues the purpose of Zillow. Zillow exists to sell advertising to agents. Zillow is a publicly traded media company whose sole earnings are made from agent advertising dollars. Zillow makes expensive, saccharine television commercials to build consumer trust so that you will visit their site. All those online eyeballs draw in agent advertising dollars.
Zillow doesn’t exist for you. Zillow exists solely to make money for it’s shareholders. In that pursuit they’ve come up with a fancy algorithm to estimate home values (again to draw more eyeballs). It’s a novel idea and it’s working. Last year the site pulled in $284 million in profits. But the data accuracy leaves something to be desired…
Here are the down and dirty stats for Davidson County:
- Final sales price within 5% of Zestimate: 35.8% of the time.
- Final sales price within 10% of Zestimate: 59.3% of the time.
- Final sales price within 20% of Zestimate: 81.1% of the time.
- Median margin of error: +/- 7.7%
In Nashville the average home costs about $265,000. A 7.7% margin of error represents a $20,000 spread EACH WAY.
Obviously Zestimate accuracy should never be taken at face value. Even Zillow calls their data “a starting point.” Their CEO currently has a property on the market with a broker in Seattle. It’s priced $175,000 under Zillow’s estimated price. That’s ONE HUNDRED SEVENTY-FIVE THOUSAND U.S. DOLLARS. That’s a whole other house!
In my experience, the algorithm works better in some places than in others. If you live in a builder driven suburban community, your Zestimate will likely be closer than if you live in an urban environment with older housing stock. This is because Zillow doesn’t have knowledge of renovations and enhancements that can make older, updated homes unique and desirable.
The Point? When you hire an agent, you are hiring someone to interpret the market for you. Not just the numbers, but the ebbs and flows of the season, the neighborhood hotspots, the protocols, the bookings, and the PAPERWORK. (The paperwork is so, so important in our litigious society.) Good agents sell houses every day so they are familiar with current trends in negotiating, in lending guidelines, and even with small tweaks that could make or break a sale. An experienced agent can act as a guide to help you easily navigate around potential pitfalls and surprises that might have otherwise caught you off guard and derailed a transaction.
On a semi-related tangent, I recently read an interesting book published by Zillow’s CEO. As usual, I took lots of notes. Here are some that I found interesting:
…excerpts from Zillow Talk:
Zillow On Agent Representation When Buying A Home:
…Are agents still necessary? Zillow suggests that real estate agents are still incredibly important, and they’re not going anywhere. In fact, real estate professionals are working more than ever today.
According to a recent study, 91% of home buyers used an exclusive agent to help buy their home. In 2001 the number was only 70%. Real estate agents have stayed relevant in part because they have embraced technology more than any other service based industry, but mainly their importance involves the fact that transactions have become more complicated than ever.
Given how life altering a home purchase or sale can be, it’s not really a surprise that more people than ever want a trained professional in their corner during the process. Many industries such as travel agents and stockbrokers have thinned their heard, but the more frequent and the less expensive a transaction is, the less necessity there is for a middleman. When finding and financing a home, however, the emotionally charged, life-changing, bank account-draining gravity of the situation leads most to crave — and, indeed, to require — an expert’s guidance.
Zillow On Listing Agent Experience:
…Of note, the top 1% of seller’s agents sell 8.7% of the homes in the United States. The top 10% of seller’s agents sell a commanding 41% of all homes. The 1% typically sell at least 22 homes per year. The 10% sell on average of 7 homes every year. Compare that to the median agent in the sample, who sells just two homes every year. There’s a clear divide between the top sellers and everyone else.
Experience is key.
Comparing agents with greater than 10 years of experience with the agents who have been on the job for fewer than five years, Zillow found that the experienced agents sold twice as many homes. Nevertheless, there’s an big caveat. Even if an agent sells a lot of houses, that doesn’t necessarily mean they are the right person to sell your house.
There are several factors you need to consider. Experience actually can be a double-edged sword for real estate professionals. When there are so many clients to service, fitting in all the extra appointments can mean that every client gets a little less time and a little less attention.
Experienced agents do tend to have quicker sales, with fewer days on the market. That’s because they tend to set the price correctly from the get-go. But that doesn’t necessarily mean that they’re going to get more money for you. The market is pretty keen on fettering our value on it’s own…
Great article! Interestingly enough as of 11/06/2015, Zillow’s CEO’s property for sale is now listed over $400,000 under the Zestimate – that’s wild!! As convenient as Zillow can be for consumers doing their “homework” ahead of time, I agree they should take in that information with a grain of salt. Thanks for the great post!
Thanks Jonathan for stopping by. At least Zillow hasn’t changed the Zestimate to make his price seem more attractive. They totally could have done that. I’ll give them props for that. I’m not a Zillow-hater like many agents. I just hate it when consumers think Zillow has better information than agents in the trenched everyday.