Why are Zillow Valuations NOT Accurate?

Question

C-U-P-S

When dealing with homeowners I am sure that you find that many of them reference Zillow as their source for their home valuation. I have developed a selling system; C-U-P-S which allows me to present my offer to the homeowner and explain to them how I arrive at my offer.

"C" stands for comparable. Now of course, I have access to the MLS which allows me to comp out properties pretty accurately. In many instances those values are not echoed by Zillow.

Therefore the challenge is how do we knock Zillow, Redfin and their ilk out of the box?

I would like to build a list letting homeowners know why these so-called real estate listing companies are full of horse manure.

Give me a reason why and I will email you a copy of my C-U-P-S selling system. I design a system really for other people who I have working out for me in the field.

So why Zillow full of horse manure?

Thanks

Charlie MacPherson · Answer

@Jack C. Zillow cannot compare anything besides publicly available data like the number of beds, baths, sq ft, acres, street address, etc.

They do not have any insight as to the condition of the properties they're using as comps. If you have two homes that are identical in every way, one freshly renovated and the other in a shambles, there will be an enormous difference in price. For an average 1500 sf ranch, I'd bet that it's 40% or more.

Zillow can't get inside the home (subject property or comps) to see fit and finish up close. They can't get into the basement to sniff for dampness or mold - or look for standing water. They don't know whether the subject property or comps have knob & tube wiring, popcorn ceilings, cedar post supports, ancient plumbing, rust inside the electrical panel, floors that are out of level, foundation defects, termite damage, a failing septic system, well water that smells like rotten eggs or any of a thousand things that could drastically change the home's value and most of which are impossible to pick up from listing photos or tax records.

They also don't know neighborhoods. There are plenty of places where a home on one side of the street is worth more or less. They don't know that there used to be a garbage dump across the street (and I hope you don't have well water!). They don't know that one particular street floods frequently and that the next street over doesn't. They don't know about local noise sources like train tracks, gun clubs, loud businesses or even the landing patterns of local airports.

In my opinion, Zillow is useful only for a casual shopper. The technology is nowhere near smart enough to be relied upon for real life decisions. It may get there someday, but in the meantime, their useless Zestimates continue to damage their reputation among professionals.

Charlie MacPherson · Answer

@Jack C. Look at Zillow's own claim regarding accuracy. In the Boston market (I recently moved to Maine from there), they state that they're within 10% of the sale price 94.7% of the time. In a market with an average price of $660,000, that means the Zestimate is within $66,000 of the actual sale price.

What a useless number. You could do better throwing darts at a chart on the wall.

The response to a seller wanting above actual market value is to first show them Zillow's claimed accuracy (hover over the word "Zestimate" for a pop-up disclaimer) and then to show them actual comps.

Things like this are the reason that Realtors hate Zillow and their Zestimates. In the very first conversation that the Realtor has with the seller, they have to overcome the false hopes raised by the Zestimate. The number is right there in black and white, so the seller tends to trust them, even if wildly inaccurate.

Bad data is worse than no data and Zillow tends to deliver a lot of bad data.

Brian Ploszay · Answer

Zillow certainly can't easily tell if one house got remodelled and another one is a wreck. That being said, the algorithm is getting better. For me, I'd retire if I'd get Zillow valuations for some of my properties.

Greg Powers · Answer

@Jack C.

As a real estate agent (not an investor trying to buy direct), my response, when a potential seller quotes me their Zestimate, is: “Then why wouldn’t you accept their offer?”...said with a big smile and a pause. “You see, Mr. and Ms. Seller, the only opinion of your home’s value that really matters is what a real buyer is willing to pay. If I invite Zillow to the open house after we get it listed, do you think they’ll come?”

And as has been mentioned, the Zestimate is an algorithm, with no boots on the ground knowledge of the home or its competition.

Alexander Szikla · Answer

Zillow is not nuanced enough. They take broad metrics like price per square foot or acreage to extrapolate. This does not take into account condition of the property (i.e. high end, recent flip with marble floors vs. a run down property that needs a total gut reno). Moreover, they pay no attention to an investor's perspective. Investors are willing to pay more for higher cash flow but Zillow cannot analyze tax discrepancies, utility separations, maintenance needs, etc.

Lastly, real estate is a local business. What makes one street more desirable than the next even if they are located in the same zip code.

Andrew Rosenberg · Answer

@Jack C. In my limited experience Zillow has consistently been 20% higher than even a rough comp has been. Have "Joe Public" look at the ZenEstimate range - it's usually so wide that you don't have to be a statistician to realize its uselessness. Good luck, a lot of people think numbers on the internet are somehow legit if the website is pretty enough.

Joe Splitrock · Answer

@Jack C. Zillow is more accurate in certain markets. The algorithm is pretty good. The inaccuracy comes from bad data. For example if tax records are incorrect about bathrooms, bedrooms, square feet, etc.

You can improve the accuracy (or manipulate it) by editing your home details. There is also a screen where you can edit which comparable properties are used to establish value.

I know agents who actively edit Zillow data for their listings to ensure the best outcome. I would recommend you embrace and use Zillow to your advantage. It is not going anywhere and it is increasingly becoming the go-to place for people shopping for properties. Cooperate with it rather than trying to fight it.

Jack R. · Answer

Hey guys I just say I can I add a link here, but if you go to my blog I just published more on the subject and within that blog there is a link we can go to my website and download the cup selling system I hope this helps. I am a flipper not a writer, so I use speech to text because my keyboarding is **** so excuse the occasional nonsensical word or phrase.

C-U-P-S

C-U-P-S

Jack R. · Answer

Oh also please contact me directly to receive a copy of my cups selling system. Apparently I cannot add a file for you to download.

Jack R. · Answer

I'd like to thank everyone for their input. Perhaps I did not frame the question properly. The point of trying to make here is that we all at one time or another or purchasing properties directly from the homeowner or the owner of that property. The general public we know use Zillow and other Realty website such as redfin and realtor.com to showcase real estate. These websites by design create one is commonly referred to as pull through marketing. Consumers use these sites to see what's available and what their money can buy. It's been my experience that Zillow is wildly in accurate, especially when it comes to valuation. So when a consumer uses Zillow to "set the price" of their property, how do you respond?

Why are Zillow Valuations NOT Accurate?

Why are Zillow Valuations NOT Accurate?

C-U-P-S

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