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Monday, May 23, 2016

Zillow CEO Sells Home for 40% Less than Zestimate

News broke this week that Zillow CEO, Spencer Rascoff, sold his Seattle home for $1.05 million - 40% less than the Zillow Zestimate. At the time of the sale, the Zestimate on his home was $1,750, 405.


While the Zestimate has decreased slightly the past few days, it still hovers at nearly $1.6 million as of the writing of this article - 33% above the sale price.

Viewing online estimates to gauge the value of your home can be helpful, but if you’re in the market to sell, this news about Zillow’s inaccurate estimate of its own CEO’s home goes to show that there’s no substitute for the expertise and advice of a certified REALTOR®.

For more about online home valuations, check out this article that originally appeared on NerdWallet.

Don’t Rely Too Much on That Online Home Value Estimate
Most homebuyers begin their search online, looking to sites such as Zillow and Trulia for house-hunting intelligence, including all-important home values. But those online price estimates might be little more than an algorithm’s best guess, and perhaps not even a particularly good one, at that.

So before you rule out a house as well out of your budget — or put your current home on the market because of its better-than-ever value — you might want to rethink that price tag.

Missing the mark by thousands of dollars
Ashley Willard of Sacramento, California, knows just how important a role a home’s value plays in buying and selling. Last year, she was doing both. Faced with selling a condo while buying a home, Willard was working both sides of the property value equation. Zillow and similar sites weren’t adding much clarity to her situation.

“On the house I was selling, some of the sites had my house at almost $60,000 to $70,000 more than I was selling it for — and some of them had it for almost $100,000 less,” she tells NerdWallet. On the house she was buying, the online valuations were a bit more accurate, but still “probably about $15,000 higher at the time.” Today, the home is showing an online value that’s even higher.
“I just refinanced four months ago, and I just had my home appraised, so I know what it’s worth,” Willard says. “The value right now on Zillow is about $24,000 too high. Which is great, but I know what it’s worth.”

Gaming the system
Willard is a mortgage loan originator with Vitek Mortgage Group in Sacramento, so she has an insider’s view of real estate. She prefers the valuation services offered by Redfin and Realtor.com, particularly when analyzing current listings and recently sold properties.
“You can really evaluate sold homes on your own,” she says, and in doing so come to a more accurate conclusion about what a home’s real market value may be.

She believes online services, while great sources of information, often strive to offer quick and easy answers to complicated questions. And determining a home’s value is definitely a multilayered problem. Willard also warns that there are ways to game the online valuation system.

“You can actually go in and claim a house as your own,” Willard says. “Instead of having three bedrooms, you can update it to four bedrooms, or you can change the year a home was built. All of which will tweak the home’s value. Sometimes people will tweak it to the point where it’s not even accurate anymore, so they can get the value to where they want it to be.”

Consider the margin of error
On its website, Zillow admits that its “Zestimate” is simply a “starting point” in determining a home’s value. Using proprietary algorithms that include recent sales and property tax assessments, the calculations are automatically updated three times per week based on “millions of public and user-submitted data points.”

In a detailed explanation of the process, the company claims a median error rate of over 8%. And the accuracy varies by region, from a 5.3% median error rate in Washington, D.C., to an 11.8% median miss in Dallas, Texas.

Zillow accuracy rates are given a rating from one star (representing a tax assessor’s value) to four stars (“best”). Some markets have zero stars, and no claimed error rate, meaning no valuation is available. That can be because some states, such as Texas, don’t allow public access to the prices of completed home sales, so determining the accuracy of valuations just isn’t possible.

Putting Zillow and Trulia to the test
Joseph Castaneda, a certified real estate appraiser with Home Appraisals Inc. in North Miami Beach, Florida, recently put the automated valuation models to the test. Castaneda took certified appraisals that his company had completed on properties from around the country and compared the home values with those shown on Zillow and Trulia.

In all, the unscientific test compared the values of five properties — from a 4-bedroom, 2.5-bath home in Massachusetts, to a 2-bedroom 1-bath house in Denver — along with homes in Philadelphia, the Miami area and Washington, D.C. The results?

“We found that they weren’t very accurate, for the most part,” Castaneda says of the automated valuations. “Mostly because they’re not able to tell the condition inside or out of the house.”

He says the online algorithms were most error-prone on homes that had been completely renovated, or with properties that were “in distress.” So how useful are such ballpark estimates?
“They’re useful to me when I’m just trying to find quick information about a property,” Castaneda says. “But as far as taking the value from it — as far as what they estimate the value [of a home] to be worth — it’s pretty much useless.”


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