True Gotham

I have heard a lot of media buzz about Zillow.com, so I gave the site a look-see. Fancy, very cool, but wow! There numbers and basic facts are way off.

I decided to conduct a little experiment. I searched the investment property that my wife and I recently sold in Bridgehampton, New York. The satellite aerials are pretty cool. I can almost see my kids splashing in the pool. That's where the "flash" ends.

The "Zestimator" prices the home at $1.63M and our neighbor's home at $2.45M. Our property sold and closed two weeks ago for $1.8M and our neighbor's is still on the market after six months at the suggested Zillow asking price.

Here's where things really go south. Our home is listed on Zillow as having three bedrooms and two baths. I was there two weeks ago, and I'm positive I still saw three and a half baths. Maybe the folks at Zillow thought it'd be more Zen with only two?

I changed the specs, and upped the number of bathrooms from two to three-and-a-half. This made the value of the house decrease in Zillow's estimation. That's a new one!

If you haven't guessed by now, I'm terribly unimpressed with Zillow and don't see it as a useful tool for much of anything except seeing a satellite photo of your home (which is cool, I admit). I didn't want to pass judgment based on that one search so I also searched my condominium in Manhattan which is not listed at all. Almost all others in the building are listed and have "Zestimated" prices that are at least 20% higher than current market values. Heck, for those prices I'd sell my current apartment right now, but that's not happening.

I would like to take a Zillow representative with me to my next marketing presentation so they could explain to the seller just how they came up with their price. It'd be cool seeing them squirm.

I gave it one more shot by searching my mother's address in Maryland. The "Zestimator" gave a price much closer to reality. That's probably because Zillow has MLS data for Maryland (and not New York City or the Hamptons since an MLS doesn't exist in these areas). I did notice that my mother's neighbor's house which sold in August was accurately listed and I believe that the price they have given for my mother's home is somewhat accurate.

Overall I have concerns about Zillow. Their data appears to assume that each home is identical in every aspect except address, square footage, and lot size. The numbers don't appear to take into consideration the level of renovation a homeowner has done and of course can make no estimate on the homeowner's "taste" of renovation. There are ways you can adjust the data about your house to take those things into consideration, but even with that level of customization I'm a long way from having confidence in any automated pricing systems--especially in New York.

Zillow is fun but I would definitely not rely on it for anything but its snazzy satellite photos and perhaps some sold data.

I think you're reading this wrong: these are incredibly accurate numbers, given what Zillow is working with. Given just the address, square footage, and sales history, Zillow got your place to within 10% and, unless it got your neighbor's place's price from a listing, it matched exactly what her broker decided it was worth! Of course, maybe her broker is lousy; surely you've *never* listed a place that sat on the market for half a year? (http://www.truegotham.com/archives/a-brokers-job-113-when-a-broker-falls-in-love-with-a-penthouse.html)

If someone owning your house had decided, "Aw, what the heck, all a broker is good for is pricing, and I trust Zillow," and put it on the market for 1.62, and then sold to the very first buyer who asked the listing price (rather than waiting to see if it was worth more to someone else, and trying to get the price bid up), they'd have lost a whopping 4% on the sale for not having hired a broker, once the 6% commission has been taken into account.

Given that Zillow has been around less than a year and will surely improve with time and more data, I think that's a pretty damn good start, don't you?

My mea culpa story doesn't help your case at all--as I made clear, it's an example of emotion overcoming good judgment, and resulting in the kind of bad pricing that Zillow is apparently recommending as a matter of course. It's not routine here at my office. I'm very proud that even in this softening market, over the last few months every owner who has followed my pricing advice for their exclusive listing has gone into contract or already reached settlement.

As for my neighbor on Long Island, who knows how that property was priced? Maybe it was an agent making a mistake, or maybe it was an owner insisting on setting a price based on Zillow. Either way, it's hardly an example of Zillow's pricing prowess.

And my property? You suggest that with an agent I would "only save a whopping 4%." We're talking about more than $60,000. If you told me that if I hired an agent that I would get more than most people make in a year, I would take the broker representation every time (especially if I were acting in the name of penny-pinching).

Sure, Zillow isn't far off in some cases, but the truth their whole model is always going to be automated. There are problems in this world that technology can solve for us, sure. Robots really can do assembly line work. Google really can search tons of information quickly.

But looking at a property, interviewing owners, and taking into account the momentum of the market, location, schools, likely future developments in the area, changing views, eight-foot claw-foot tubs, noisy neighbors, friendly doormen, in-home theaters with projection screens, and everything else that goes into good pricing? That's a job for a professional. Not just any agent, but a highly skilled and experienced one who moves a lot of property in that exact area.

I don't see Zillow, or any automated system, competing with that anytime soon, and I put my money where my mouth is by happily paying 6% to an agent to price, and quickly sell, my house on Long Island. It I had trusted Zillow, I might have been passing up a decent chunk of money, I might have saved money, or I might have been like my former neighbor--who is missing interested buyers entirely.

How are you going to know which situation you're going to be in? Wouldn't it be nice to have someone to ask?

After playing with it a little bit, I feel totally comfortable saying that I would go head to head against Zillow any time. I'd happily earn that commission.

Hey Doug, it's David from Zillow.

I'm (obviously) with mg on this one; the examples you cite above are surprisingly close to the market's opinion considering that we produced these NY Zestimates from behind our laptops in Seattle. New York is a particularly tough market to nail down.

More importantly though, mg seems to understand the role we hope to play in this fascinating industry. It is not our goal to replace your Real Estate professional(s) but rather to equip consumers with tools to have an informed conversation with them.

Zestimate accuracy will improve. More importantly though, we will continue to transparently report the accuracy of our Zestimates and our confidence in them. See this post for an overview of how we report on Zestimate confidence for every single house in our database; http://tinyurl.com/qt4r8.

I agree with you that Real Estate changes hands in the real world, between real people. That said, we're convinced that the online world can help to improve the experience (for all involved). We have a few features planned that will surprise you. I hope that you'll continue to check back in with us.

Thanks David. Appreciate you taking the time to respond to the post and its comments. I absolutely see your point and may be persuaded to agree with you as far as Zillow becoming a very useful tool in assisting consumers (and real estate agents too) in determining an "approximate" value of their home. That said, as you say, you're sitting behind a laptop in Seattle. That gives me no greater comfort in your product. And although your attempt at pricing is impressive, I still maintain that much of the press that I have been reading and hearing is suggesting that services like Zillow can replace a knowledgeable real estate professional. Of course I agree with you that this is unlikely to happen, especially in New York City. I'm all for more information to consumers and I am not one of the many in my industry who wish to hold property data hostage. I welcome your efforts. I would also reiterate my request to have you or one of your employees join me on a marketing presentation with a seller whose house you have overpriced by 20%. In this instance, I think Zillow becomes an obstacle to a real estate professional in their effort to support a suggested price based on "actual market specific" data that they have "seen" as opposed to that which you provide from your laptop in Seattle. I just believe that I owe my readers my professional and honest opinion.

Thanks Doug.

It's unfortunately not in my budget to have these conversations in person, but if the tickets are on you and I can blog about the event, I'll come (as a one-time thing).

I'm sure that over-zealous sellers were a pre-Zillow phenomenon. The bell curve dictates that some sellers' pricing perceptions will be high and some low. I see how those with high expectations may be a challenge (and hope you don't see the low ones as an opportunity). Regardless, I view the discussion our Zestimate generates as a new chance for Real Estate Pro's to demonstrate tangible expertise and to win the confidence of their sellers.

Using Zillow, you and your seller can easily discuss pricing around facts, quickly getting beyond the opinion and sentiment that I'm sure has confused these discussions in the past.

If I did meet such a seller, here's how I'd probably go about it ...
1) Pull up the home on Zillow with the seller sitting next to me.
2) Discuss the value range Zillow assigned to the Zestimate, note that it has a minimum and maximum value and agree to review the Zillow data to determine where in that range to list the house. At this point, I would also quote Zillow's published accuracy metrics for NYC.
3) Show the seller why their Zestimate could vary from the exact market value. This is not rocket science. If Zillow doesn't know the sq. footage, then clearly even our best guess is poorly informed. Check if Zillow has all the specifications, tax & sales history for the property. If not, discuss how accounting for those should adjust the Zestimate. This is a great point in the conversation to use Zillow's My Zestimator tool to refine the value of the home with the data that we don't know about.
4) Review Zillow's list of comps and help the seller refine that list. This is huge; it's an opportunity to demo local knowledge and prove that you're not just cherry-picking examples that support your argument for a lower price. It's also an opportunity to point to deals you've successfully closed.
5) If local prices have been shifting downwards and that's relevant to the listing price, click through to Zillow's graphs for data that supports your argument.
6) Lastly, discuss the stuff Zillow doesn't know about. Here's your opportunity to really shine. What's the latent demand in the market, how much inventory is there and how rapidly are houses selling? What pricing strategies do you recommend for the current market climate? How have they worked for your other clients?

If you follow these steps and haven't won over the seller, they could be in denial and probably would have gone away pre-Zillow. I do think your chances of winning over a reasonable person with high expectations are better with Zillow's tools than without them. If our inaccuracies help you build credibility, then we've achieved our goal; your seller is well informed and they will have enjoyed great service.

I think Zillow and the RE Pro's who understand our tools can make a strong team and will raise the bar for quality service in our industry. That seems to jive with your mission, so our motives may be closer to yours than you think.

Thanks for blogging. Sorry for the lengthy reply, I just really enjoy a good discussion. Please share these suggestions with your team.

David, all of your points are very well taken and I absolutely see how a more refined Zillow could be an amazing addition to our industry.

In the meantime, however, trust is hard to build in any setting, especially when you're new, and my test drive (one price too high, and another too low in Bridgehampton, as well as an inexplicable reduction in price for adding a bathroom and a half...) makes me think that for the time being I just don't know that I can trust Zillow. I look forward to an improved Zillow that I can use to assist my sellers in pricing their homes, but right now, side by side with the other resources I have at my disposal, I feel Zillow offers more information, but not demonstrably better information. And in the cases where Zillow is not correct, it could even be a hindrance--one more obstacle to helping all parties agree on a fair price.

By the way, I absolutely see a seller having low expectations of value as an opportunity--an opportunity to make sure that a seller doesn't leave money on the table. My whole career is built on repeat customers and referrals. That's the kind of thing that makes that happen.

Also, one other concern. You describe in your last comment how this tool could work hand in hand with a professional, as a resource to be further refined--i.e. a starting point. You acknowledge that guys with laptops in Seattle may not have the best grip on the information on the ground in NYC. But on Zillow's website, it seems to me you are promoting the idea that homeowners need no further resources to price their homes. You use the word "nirvana" to describe the last step of the Zestimate. The zestimate page says "This is what Zillow.com is here for: To empower you with all the information you need to enter the real estate market with knowledge and confidence."

Your site seems to contradict your statement to me that it is to be viewed as an additional tool in the pricing process.

Hi Douglas,

This is a great debate; I'm definitely learning from the thought you've given to the role of tools like Zillow.com in the Real Estate industry.

You are correct that "nirvana" doesn't support our message; that page is being rewritten and will change on the site within the next few weeks. Thank you for bringing this to my attention; ironing out these kinks is exactly what our Beta phase is for. If you have similar suggestions, please e-mail them to me.

Equipping our users to *enter* the market informed and confident is however in line with our goal so that part probably won't change. Unlike professionals, consumers don't have many other Real Estate information resources at their disposal. It's our belief that better informing buyers and sellers benefits the entire industry.

Thanks again for writing.

I think zillow is a great tool. I have worked with it many times and would recommend it. I would always double check the subject property against comparable properties, the computer sometimes misses very crucial things when it comes to determining the exact true current market value. But still one of the best tools online.