ZillowThis past May, Zillow, the online real estate search company was sued by a Chicago based home building company who claimed that Zillow’s online Automated Value Model (AVM) is deceiving home buyers with prices below the true value of properties leading to frustrated sellers. Furthermore the suit claims that Zillow’s “Zestimates” are in violation of the legal description of an appraisal, which under Illinois law must be administered by a licensed appraiser. Zillow defends themselves by stating that their Zestimates claim only to be approximations not true appraisals; to which the suit responds stating that whether or not they are technically appraisals homeowners are viewing them as such leading to confusion and irritation. It will be interesting to see over the coming months how this lawsuit plays out. It’s clear that Zillow’s Zestimate and other AVM’s which are becoming common across the internet are being used by consumers to determine the approximate value of their home.  But in my experience, many times this approximation isn’t close to the true market value.

So just how accurate are Zestimates. In a Nationwide study conducted by Zillow it was found that their Zestimates fall within 5% of the sales price of homes 53.9% of the time, within 10% of the sales price 75.6% of the time and finally within 20% of the sales price 89.7% of the time. Back in 2007 when Zillow was just getting its footing I conducted my own research local to Boulder on the subject and found that on a whole Zillow’s algorithm was 99% accurate.  However, when I took a closer look I found that there was an 18.4% standard deviation.  Additionally, the outliers were up to 50% off.  Although Zestimates generally do a good job when looking over a large pool of properties, their approximation for any specific property within that pool can many times be significantly off of the true value.

To read my 2007 article click here.

With home values rising as fast as they are in Boulder and with Automated Value Models such as “Zestimates”  readily available, inexpensive and simple to use, it’s easy to understand why so many consumers gravitate towards them. It’s important to remember though that the very nature of AVM’s being automated hinder their ability to provide an accurate evaluation of properties all of the time. AVM’s fail to take into account many critical and influential aspects of a property that can greatly affect the value such as the current condition, recent upgrades (or the lack thereof), actual square footage, views and other details. After understanding these substantial flaws it becomes clear why AVM’s, including Zestimates often over or undervalue homes leading to users feeling mislead.

AVM’s have their place as a non-binding general view of the market when you are not considering a transaction.  It’s fun to look.  However, when you are considering a real estate transaction you need to bring in an experienced professional to give you a more accurate comparative market evaluation.  Experienced Reatlor’s like myself can give you the broad information and experience necessary to make decisions around. If you are considering a move I would be happy to come by and give you an individual market analysis.  

To read more about the case go to: http://www.marketwatch.com/story/do-zillow-zestimates-mislead-home-buyers-illinois-lawsuit-claims-yes-2017-05-22

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