How close is “close enough?”
By: David Gibbons, Director of Community Relations | August 12, 2006
I just read this encouraging note from a homeowner in Cape Coral, FL.
Dear Zillow, I just had my house appraised, and you are very close. You estimate (the house) at 227,258, and the appraisal came in at 218,000. Thanks for the peace of mind and being so accurate especially with how the housing market has exploded in this area. Great Job!!
The feedback we receive is certainly not all this positive but what struck me here is that this writer considers a 5% variance from their appraiser’s estimate to be "very close" and "so accurate". I’d hazard a guess that for them, 10% would be "close enough". I’m not surprised by that, and I agree with them — it’s frankly magical that Zillow gets this close to actual market value.
What is surprising is that not everyone agrees. Some people actually consider 5% to be "way off", or rather "WAY OFF !!!". When we measure and report on our Zestimate accuracy, we count the percentage of Zestimates within 10% of sales value.
I recently chatted with a wonderful lady who is very distressed that her house’s Zestimate is 8% less than her neighbor’s Zestimate, despite both house’s having identical floor plans. A perfectly logical complaint yet that 8% difference would result from just a 4% variance in each Zestimate. For her, 4% is not close enough when comparing house values with the neighbors. And when Debi Averett concluded that Zillow is more accurate than list prices in Gilbert, AZ, she also held us to an extremely high standard; requiring Zestimates be within 1% of sale price to be close enough to be counted as accurate.
In a market where merely staging a home well can lift its sales price by $100K, it’s tempting to dismiss these folk as having unrealistic expectations. Instead, we’re learning that when it comes to Zestimate accuracy, expectations can and do vary greatly and that those expectations have everything to do with context — i.e. what do you use your Zestimate for? As a starting point to determine a house’s value, most Zestimates are surprisingly close. When listing or bidding on a house, Zestimates can be "WAY OFF!!!". And when comparing Zestimates with the neighbors, often only a relatively higher Zestimate will do.
So, this is your opportunity to let us know — in the comments below — how close is "close enough"? And what is the context in which you find your Zestimate useful (or not)?
- Stumble it!
- Categories: Real Estate Industry, Zestimate
Comments
12 Comments so far
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Matt Borthwick on August 12, 2006 2:22 pm
I think the question “how close is close enough” leads to an interesting research topic:
Given reasonably identical floorplans and locations, and adjusting for the contemporaneous Zindex, what’s the typical scale of variations due to the inevitable uniqueness of each buyer/seller pair?
In other words, how close could a “perfect” Zestimate get?
A Heisenberg’s Uncertainty Principle for real estate, if you will.
Lazy Man on August 12, 2006 9:27 pm
The Zestimate is within about 3% of what I’d expect to be able to sell my place for. That’s outstanding in my view. Still I wonder why many places in my same complex with the same floor plan should be that much different.
danlovejoy on August 13, 2006 11:58 am
For what I’m paying you, I shouldn’t complain. At least, no one should be YELLING and using exclamation points.
In Oklahoma City, where housing prices are wonderfully low, a 10% variance isn’t that much. However, where housing prices are high, it might make a huge difference. I imagine, however, where prices are highest, they are most volatile. So where it matters most, the percentages should be a lot tighter. Not an easy task.
I would say 5% in either direction is the very best you could ever expect. Ten percent is more realistic.
Something happened in Oklahoma City, though, and Zestimates shot up $10 - $25k in one week. Something is wonky. This just doens’t happen here. (I have entered this in the beta feedback form)
But once again, it is a BETA product that is costing me NOTHING. So I can’t really complain. I enjoy there service and appreciate it very much. I look forward to our Zestimates coming back to reality.
Love the AJAXy goodness, by the way. It’s sah-weet!
Greg Wilson on August 14, 2006 8:02 am
I run a small real estate company buying and renting residential houses in St. Louis, MO. I abandoned my own projections/models in favor of Zillow. I find zillow to be within 5% of what I was coming up with for value. Instead of me scrounging up the data I need to make my own models, I can instantly use Zillow to get similiar numbers….numbers I find to be in line with MLS.
Keep it up.
I just hope you add basement, garage, and a few other vital housing characteristics to your data set. I feel zillow’s variance in my area is due to comping a house with a garage vs one with out one, or slabs vs. basements.
David G from Zillow.com on August 14, 2006 8:54 am
Matt;
Good point. The variability of the personalities involved is probably a factor in the selling price.
Greg;
Basements and garages are factored into Zestimates - but only where we have that information. When you click on “show all home facts” on the house details page, you will see the facts that we consider for any one house - if a basement and covered parking is listed, they’re counted towards the Zestimate.
graybeard on August 14, 2006 9:27 am
Based on properties owned on both coasts, I have found that Zestimates must be looked at with a careful eye and a beforehand knowledge of the property and neighborhood. A personal example using one of my West Coast beach properties shows it denoted as ? BR, ? BA, ? sq ft property with a Zestimate 27.67% lower than the property next door, denoted as a 2 BR, 1 BA, 933 sq ft property. The reality is that my property is a two family property with one unit being 3 BR, 3 BA, 2,100 SQ FT and the second unit being 2 BR, 1.5 BA, 1,700 SQ FT. Each unit is two stories, and contains a den, dining room, 6 seat wet bar, and in-unit laundry room. The property had extensive upgrades. The neighboring property is a one story unit with minimal improvements since built in the 50’s.
The only possible explanation for the discrepancy in the Zestimate that I can figure out is I have owned my property since 1978 and the adjacent property sold with the past several years.
Amit C on August 14, 2006 11:13 am
I believe the pricing on zillow are lagging the real market. The correct price for a real estate is what someone pays when it is sold.
The house at
12159 SE 41ST ST, Bellevue, WA 98006
http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=26082434&page=1&property_type=SFR&mls=mls_seattle&cKey=353mkm80&source=NWMLS&home_id=21744704&cKey=rvvxbq46
is listed 5-6% below the zestimate and has not been sold after 80 days on market.
Listing Price: $689,990 (listing: May 24 80 days)
Zestimate $722,071 Value Range: $620,981 - $794,278
But the effect of zillow.com will be that people will use zestimate to price in addition to comparables, thereby pushing prices or delaying sales depending on the type of market.
Amit
T.L.C. on August 14, 2006 2:52 pm
In my area, I have found that the zestimates of my neighborhood are “way off”, more than 10%. My neighbor’s home, which was built by the same builder (I know, the builder is my father), very small differences in in lot size (around 1 acre), basically the same living sqft., ours is 10 years newer, yet their zestimate is nearly $100K higher than ours. That and a smaller, less intricate interiored home (also built by my father), is zestimated at $50K higher. We are trying to sell our home, and we’re getting comments from people that “Zillow” shows your way over priced. I don’t have to be zestimated at more than all my neighbors, we’re not the biggest or best house on the street, but being so far off is surprising. It’s also frustrating that I can’t request someone re-evaluate the zestimate, but I have to say that the homes we’re looking to buy have been pretty close to right on the money. I would hope that Zillow continues to improve on their zestimate process, to minimize the truly “way off” values. Zillow’s service is very unique, and one that the market really needs.
David G from Zillow.com on August 15, 2006 9:26 am
Graybeard;
You are correct, Zestimates are typically more accurate for houses where we have sales information - the more recent the better.
Amit;
There is a delay in receiving notifications of recent sales but that latency has reduced dramatically since we launched - we now measure it in days, not months.
TLC;
Yes, we’re improving Zestimate accuracy - both through data acquisition and by fine-tuning the algorithm. I’m sorry we’re currently off on your house’s Zestimate - but glad that we’ve been helpful in your search for your next home.
Joseph Ferrara on August 15, 2006 7:00 pm
I acknowledge zillow’s efforts to provide useful data coupled with its stated goal of not disenfranchising experienced real estate professionals. A few points to add to the conversation.
1.The margin of error is only known AFTER the house is sold.
2. Any valuation that uses past sales data is subject to the freshness, completeness and accuracy of that data.
3. A broker CMA (comparative market analysis) is also close enough & is also FREE. If an experienced local agent visits the home, the “unzillowables” (our term)are factored in & the value may be “closer still”
4. An apppraisal is even closer, it costs money but you can take it to the bank.
We are curious to know how buyers vs. sellers value the zestimate at this time. Visit & vote in the poll here.
http://blog.sellsiusrealestate.com/?p=1718
Thanks David G (from Zillow)for your comment. You will see we used your suggestion to add a few more polling questions.
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Danilo Bogdanovic on February 28, 2007 12:04 pm
David,
Thank you for your comment on realdiablog.com regarding Zillow’s accuracy and for the link to this post.
As I mentioned in my reply to your comment, I think that your concept is great, but that the execution still needs working on. You pitch Zillow as a way to determine the current market value of your home so why would anyone use it for any other purpose?