Last week, Zillow.com told me my home's market value has plunged 7% in the 5.5 months since I bought it. Before I did anything like question the veracity of its conclusions, I worked through the five stages of grief -- denial ("No! This can't be!"), anger ("Stupid site! What does it know, anyway?"), bargaining ("If I only knew how it worked, I could understand this number."), despair ("Oh, God, it's true -- we bought a house at exactly the wrong time.") and acceptance ("Ah, I got Zillowed. Whatever.")
Having gone through that, here's why Zillow.com struck me as maybe not the best tool for assessing fair value: Like I said, it claims my house's value has plummeted 7% since August; it also said that housing values in my county have dropped 7%. This struck me as not entirely correct: According to the California Association of Realtors, median housing prices in Alameda county have logged double-digit year-over-year increases since we bought: Aug -- 19.2%; Sep -- 21.3%; Oct --16.6%; Nov --19.4%; Dec -- 14.9%. According to the National Association of Realtors, home prices in the San Francisco/Oakland/Fremont region rose 9.4% in Q4.
The data would seem to point to rising market values for properties in my area.
Another reason the site seems hinky to me: it's not in keeping with the sales trends I've personally observed. I've been watching home listings and sales on the island with some interest, noting the price ranges at which comparable houses are a) listed and b) sold. As of last Sunday, we were among the lowest three sales prices on the island in the last six months; prices have been trending up ever since we bought.
You can see where I was wondering how Zillow's data was so incompatible with my firsthand observations and research. I'm not the only one: Leslie Walker reports in "Site's Alluring Facade Is Built on Shaky Foundation" (WaPo, Feb 16, 06) that Zillow's valuation formula has been overriding actual sales data too frequently. This goes a long way toward explaining why our own Zestimate seemed hinky when examined in context with other data.
Walker also writes this:
Nationwide, 62 percent of all Zestimates fall within 10 percent of the selling price, according to Zillow. That means 38 percent are more than 10 percent off the mark, which strikes me as significant.
So you have a nearly two-in-five chance of your Zestimate being way off the market, and a three-in-five chance of your Zestimate being 10% over or under the selling price. Ten percent may not seem like much in the grand scheme of things, but for anyone who plans on refinancing once they hit a certain equity benchmark, 10% is the difference between PMI and a plain ol' mortgage. That 10% margin of error can be mighty pricey -- especially in a state like California where more than half of new homebuyers in the last year have the kind of nontraditional financing that's linked (directly or indirectly) to the amount of equity they'll get from their home.
It'll be interesting to see how Zillow.com affects the house-buying process -- whether it'll gain credibility, undermine the credibility of realtors and appraisers, or be dismissed as a valuable tool.
Zwillow.com says my house is worth $381,000.
Zwillow.com is, quite clearly, smoking crack.
(I'd be surprised if we could sell it for $100,000 less than that.)
Posted by: Anne | 2006.02.16 at 13:37
On the flip side from Anne - If I just put in my address, I get one value. When I put in specifications, the value drops precipitously. Neither one of these values is anything close to what my apartment is worth.
Why?
Because I live half a block from central park on the upper west side of Manhattan. It doesn't seem to realize that a one bedroom apartment is worth a bit more than $300K in this neighborhood.
Posted by: sam | 2006.02.16 at 19:43
It lists our house as being worth $322 less than what we paid for it 6 months ago, which I'll take. (And they don't have our sale price recorded in the system.) But this is not a widely fluctuating market, and our house is pretty typical of the neighborhood.
What fascinates me is what happens if you change facts with the Zestimator. I've been playing with different houses I know, and if you add another bedroom without changing square footage (even if the overall square footage is plenty for another room), the value drops for most of the properties I've tried. Add a bathroom, prices go up by 20-35%.
Posted by: Marj | 2006.02.17 at 07:12
Interesting -- I was briefly alarmed when I saw that a house I sold a month ago in the Seattle area was worth 50k more than I received for it. Never mind that it sold at a higher price than any house had (ever) within the nearest 3 neighborhoods by about 20 or 30k -- and it's not the biggest house that's been sold recently. So, I take their info with a huge chunk of salt.
But, I still play around with the site. I find searching on various addresses strangely entertaining.
Posted by: Sally | 2006.02.17 at 13:17
Marj, I too have been playing with the Zestimator. It reminds me of online personality tests, only for your house.
And Sally, you are so right about the entertainment aspect: I've been looking up all my childhood homes on the site to see what the buying history is.
Posted by: Lisa | 2006.02.17 at 14:33