Zillow faces lawsuit over ‘Zestimate’ tool that calculates a house’s worth
washingtonpost.com
washingtonpost.com
This month it was $544k, and there's no sign it ever got above $580k in the historic graph. It claims it was $546k on March 31st.
One thing I did notice was a new button underneath the estimate: "I disagree with my Zestimate" which, surprisingly enough, is a lead gen for realtors, not a method to try and get them to change.
It's funny that this is obvious to someone like myself who has spent virtually no time dealing with real estate, let alone people heavily entrenched in the process.
The foreign money in the hot markets also doesnt help. It sucks to see a house list for 2.9m and sell for 3.7. it happens quite often here in the bay.
Before that if you were looking at 2 bedroom apartments, around Sydney, you'd just mentally add 400k. Not sure if it's better now or not.
The 'bidding war' referred to is a standard listing/sale that receives multiple offers. If the interest is high enough, the seller may counter all of the offers and reveal the highest price, forcing the bidding.
Winner gets the house, but pays the price of the runner-up. I wish this existed.
I think you're completely missing the point of the tool and the last sentence in OP's post... They're getting it wrong on purpose to get signups.
I really like the Zestimate tool (if it's accurate), but it's pretty sleazy for them to use it this way. Most people won't research the market price for every house they see, and as long as the Zestimate is reasonable, they'll assume the sales price is too high.
No, that is my point. Well, and also that they are pretty dumb for making it so obvious.
At one point a few years ago the Zestimate was about 540 and my house was appraised for 450.
And when we bought it 5 years ago the Zestimate was at 380 and we bought it for 420.
I once heard to expect the Zestimate to be off by ~20% in either direction. That seems to be holding here.
That sounds like a new level of shady.
I'd always thought this number was dumb but wow. This is even more ludicrous than I could've believed.
How can it be this far off with apartments with recent sales history in a building with lots of unit (and thus lots of sales activity)?
Could this be a case of them A/B testing on the Zestimate model to maximize lead generation with the "disagree?" link?
Is that so unreasonable. In the building I used to live in for example the apartments on one side of the house had a beautiful view from the balcony and the ones on the other side didn't. The view side apartments consistently sold for more. I've also looked at apartment buildings where the floor size is basically them same for two apartments, but the layout was different, and people where willing to pay more for the apartments with the better layout.
These are both opinions and anyone seriously considering spending half a million or more can consider spending a modest amount on an appraisal.
The reality is people do trust the site, so law should take that into account. If a situation is making life harder for actual people, the fact that their behaviour isn't economically rational is not a good enough reason to ignore the problem.
I'm honestly not seeing the problem here. Don't such people already hire experts to asses value before spending half a million dollars? I'm seeing the claim that inaccurate estimates lead to difficulties selling but I have yet to see the proof. Maybe those having trouble selling really are asking for more money than people are willing to pay.
Real estate brokers and appraisers also sell information (not real estate).
Professional licensing requirements are supposed to ensure they are sort of kind of qualified.
Someone you didn't hire which is providing a ballpark guess on the value of your property to help people do preliminary research before they buy has minimal enough obligation to buyers and none at all to you.
We can see that the obligations of the agents above attach both to the fact that they are brokering 6-7 figure transactions and to the fact that you contracted them. Its hard to imagine what you believe the obligation is supposed to attach to in zillows case.
Its not even clear that regulating zillow according to each individual states laws would accomplish save placing unconstitutional limits on free speech. Plantiff doesn't even want that they want a club to compel zillow's silence or desirable speech. Surely cloaking it in bs doesn't make this any less unconstitutional.
That said, I would posit that if you're selling for more than a 20% variance from the Zestimate, that you are probably over/under-valued for the market. Just because you have gold-leaf throughout your home doesn't mean that it'll sell for a million when all your neighbors are half that.
However, it's a seller. And the seller is annoyed because Zillow has a very strong influence over foolish buyers.
Zillow tells you that it isn't an official appraisal, but then they tell you to "Use it as a starting point to determine a home's value."
In my anecdotal experience, I've noticed that people pay attention to the Zestimate, and will make decisions based on it.
Should the seller win or lose? I don't know. But I understand why they brought the lawsuit, and I don't think it's particularly unreasonable.
The specific classification of a company is irrelevant. If they've induced their own gravitational field, then they're responsible for the consequences.
How much did the seller in question pay zillow and what was promised in return?
The fact that person a's action foo can negatively effect you doesn't imply that the law or ethics precludes a from doing foo. A must be either violating your rights, the law, or have a duty to you that would preclude foo.
Its not clear how you could have a right to silence others speech in order to earn more money, its not clear what duty zillow has to sellers, and its not clear that the law actually precludes zillow from underestimating the value of your property.
In fact it looks an awful lot like none of those apply, and further that allowing anyone who feels like their property is undervalued to use threat of a lawsuit to silence discussion would preclude anyone from providing public analysis of property values whether accurate or not and thus harm the public at large. Real harm unlike the unproven harm previously discussed.
An inaccurate estimate from someone who you paid nothing and whom owes you nothing may make your life more difficult but this doesn't imply they owe you anything.
Then you have to show that they profited from such manipulation rather than you know from ads.
It looks more like they changed their algorithm and rather than show imaginary swings in the value of homes revised their historical projections. This makes tons of sense if you understand the historical data to mean this was what the property was worth in 2010 as opposed to in 2010 this is what we thought it was worth.
In fact this interpretation is the logical one. Nobody cares what zillow thought in 2010 they care what the historical value was.
Given the many wild overestimates, I don't suspect that they are trying to have their model dampen price estimates to drive referrals. However, the price estimates at Redfin seem much more accurate, so their model could use some work.
I bought the house 9 years ago and the Zestimate is about $10k more than I paid. It's right in line with what the previous owner was asking when he sold it but I wasn't willing to pay that and I likely couldn't sell it for that much.
It makes it illegal to "develop a real estate appraisal" without a license. An appraisal is defined as simply "an opinion of value". So if you are driving down the street and say to your spouse, "Look at that house, it's gotta be worth a million bucks," you just committed a misdemeanor.
This law as it's written has got to be unconstitutional.
A citizen cannot look at the law and figure out if they're committing a crime, which is why I said the law is unconstitutional.
If you drive by a house and say "this house doesn't look like it's worth shit" you're probably not going to wind up in court after someone complains that said house is worth quite a bit more than shit and you're driving the price down.
Laws actually can be vague while remaining Constitutional. Sometimes it's unavoidable. Court cases can be used to refine the edges.
It's usually more difficult to sue, though. The power is usually given to some semi-governmental group. The Courts go out of their way to find professional regulations constitutional, and the regulators try to avoid claims that might get the entire regulation struck down. That's why Illinois never goes after non-commercial speculation about house prices.
But sometimes they overreach. There was an article in the WSJ a few days ago about some state's Barber Commission levying $50 fines on cosmetologists with striped poles out front -- for improperly implying that a licensed barber was on premises.
This woman probably isn't suing to enforce the regulation, as such. She could sue without the professional regulation, but the law sets a professional standard of care for appraisers that Zillow doesn't claim to meet, so she hopes it will help her case.
Zillow is not a citizen.
They're also in the business of providing these numbers, which is obviously far from the same thing as making a comment while driving down a street. I think you're trying to blur a line that's pretty clear to most reasonable people.
A prohibition against unlicensed appraisals seems about as valid as hiding what is public information if you choose to make the effort and know where to look. However, I can see both decisions being overruled if appealed to higher courts.
No, but if you try and sell your opinion to make money that's when you're very likely crossing the line. An appraisal is something you pay for or make money from; opinions are not.
...and certainly as it is applied here, to a 'zestimate'.
I predict Zillow will make a motion to dismiss on first amendment grounds. I also predict the judge will grant that motion.
RemindMe! One Year
If that sentence applies, I don't think they really have a case...
If it is interpreted to mean "use", then the case is a loser as you say. But I wouldn't want to be the lawyer tasked with arguing to the judge that "the legislature meant 'use' but decided to say 'procurement' instead".
At any rate, I don't see how the definition cited would clear up the matter. It's a big leap from "the entire process of purchasing goods" to "commercial use". Like "use", which I discuss above, "commercial use" is a common term of art, and it would be strange to say "procurement" if what you mean is "commercial use".
But the courts are so random; I'm guessing this case will be determined primarily by how much the judge that gets assigned likes technology. It'll be interesting to follow up on.
[0] Inaccurate Zillow 'Zestimates' a source of conflict over home prices | Feb 8, 2015 | http://www.latimes.com/business/realestate/la-fi-harney-2015...
[1] Zillow CEO sold his home for 40% less than Zestimate | May 18, 2016 | http://www.inman.com/2016/05/18/zillow-ceo-spencer-rascoff-s...
[2] Zillow Boosts Accuracy with Update to Zestimate Algorithm | June 8, 2016 | http://zillow.mediaroom.com/2016-06-08-Zillow-Boosts-Accurac...
He was going on and on about how western cultures were so regressive and prude about adultery and sex in general. The interviewer then asked him if he had ever used his own service. This elicited an uncomfortable non-answer that basically boiled down to "No".
of course i'm just playing devil's advocate, because all evidence points to ashley madison being a scam, with essentially no women on the site.
I would have thought that some gold diggers would sign up for that sweet mistress money!
1. List price
2. "Favorites" on the MLS.
3. Square footage
4. Bedrooms
5. Bathrooms
6. Sold price for nearby properties
7. Sold price for nearby properties relative to their list price
And the list goes on... Is it that difficult to predict? Literally there are hundreds of other features that have a clear correlation to the sell price (amount of people who attend the open house, crime, proximity to busy street, etc.) that I'm not including. I guess the problem is, there's not any money in having an accurate prediction.
a) https://www.kaggle.com/c/house-prices-advanced-regression-te...
b) http://www.bis.org/statistics/pp_detailed.htm
c) https://archive.ics.uci.edu/ml/datasets/housing
If you had a really great model, you might be able to make some money with it--find underpriced (per the model) houses, buy them, and then try to sell them at the model's price.
So the whole idea of "comparable sales" is shaky.
The quality or rather "reputation" of the assigned public school is probably the best predictor of this variance. The problem is that the school's reputation can diverge from the official grades, so this is difficult to quantify.
Edit: also, near power lines, near water tower, on cul de sac, next door to elementary school, etc.
I don't think these attributes are accounted for in any MLS, Zillow, or Redfin database schema
It seems this and predicting the stock market have some similarities, but I think real estate is less volatile.
I believe the liquidity of the asset is inherently taken into account in the price at which the exchange is made.
The reason I think it isn't straightforward to account for is based on several things: it isn't fungible, the purchase date can have little or no relationship to the price, and the means of purchase typically carry other time-based constraints that are also not necessarily related to price (although they can be). Furthermore, the liquidity in a given market may change fairly quickly and without any (apparent) other reason.
I haven't tried to develop a model for this, so this is just sort of a gut feel for how difficult feature engineering to account for how a market behaves in this respect might be. And that "gut feel" is mainly informed by my experience purchasing and selling property (for personal and rental use).
Because the liquidity of an asset is a form of risk.
>The reason I think it isn't straightforward
I don't think it's straightforward either, but that only means individual's valuation might be way off.
At the liquidity and costs of marketing and buying-selling a property, this strategy would require you to find really high margin houses and those are snatched , marketed and sold within a week.
They buy houses from owners at a fixed price and then need to turn a profit on it. Therefore they need to have a good idea of what the eventual selling price will be.
Note you have two problems: 1 - features that you can't observe (sentiment / how much someone likes the house or area); 2 - features that are too expensive to observe
Have a view of the ocean? In CA, that can be worth another $X00k or maybe even millions. Have ocean view rights, ie nobody can build between you and ocean? Even more. The neighboring property with a blocked view can be worth far less. That's going to be really hard to observe at scale.
Does the backyard, if any, get full sun? What is the soil like?
Have reasonable suspicions there's asbestos in the building, even if not formally acknowledged, and a $50k+ remediate would be required?
How much sunlight does it get, and from what side?
How old is the interior woodworking and how well has it been cared for?
How good is the internal soundproofing?
How much renovation is required? Do you still have knob & tube?
Even silly things like how good is the cell service. Which can vary just by moving 30 feet.
How good is the water pressure and how much $$ would it cost to upgrade it.
etc etc
You'd need a few other things:
8. Floor count
9. Size and location of the bedrooms, bathrooms, kitchen
10. In-unit laundry (mostly for condos)
11. Proximity to neighbors
12. Existing tree coverage and other landscaping
13. Proximity to trails, transit, and other mostly-fixed landmarks
... I'm sure I'm missing many more.
[1] http://blog.pacificunion.com/proper-home-design-crucial-chin...
We sell our homes far faster than the market in Phoenix, without sacrificing on price.
Real estate has sort of a weird duality where it's viewed as a commodity in aggregate - but it is definitely not a commodity good to the individual buyers looking at houses.
My mother passed away last year and I handled the home sale as I was the executor of the estate. The buyer was a neighbor who heard about my mother passing away and saw it as an opportunity to buy the house for so his mother could live less than 100 meters from him and help him and his wife with raising their kids.
He knew we'd be eager to sell and thought he'd get a deal, but I realized that the reason for him wanting my mother's house was because it was ideal for his particular circumstance. This buyer was a real estate agent in my mom's office (she was also a real estate agent). At the end of the day, I got about $40k premium over the appraised value (almost ~10% premium) just because I knew I had a motivated buyer.
Situations with motivated buyers and sellers happen all the time and adds a lot of volatility in sale prices, and is a confounding factor that I would expect to really complicate machine learning approaches to appraising the value of a home.
The first question he asked was what I was listing it for. He also made it clear that he would not physically inspect the house or do anything more than a cursory comp search.
Real estate sales are just loaded down with parasites looking to skim off of every transaction. IMHO it is an industry badly in need of disruption, but sadly a lot of the middlemen have their positions enshrined in laws, regulations, and corporate policy. Another good example: why do we pay Realtors a percentage of the sale price instead of a fixed rate? They're basically glorified babysitters that are just there to make sure you aren't stealing everything from the homes.
Not disagreeing, just saying that volatility is integral to the system.
They do likely have a ML algorithm in the background. They even offer an Excel sheet where, for any county, you can see what % of sold homes are within, say, 20% or 10% of the Zestimate (it can be quite bad). And 20% is a huge error. Even 10% off is huge for most people.
What is hard to capture:
1. Condition of the house 2. Design of the house 3. Color of the house 4. Neighbors being annoying 5. Alignment of incentives for both party's real estate agents. Both profit more from a high price.
And so on.
Found a screenshot that on nerdwallet that shows some of that for Zestimates in a few large cities: https://assets.nerdwallet.com/blog/wp-content/uploads/2015/1...
Basically showing they are only within 20% of the actual sales prices ~80% of the time. That's pretty lousy.
Lots of criticism of zestimate but I'm curious: is anybody doing AVM better and for free?
It may be good from an "interesting problem" standpoint. But if your house's Zestimate at $300K, 10% means it's real value is somewhere between $273K and $334K.
Not very helpful, is it?
As I said, as an academic exercise it's great. But we're not discussing whether Zillow deserves goodie points. The question is: Is this Zestimate useful for anyone?
From a buyer's or seller's POV, 10% is too high an error. Sure, if your house is only $100K, $10K off is not much. If your house is $300K, you're not likely going to get far by underbidding with $270K, and the seller will be deemed too optimistic for asking $330K (although with bidding wars, it occasionally does happen).
For either the buyer or the seller, being told the price could be between $270-330K is virtually useless in deciding what to buy/sell for. It's just too much variance.
With high numbers, absolute amounts matter more than relative percentage.
http://www.marketwatch.com/story/homeowners-hate-zestimates-...
Zillow has an accurate estimate somewhere in their database but it's not in their financial interest to make that estimate public. By low balling, they both gain more buyers and gain more sellers.
For any market to work consistently, the market maker has to be basically neutral, imho.
When there's a string of bad reviews on Yelp, it's basically Yelp's way of telling the shop owner: "Gee, doesn't it suck that these spammers are bad mouthing your business without actually patronizing it? Well, if you work with us I'm sure we can weed out the spammers and only keep the honest (read: positive) reviews."
In this case, it's: "Gee, it's regrettable that our Zestimate for your house is so low. Only if we had a better source of data. Well, if you work with us I'm sure we can get a better (read: higher) estimate that's more in line with the true value of your house."
The buyers will flock to whichever market maker that advertises the lowest price, in this case Zillow. This in turn forces the seller to choose Zillow as well since that's where most of the buyers are.
Just looked up my house, and got a chuckle out of my wife when I told her the zestimate for our house was 61% higher than the price we paid two years ago. Needless to say, we're in not in a "hot" real estate market (i.e. city population ~60,000). The other shady thing it that Zillow says the sold price for the house we sold back then is $20,000 higher than actual sale price. I wonder what percentage of people think Zillow is underestimating vs. overestimating home prices.
Zillow just sucks for a variety of reasons that have more to do with Zillow than anything else.
But, for example, here in Berkeley the price per square foot can vary wildly based on the condition of the homes. We have 100 year old homes that are barely habitable next to completely remodeled ones that can sell for a difference of $200 per square foot.
1. empty buildable lot (with zoning restrictions on max # buildable sq. feet) 2. tear down (add demo fees and maybe requirement to retain existing foundation to avoid extra taxes). 3. rehab 4. new construction
Which is normalized by location... rehab may cost more then new construction depending on the location and if it was a flip.
A $1m tear down can become a $2m+ house, or 4-5 $500k condos.
The big thing Zillow is missing is buyer information. I will personally value a home differently than you will because we have varying desires.
For example, I put a low value on bedrooms past the second and multiple stories, but a high value on a large garage and big kitchen. You might value things completely differently.
What Zillow should do (or maybe I should) is gather information about the buyers and calculate a personalized Zestimate that reflects what the seller thinks the actual value of the home is. As a side-effect, this approach would probably be shielded from lawsuits because it's not an appraisal, but a personalized estimate of premium over market value.
You know, what inspectors actually do...
Zillow uses plenty of ML, but what's their advertised accuracy? iirc it's something like within 20% 80% of the time?
Other random attributes that adjust the appraisal:
- Does the home have a view? Of what?
- What is the quality of construction?
- Garage or Carport?
- Pool?
- basement?
There are many variables, least of which is how active the market is today.
[0] http://sacramentoappraisalblog.com/tag/reading-the-appraisal...
You gave just a small subset of variables which can impact price by over 20%.
The most important when I looked seemed to be:
- Neighbourhood (even street in some cases)
- Number of Bedrooms
- Year of construction
- Year of last renovation
- Floor (apartment)
- View (especially for apartments)
- Number of Bathrooms
- Year of sale
That last one, year of sale, is important because it actually impacts your training data. Do you use five years of data even though local real estate prices have been increasing at 10-20%/year? Or can that be normalized even though some neighbourhoods are changing at different rates than others?
I restricted my research to 1BR apartments in the city of Vancouver. There are some unique challenges for real estate in Canada, but basically the best sample size I could get was about 2000 sales (I think this was all the 1BR sales in a given year). Very few had information on all of the variables I listed above. Suffice it to say, you can't train a model of any quality on that data.
The thing with RE is that its as imperfect as you can imagine. Its possible that the listing price varies from the real sales prices because its a part of the marketing campaign, which that alone puts a lot of noise into the market. (for example, putting a 100k house at 80k can get people in a bidding war ultimately irrationally or emotionally paying above 100k. Alternatively, a higher listing price might make the seller more adept and following a realtor.)
> I guess the problem is, there's not any money in having an accurate prediction.
Market fit is definitely one of the hardest parts of the problem.
Some companies have decided to actually buy the houses and sell them themselves!
Disclaimer: I'm one of them.
These online real estate listing sites are using machine learning to try and predict sale price. The main difficulties are:
1. 'Machine Learning' is a broad term, with lots of potential approaches, some of which could give more or less accuracy.
2. If you put too much effort into getting the prediction accurate, you're prone to overfitting.
2. The data is messy. Really messy. Really really messy. The major players in the field often have a vested interest in not rectifying the situation. Even when they do, the software that runs most MLS data exchanges is, well, old. To a certain extent, it doesn't matter if one particular house has accurate data, if all the surrounding data is inaccurate.
3. On the scale of things, home sales are actually pretty rare. Any particular home might only change hands half a dozen times, while the market demand for that home might swing wildly. Any given home sale has a pretty big influence on the valuations of nearby homes, and if that sale is 'inaccurate', i.e., the seller over- or under-paid what others would consider the fair price, it can have an outsized effect on algorithmic estimates of value.
4. It's much easier to tell when a machine-learned valuation is wrong, and by how much, compared with other common applications. If Netflix is telling you a movie is 4 stars, when you think it's more of a 3.5, it doesn't feel that "off" to you. If text-to-speech mistakes a word for another similar-sounding word, it feels understandable. When Zillow says you have $30k less than you think you do, it's more quantifiable, and has more emotional impact.
Tangentially, fun fact: while there's hundreds and thousands of potential features, if you do a PCA on it, basically 80% of a home's price is just "price per square foot in the nearby area". one feature. Of course, if you end up 20% over or 20% under based on that logic, you get sued.
Obviously, this is harder to convey to a homebuyer and for various reasons "hard" numbers are prefered, not least because they cause the illusion that you know what you are talking about.
Many neighborhoods (not cities, or zip codes - too much variance in god that large) have on the order of single digits a dozen sales per year, meaning that in some cases the most recent 'comps' can be a month or two old. In a fast rising or dropping market, there's nowhere near enough data to train an algorithm before the prices have changed again.
Anecdote: My folks live in a golf course neighborhood where their house is not on the course, and it's smaller than the rest. However, my folks house is valued based on these extravagant golf-course side properties that are actually quite a bit more $/sqft. Zillow needs to have a human go through manually and adjust for these subtle differences, IMO.
Despite dome shortcommings, Zillow is a godsend compared to the systems local MLS's use, just the listing dates/listing removed dates/ last sold for/ days on market dates are worth a lot. Realtors can give you this info, but it is not nearly as frictionless as it could be.
Zillow is still looking for that disruptive go-to-market strategy (they already have most of the tools). But, the Realtors aren't going to give up their ~$6K per transaction fees easily. They're much more connected than cab drivers.
I don't think Redfin has much of an edge in go-to-market strategy. Redfin's allows for more comprehensive data (MLS access because of membership), and Zillow's allows for scalability. Sales data sometimes show 3 months lag from time of transaction and entry into the county clerk's records which gives the MLS quite an edge itself.
"...the fact that they offer market-value estimates and 'are promoted as a tool for potential buyers to use in assessing [the] market value of a given property,' shows that they meet the definition of an appraisal under state law. Not only should Zillow be licensed to perform appraisals before offering such estimates"
It can be surprising when seemingly innocuous activities are in fact heavily regulated (cf. Stanford needing to remove all their learning videos from their website).
A valuation or an approximation of value by impartial, properly qualified persons; the process of determining the value of an asset or liability, which entails expert opinion rather than express commercial transactions.
Still has that blistering audio though, wish somebody would regulate that to a lower volume. :)
UC Berkeley makes course video content unavailable to public https://news.ycombinator.com/item?id=13768856
Berkeley Removes 20,000 Free Online Videos to Comply with DOJ Ruling https://news.ycombinator.com/item?id=13815764
https://www.appraisalfoundation.org/imis/TAF/About_Us/TAF_Bo...
If this is a regulated activity, it absolutely shouldn't be. This reminds me of the absurd barber regulations.
having a de facto monopoly on what's considered a fair value, rightly or wrongly, opens up bank people and real estate agents to all kind of manipulation.
by manipulating their equation they can help lowball the sales price of an entire area, they can both profit directly out of this, indirectly through stock manipulation and even cause trouble to the whole banking sector devaluing mortgadget properties
the housing sector is very, very delicate.
And only allowing state licensed appraisers to give value estimates does exactly what you are trying to avoid. It creates a state owned monopoly on housing estimates.
Zillow would lose credibility and it would hurt the core of their business if it was found that they company was purposely deceiving people about the value of their homes so that they could directly profit from it. They might also open themselves up to legal repercussions in that case for just plain old fraud as well.
If a licensed appraiser acts fraudulently, you have grounds to sue their hinders off.
This is just someone saying what they they think something is worth. Do I need a license before I can say "I think a certain car is only worth $25k instead of $30k"?
I can have a website where I give financial advice. If I set up a business to give individual advice I may need some sort of certification.
Assessments are different from inspections.
I don't really disagree with you though. There would seem to be a difference between someone being directly paid to assess something, perhaps largely based on standard formulas and practices and a web company providing housing estimates with no contractual relationship.
I've seen how appraisers appraise, and this comment brought out a laugh.
Their estimate is really no better than Zillow's.
They spend about 15-20 minutes looking at the property. They primarily measure dimensions and look at cosmetic stuff (no "inspection" whatsoever). Then they look at comparables and make an appraisal.
I asked one of them how they handle various items in their appraisal (solar panels, etc). The answer? "I have no idea what to do with those things, so I just ignore them."
The reality is many buyers will value stuff that the appraiser just plain ignores. This causes problems because the seller cannot increase their price due to those items - when it comes time for the buyer to get a loan, the appraisal will come out lower than the sale price and the bank won't approve.
I recall when I bought my house, the real estate agent had access to the appraiser.
Lots and lots of problems with the appraisal business. I don't know how much they make, but it's a good racket to get into that requires minimal work and pays well ($400-800 per appraisal - they spend more time driving to houses than examining them).
Now, you might argue that there are market based or self-regulated solutions to that, and that's reasonable (fact is that a lot of the industry goes off 'de facto' standards for valuing cars, like KBB), but the fact is that sometimes a government regulation is necessary to prevent anticonsumer or anticompetitive practices, especially in the finance industry.
So I would say Zestimates are clearly illegal according to the plain text of the law. However, I suspect this is one of those laws where a judge would find a convoluted reading to support his or her gut opinion that finding Zestimates illegal is ridiculous. I think you could also make a pretty reasonable claim that the freedom to form an opinion about the value of something is an unenumerated, but nonetheless inalienable right, and therefore the law is unconstitutional.
Not a lawyer.
How is this the problem when you just stated previously that the price is 20% off from reality for 10% of people.
The real problem is a shitty estimate becoming something that people treat as a real estimate. Zillow obviously state this isn't the intention, but if they act in a way that promotes it as an estimate contrary to what they state they are doing, well, people are going to get angry.
Here in many parts of the Bay, you'll get laughed at and promptly ignored if you try and use these "zestimates" to try and put downward pressure on the price. Sellers here have many offers to chose from, leading buyers to compete not just on price, but even dropping certain contingencies to push the deal through.
Since then I've taken "Zestimates" with ~65,000 to 100,000 grains of salt.
Regarding the rule of thumb you mentioned, my wife and I have been looking for a house in the Bay Area, and we've determined that the listing price is just a completely made up number. We made an offer on a house that was 100K over asking price, and the sellers countered with 40K on top of that (so 140K over asking). I was like... what? You listed for X, we offered X+100K, you don't get to counter that. lol
We obviously didn't get the house, and they wound up selling for 175K over asking price (+~25%). We've made several other offers, and sometimes the house goes for 50K over asking and sometimes it goes for 250K over asking. It just seems to be totally random. It's absurd. Instead, we actually rely a lot on the Zestimate and Redfin's estimate to figure out what the "real" value of the house is. Z and R tend to be roughly in the right ballpark for the Bay Area.
Apparently they do, because...
>they wound up selling for 175K over asking price
And, as for this:
>Instead, we actually rely a lot on the Zestimate and Redfin's estimate to figure out what the "real" value of the house is
Let me give you a lesson from econ 101 - the 'real' value of something is whatever someone else is willing to pay for it. If multiple people are willing to pay more than Zillow or Redfin estimate, then the 'real' value is higher.
I know it's semi-public record, but that certainly doesn't help the homeowner try and recover maximum value for their property if they decide to sell.
On top of that, it's pretty unnerving when you see this pop up for one of your neighbors and good friends. Nobody should have to go through even more humiliation than they already are.
County assessors for tax purposes are explicitly not trying to determine market price. Zillow should ignore it.
In Illinois (the state from the article) the assessor is calculating the market value:
Most real property in Illinois must be assessed based on its value on the open market, or its “market value.” This value is the amount at which a property would sell in a competitive and open market... [1]
[1]http://tax.illinois.gov/Publications/LocalGovernment/PTAX100...
See http://www.investopedia.com/articles/tax/09/calculate-proper... for different methods used. As an example, some places merely look at the cost of replacing the house if destroyed.
So, for an area where the homes average around $500,000, more than 1 in 10 estimates are off by $100,000 or more? That seems kinda bad.
Apparently it's rarely correct, though I live in a unique area.
Don't understand why the government needs to get involved in what someone says something is worth, it's their opinion and they're entitled to it.
Edit: It would be funny if Zillow also started putting up alerts about problems with government finances which will likely impact future taxes, such as in Illinois.
Civil courts exist to provide monetary damages if damages can be proved to exist. Yes, they can also compel arbitrary behavior as a part of governing body.
This is independent of any stance on Zillow and a state licensing regime. If the plaintiff can convince that the tool is making her lose money, the judge will award her money.
"but that means < cue completely uninformed legal analogy >" yes you can make a career out of litigation, many people have.
many summary judgements on flaky arguments are made just because the defendant didn't respond. the judgements are collected from you bank in any jurisdiction that will reciprocate
Although, I'm not sure why the plaintiff should be awarded anything, even if Zillow causes her to "lose money". Unless Zillow is doing something specifically to her home estimate, then it's merely offering a differing opinion on what they think the home is worth.
"Yeah, I don't think it's worth that much. A hundred dollars, tops."
"Did you just appraise this car? Oh, you done messed up."
muffled sound of approaching police sirens
EDIT: Hah, didn't see you'd used the exact same analogy elsewhere.
Civil courts exist to provide remedy for non-criminal violation of the law; award of damages (actual, statutory, punitive, or otherwise) is one form of civil remedy, but not the only one available.
The problem is, you'll never get to establish a sale price if the seller thinks his house is worth 100k over market or a buyer thinks the seller is asking 100k over market because that's what they saw on Zillow.
Further, when zillow gets the estimate of a house wrong it costs them nothing, but there are real costs to Zillow's bad estimates to buyers and sellers.
A "civil matter" is where the courts—a part of government—apply law—created by government—to non-crimes disputes, often (as in this case) between private parties.
It absolutely does not indicate the absence of government involvement, even if the government isn't a party to the litigation.
There are so many sources of info for house value that I don't see how Zillow could single handedly be manipulating a house's sale price. If it's not selling for what the homeowner thinks it's worth, it's probably not worth that much.
Perhaps with that buyer and seller. I believe, though, that Zillow rewrites historical estimates when they get new data. So you can't really see how wrong they were after a sale.
If an engineer at Zillow manipulated the Zestimate on a home they were trying to buy or sell, would they succeed in driving the price of the home in the desired direction? I think so.
Clearly real estate agents have the same feeling or they wouldn't be suing.
As a proxy at a glance for such comps it's at least an indicator of when (as is common) list price is far below expected sale price, and an arguably cruel fiction designed to attract interest (in my tier: from the desperate).
(If you don't live in SF, sales at 30-50% (100s of K) over asking are common again, after a brief cool down at the beginning of this year.)
Keeping the data correct on the sites is also a chore, and if I don't keep on top of both sites, entire rooms or bathrooms will come and go, square footage will change and so on.
Real estate agents will claim that appraisers don't go off of these sites, but buyers will use them as pricing information so it almost becomes critical for home owners to police these sites to get as favorable an estimate as possible.
That doesn't mean it's entirely wrong, unless there are manual tweaks happening to shape specific markets, which may be proven/disproven through discovery. Aside from that, there's the legal aspects in different states and counties in terms of what a licensed/unlicensed seller is allowed to do.
I would say that if the market is more than 20% off in terms of actual sales from the Zestimate, then there may be something up... The Phoenix market seems pretty accurate to within 5-10%, which is pretty reasonable.
The only reason why the government needs to have an appraisal license at all is because the government handles the loan for the house. The goal is to mitigate the risk to the government, not to help consumers decide how much they want to pay.
They're not even suing for money right now, they just want the price for their house fixed so they have a decent chance at selling it.
My question is: why aren't these other home estimate calculators subject to being sued, then?
(And when I checked out Zillow, I noticed there was a direct link to "I disagree" next to the Zestimate. None of the other calculators had any kind of feedback mechanism.)
Seems like the journalist here forgot to mention that home estimates are pretty common and come from many different sources.
Zillow is the most popular and have been pushing it in their advertising.
[1] In one case, 80k below reserve. You know you've hit the reserve price, because in my state, the auctioneer is legally required to annouce the house is 'now on the market'
Advertising a price that's below the reserve is pretty unethical, though it's not illegal (the seller is never locked into a price). People end up wasting time and money (getting reports) for houses that were never actually in their price range in the first place.
Last October when I refinanced, it was appraised at $455k. Zillow had it at $467k-ish.
Not enough to bum me out because I also had a now former neighbor sell recently. Buyers got into a bidding war and he walked off with $15k over asking.
Seems accurate to me! ;)
https://www.washingtonpost.com/news/where-we-live/wp/2014/06...
Hopefully this gets thrown out
P(actual_value_is_near_N | prediction_is_N).This will totally end well! /s