You’ve heard of the proverbial 800-pound gorilla? In the world of residential real estate, Zillow has quickly become the $6 billion gorilla — and it just keeps getting bigger.
For those who may be unfamiliar, Zillow is an online real estate database company that collects and synthesizes an enormous amount of data about home values, and offers that data at no charge to prospective home buyers and sellers. Very often, this includes information from local Multiple Listing Services (MLS), the system used by licensed real estate agents to announce homes are officially on or off the market, and when prices change at those homes. Anyone can go to the Zillow website, type in an address, and get Zillow’s “Zestimate” of the home’s value, as well as the company’s assumed value of adjacent and nearby homes.
Sounds great, right? The public gets a free resource, buyers and sellers have a single source for price estimates, and Realtors get an extra outlet to market their listings to more prospects. Everybody wins, right?
Unfortunately, the answer is no — it’s not nearly that simple. In fact, Zillow is a very complex and evolving issue in the real estate world, and its impact on the business of real estate will be felt for many years to come. Even among professionals like myself, opinions vary widely: some of us are happy to have Zillow marketing our listings at (sometimes) no extra cost. However, most of the colleagues with whom I have spoken are frustrated by Zillow’s tendency to post inaccurate information, and by its policy of selling premium advertising placements to Realtors, whose information is then displayed with listings that are not their own.
For me, the greater concern is with the customer: what should the prospective home buyer or seller know about Zillow, and how should information they get from Zillow affect their decisions? To that end, I offer the following thoughts:
Zillow lacks accuracy — and openly admits it: To its credit, Zillow is open and transparent about the precision — or lack thereof — of its Zestimates. On its own site, the Zestimate is described as, “…a starting point in determining a home’s value and is not an official appraisal.” Zillow also shares its own accuracy-focused research, broken down by market. Here in the Miami-Fort Lauderdale region, as of June 3, Zillow claims to have an 8.9 percent median of error, meaning half of its local Zestimates were within 8.9 percent of the final selling price, and half are off by more than 8.9 percent. South Florida Zestimates came within 5 percent of the sale price 31 percent of the time, and within 10 percent of the sale price about 54 percent of the time.
Local real estate agents live in the “real world”: For professional real estate agents, those margins of error are just not acceptable. Realtors earn their commissions by accurately setting and negotiating home values based on a number of factors, many of which are simply incalculable to a data-crunching computer. These factors include major influencers such market pressures, upgrades or damages to a home, buyer/seller motivation, and very recent “comps” of nearby homes. Here in South Florida, other unique factors can and do impact home values, including global politics, shifting currency rates, insurance issues and developer reputation, to name just a few. Clearly, these are “real world, real time” issues that only experienced, knowledgeable pros can factor into pricing, and a computer cannot.
Understand that Zillow is an advertising vehicle: In addition to Zestimates, Zillow also encourages viewers to contact local real estate agents, whose photos and phone numbers are listed for consideration. But who are these folks, and why is Zillow recommending them? They are professionals who paid to be “Premier Agents,” and have their information placed on the site. (Very often, the actual listing agent of a “for sale” property on Zillow is not among these agents, creating a new layer of confusion and frustration for everyone involved. It should also be noted that Zillow generates much of its revenue from this questionable practice of selling a Realtor’s own listings back to them.)
Consider Zillow, but TRUST your Realtor: There is nothing inherently wrong with using Zillow’s estimate as a starting point. However, when it comes to making actual decisions, buyers and sellers should place much more faith into the expertise of their real estate professional. As Zillow states on its website: “…your real estate agent … physically inspects the home and takes special features, location, and market conditions into account. We encourage buyers, sellers, and homeowners to supplement Zillow's information by doing other research such as getting a comparative market analysis (CMA) from a real estate agent … [and] visiting the house.”
Like many other Realtor groups across the country, the Miami Association of Realtors recently entered into an agreement with Zillow that promises improved data synching with its MLS, and better broker control of information, suggesting that the “Zillow-Realtor dynamic” is here to stay. Accordingly, customers will have to balance a mix of online and offline resources and information. For now and the foreseeable future, the very best advice still comes from human beings.
Carolyn Block Ellert is the chairwoman of the Gold Coast Master Brokers Forum and co-owner/broker of Premier Sales Group, a full-service real estate sales and marketing group that specializes in predevelopment planning.