more on zestimates vs reality

Based on the dismal lack of accuracy of Zillow’s zestimates when comparing it’s valuations of foothills homes to real world prices the other day, I thought it would be worthwhile to drop down a notch in price, to $500,000 to $749,999, and see if Zillow does any better at this lower price point.

Presumably, lower priced homes are more similar to each other and have fewer custom amenities and variations, than higher priced homes, and should therefore be a slower moving and easier target for Zillow to hit. So, except for the price, I used the same simple criteria as I did the other day > it’s been awhile, (and things are slow) so let’s check in with Zillow

The criteria;
I ran a search in the Tucson MLS for single family homes in the foothills that sold from July 1, 2010 thru August 12, 2010, listed from $500,000 to $749,999 and sold at whatever price they sold at.

A grand total of 18 homes matched the criteria. But rather than going through all 18, which didn’t seem necessary, I used every other home on the list starting with the first one. So Away we go,

1. 4971 E Avenida Del Cazador Tucson, AZ 85718
Zillow says - $429,000
Actual Sold Price - $480,000

3. 2300 E Corte Ingles Tucson, AZ 85718
Zillow says - $622,000
Actual Sold Price - $550,000

5. 3900 N Pontatoc Road Tucson, AZ 85718
Zillow says - $452,000
Actual Sold Price - $550,000

7. 2430 E Placita Sin Lujuria Tucson, AZ 85718
Zillow says - $499,500
Actual Sold Price - $520,000 (BINGO!)

9. 5444 N Maguey Place Tucson, AZ 85750
Zillow says - $393,500
Actual Sold Price - $547,500

11. 6500 N Campbell Avenue Tucson, AZ 85718
Zillow says - $746,000
Actual Sold Price - $560,000

13. 4735 N Camino Antonio Tucson, AZ 85718
Zillow says - $783,500
Actual Sold Price - $575,000

15. 4210 E Pontatoc Drive Tucson, AZ 85718
Zillow says - $743,000
Actual Sold Price - $645,000

17. 5700 N Williams Drive Tucson Tucson, AZ 85704
Zillow says - $527,500
Actual Sold Price - $680,000

Judge for yourself, but I don’t see much improvement, if any, in the accuracy of these zestimates, at this lower price range, vs the results from the other day.

And granted, if we get down to real cookie-cutter homes, I have no doubt that Zillow’s accuracy will zoom into the stratosphere. 
But big deal, at that point, it’s like hitting the side of a barn, and who needs zillow for that.

The other reason I ran this comparison again is because I was surprised, amazed really, to find that no one seems very concerned that zillow’s valuations are so far off the mark.
And I understand, and have no issue with, the other cutting edge and very useful tools and features that zillow does provide. Only the valuations, and only in the Foothills, which I know are very important, and I wanted to run this up the flagpole again and double check.

And maybe it’s just that I’m way behind the crowd on this one. 
Whereas everyone else has long ago accepted that zillow just doesn’t do accurate valuations in the foothills, and they’ve gotten over it and moved on. Is that it?

Maybe. But there are also many other buyers and sellers out there who are not quite as savvy about zillow’s valuations, and are using them to help determine value. And I wonder, to what degree are those ‘off the mark’ valuations (off the mark is, I think, a very kind way of putting it) contributing to the confusion about prices in the foothills and adding to the inability of buyers and sellers to see eye to eye.

We can probably debate that all day long, but one thing I hope we can all agree on is that Zillow’s ‘off the mark’ valuations are certainly not helping things one bit. Nor do I see how incorrect and misleading information can possibly contribute, even one teensy bit, to the empowerment of consumers and greater transparency in real estate transactions. Do you.

thefoothillsToday.com
to find your Tucson Foothills home

Comments

[C Kim]

Maybe someone selling a house doesn't want a "discussion" about estimates to be held right underneath the listing price that they have come up with after examining comps and taking into consideration updates to the home.

I really think that having the Zestimate prominently displayed right underneath the asking price is a serious impediment to marketing.

If someone did a statistical analysis of home sales in neighborhoods where the Zestimates more closely track with the real market values of those homes with sales in neighborhoods where the Zestimate was off quite a bit, I bet you would find that home sales in the devalued neighborhoods are much slower.

In other words: faced with the choice of a neighborhood where the listing prices were close to the Zestimate as opposed to a neighborhood where the Zestimates are quite a bit lower than the list prices, buyers will choose the neighborhood with the numbers that are closer.

Let's face it, people are just not that savvy. The average person does not know how to look at all the variables of a home and how it compares to recent sales to make a really informed choice on what is and what is not priced right.

Ultimately, a home is only worth what someone will pay for it. But, in this fluctuating market where buyers have very limited flexibility in their loan choices and how things appraise, would you make an offer on a home for $40-$50K more than the Zestimate?

Even knowing what you know?

[PK Steffen]

Evaluations of properties and houses are nothing more than estimations. Nothing is worth more than someone will pay for it which fluctuates greatly as we all have evidenced.

Recently, I found an English Mid to Late Victorian sideboard in a thrift shop which I entered purely on a whim. My family has been in the antiques business for over a century in England dealing internationally. To my trained eyes it was worth $2500 at least. It was priced at $150.

I called my father to tell him what I had found and ask his advice. To my great surprise, he said it is worth nothing. Don't buy it. No one is buying Victorian. I can't give it away. I asked - what if we purchased it and stored it. He said no way. It'll be ten years before it comes back in vogue, I'd have to pay a lot in storage or ship it to Europe to sell it - either of which wouldn't be worth the effort.

I still feel that it is worth that much despite what my father said. I know in my bones what it is worth. I know how rare it is and how hard it would be to find another. The issue is that you just can't get what it is worth right now.

Maybe that is what these sellers are feeling. They know in their bones that the house is worth more than what they can get for it now. Problem is plain and simple - it's the market. I'm sure Zillow just compounds the issue.

[john schneider]

Jent, I didn't run the value range, not because I felt that zillow redeems themselves with it. On the contrary, I think the value range, if anything, makes them look even more inept. Just my opinion.

And I'm not in the business of covering up for the real estate industry either. And I am well aware that the real estate biz in this town does not have a stellar record for pricing homes these last few years. I write about that every day - listed at XX, reduced, reduced,reduced and finally sold at 67% of original list price. But to give equal time, I'll check that your figures for listing prices and subsequent reductions are correct and post that data, etc. for each of those 9 homes. Glad to.
JS

[Jent]

In a deflationary market, when you have a set of like communities where some members $500k - $1.5MM USD assets, are in some cases becoming financial liabilities, game changing, some might read life changing, decisions get made.

Whereas previously worth and value might be determined through the physical and emotional attributes that a group of buyers see in a given property, in times where many homes are selling for less then their replacement cost’s you must wonder about the other intangible variables.

These variables level of complexity are such that it is hard for a human to understand them, or a computer model to predict them.

Your blog has for the past 2 years discussed many of these intangible variables directly or indirectly. Examples from the financial standpoint show a decreasing pool of those “Wealthy” individuals who can secure financing, albeit a jumbo loan, to obtain such assets, and increases in inventory the likes not previously seen ever in the Foothills.

From a psychological perspective there are sellers who cannot, or will not bring themselves to take the actions necessary to achieve a sale in a reasonable time period, either through disbelief or strategy. (I would love to see you write an article on the touchy subject of $500k + Strategic Foreclosures)

More and more buyers consider the total cost of ownership including exorbitant property taxes, and housing upkeep, especially when the local assessor recognizes the multiple hundreds of thousands of dollars in recent upgrades that have been added to a property, even if ZIllow doesn’t seem know about them. If you don’t like hearing about the Zestimate as a realtor imagine if you are a county or municipal assessor who has been tasked with performing community property audits because of a declining tax base.

Then you have the changes in Tucson’s culture, an unfriendly local government has in my opinion driven off recent opportunities with so many huge potential employers, to name a few, the Airforce (F-35) which went to New Mexico, Raytheon which added hundreds of new jobs in Huntsville, ALA instead of Tucson, IBM which expanded their facility in Boulder, CO instead of Tucson, and lately local groups trying their best to stop Rosemont Copper from opening a copper mine which could bring over a thousand jobs to the community. A number of these anti business Political Lobby’s are based at addresses, usually held by trusts, … in the Foothills.

There is more competition in $500k + housing in downtown and on the east side then seen in many years and many younger “Wealthy” buyers like the concept of Urban Infill over building in the pristine mountains.

So yes… in this market I would imagine that Sellers primarily, need significantly more education on the dynamics of today’s high end housing market in Tucson, and in the Foothills. I imagine buyers, if they have secured financing and are seriously in the market are scouting for the smell of blood of the uneducated, and are either negotiating fiercely because their market position allows them to, or hovering like a vulture waiting for the next foreclosure opportunity to appear.

I come to your blog to get educated on this market everyday, and I am just a humble enthusiast. John you are a great teacher, and though it is my understanding that you are primarily if not solely a buyers agent these days, you have a lot of valuable information that does need to be broken down for sellers who are in shock and reluctant to learn the truths of their harsh reality.

If it takes baking cookies, I’ll buy the batter and bring my new Star-Wars cookie cutters that I got yesterday at the La Encantada Williams and Sanoma.

[john schneider]

Walter, I did not, and I guess will not, see it. I stopped getting the Star years ago. But do occasionally, very occasionally, check out the online version.
JS

[Walter]

Speaking of the Star.... Did you see their sad effort today to keep the print version alive? The real estate story below is a "print exclusive" not available online. Somehow I doubt that is going to be enoough to persuade folks to starting getting their news on dead trees again (and since I don't get a paper copy, would someone who does still take the paper version please post a general summary of the article?).

Even as foreclosures go up, lenders are increasingly open to other options, such as short sales and loan modifications.

Get the details in a story that is an exclusive to the print edition of today's Arizona Daily Star.

Also exclusive to the print edition today, Political Notebook explains why it stinks to be an early voter and why last week stunk, in particular, for Jonathan Paton, a Republican congressional candidate..

Pick up a copy of today's Star at all convenience, drug and grocery stores in the Tucson area or subscribe here. If you're outside Southern Arizona, order an electronic edition delivered to your inbox each day - complete with advertisements and useful search function.

[john schneider]

PS- as far as tracking actual sales, zillow has yet to record any of the 9 sales I refer to in the post and some closed escrow as much as six weeks ago.
Even the creaky old AZ Daily Star, print edition, gets it out sooner than that.

[john schneider]

Walter,as you say - seller or buyer decides to ignore all of that data and instead blindly grasps hold of the Zestimate - that's where we disagree. The zestimate is what zillow is selling. And it is, we are told, the result of their accumulating, sifting, analyzing and applying their secret sauce to all that data that enables them to produce the zestimate. Yes we should ignore it, but they should also stop peddling it.

And JD I am not giving too much credit to zillow or technology. I never expected them to be able to do reasonably accurate valuations in the foothills. That's often a difficult task with your feet on the ground and a working knowledge of the area. From the very beginning, 3 or 4 years ago, I was extremely skeptical of zillow's claims and, over time, they've proven that they cannot do it. And that doesn't surprise me one bit. What does surprise me though, is that they ignore that fact and continue to dispense worthless, and possibly harmful, valuations. It's irresponsible. And I have learned thru these comments that many of the readers here, who are obviously very savvy and technologically advanced, also regard the zestimates as worthless. And that they are fans of zillow for other good reasons. Great.

Then I'm preaching to the choir, forgive me. But there are others, who probably aren't reading this blog and who aren't using other non-traditional real estate sources and who aren't quite as savvy as you guys, but who are influenced by zillow's zestimates. So to reach them, I guess, I should dust off that old Realtor stand-by, Chocolate chip cookie recipe postcards, and figure out how to work a discussion of zestimates into the mix.
JS

[Jent]

To those whom are interested in learning more about this great discussion I recommend a book written by Darrell Huff in 1954, surprisingly much hasn’t changed on the subject on which he writes. In this gem Mr. Huff discusses Confidence Intervals.

A confidence interval is “The range around a numeric statistical value obtained from a sample, within which the actual, corresponding value for the population is likely to fall, at a given level of probability”

Zillow gives their interval for every property, and it usually tell the rest of the story not seen in the Zestimate regarding … well… their confidence in the algorithmic statistical guess given their underlying data set, and its timeliness to the market at hand.

I thought I would peel back the next layer of the onion on the properties discussed in this latest post and compare listing agents accuracy to zillow’s algorithim, and also provide the confidence intervals “Value Range” not previously shown in Mr. Schneder’s post.

1. 4971 E Avenida Del Cazador Tucson, AZ 85718 

Zillow says - $429,000 
 (Value Range: 348k - 498k)
Actual Sold Price - $480,000

Listed for sale by Tierra Antigua Realty 04/15/2010 @ $525k

Delta from initial List Price 45k, Delta from Zillow Median 51K, Sale lies within Zillow’s Confidence Interval

3. 2300 E Corte Ingles Tucson, AZ 85718 

Zillow says - $622,000 
(Value Range: $504K – $709K)
Actual Sold Price - $550,000

Listed for sale by Long 7/21/2009 @ 690K, then 669K, then 639K, then 565K then Sold

Delta from initial list price 140K, Delta from Zillow Median, 72K, Sale lies within Zillow’s Confidence Interval

5. 3900 N Pontatoc Road Tucson, AZ 85718 

Zillow says - $452,000 
(Value Range: $375K – $515K)
Actual Sold Price - $550,000

Listed for sale by Long 07/10/2009 @ 674K, then, 639K, then 599K, then 574K, then sold

Delta from initial list price 124K, Delta from Zillow Median, 98K, Sale NOT within Zillow’s Confidence Interval ( I speculate because this home built in 1978 had been upgraded and remodeled significantly more than those in it’s immediate community)

7. 2430 E Placita Sin Lujuria Tucson, AZ 85718 

Zillow says - $499,500 
(Value Range: $430K – $579K)
Actual Sold Price - $520,000

Listed for sale by Long 11/07/2009 @ 699K, then 649K, then 629K, then 599K, then sold

Delta from initial list price 109K, Delta from Zillow Median, 20K, Sale lies within Zillow’s Confidence Interval

9. 5444 N Maguey Place Tucson, AZ 85750 

Zillow says - $393,500 
(Value Range: $307K – $433K)
Actual Sold Price - $547,500

Listed for sale by SWS LLC @ 630K, then sold

Delta from initial list price 83K, Delta from Zillow Median, 154K, Sale NOT within Zillow’s Confidence Interval (I speculate because this is the first time that this home, arguably the nicest in the community, was sold since its lot was purchased in 1991)

11. 6500 N Campbell Avenue Tucson, AZ 85718 

Zillow says - $746,000 
(Value Range: $552K – $798K)
Actual Sold Price - $560,000

Listed for sale by Long 09/18/2009 @ 850K, then 799K, then 775K, then 725K, then 650K then sold

Delta from initial list price 290K, Delta from Zillow Median, 186K, Sale lies within Zillow’s Confidence Interval

13. 4735 N Camino Antonio Tucson, AZ 85718 

Zillow says - $783,500 
(Value Range: $572K – $932K)
Actual Sold Price - $575,000

Listed for sale by Long 05/02/2009 @ 685K, then sold

Delta from initial list price 110K, Delta from Zillow Median, 198K, Sale lies within Zillow’s Confidence Interval (Which is admittedly VERY large in this neighborhood)

15. 4210 E Pontatoc Drive Tucson, AZ 85718 

Zillow says - $743,000 
(Value Range: $535K – $773K)
Actual Sold Price - $645,000

Listed for sale by Foreclosure.com 05/21/2009 @ 645K, then sold AT LIST PRICE !!

Delta from initial list price 0K, Delta from Zillow Median, 98K, Sale lies within Zillow’s Confidence Interval

17. 5700 N Williams Drive Tucson Tucson, AZ 85704

Zillow says - $527,500 
(Value Range: $422K – $612K)
Actual Sold Price - $680,000

Listed for sale by Great Stout 09/07/2009 @ 820K, then sold

Delta from initial list price 140K, Delta from Zillow Median, 153K, Sale NOT within Zillow’s Confidence Interval

.....

In the end I agree that the Zestimate, and it’s underlying data set, is a great place to start a discussion about home valuation with a local real estate professional.

[JD]

Also, I think you're putting far too much faith in technology to think Zillow could truly guess what a house will sell for somehow as good (or better) than even the best realtor can. As we all know, real estate is an emotional purchase; there's truly no way to predict what will make someone pay a certain price for a house - particularly a high-end one - the right buyer has to come along, at the right time, and make a connection with a property emotionally, and then, also decide it is worth buying at a price the seller will accept. What's the old saying, "A house is only truly worth what someone's willing to pay for it at any given time..." (or something to that effect). My point is, even the best realtor, or several realtors, can "think" something is a fair price for a house in a given market, and over my lifetime, I've seen a lot of them be way too optimistic, or conversely, pessimistic. I once had a fixer-upper condo I was selling that no realtor wanted to touch because it needed too much work. They all wanted me to fix it up and then sell it. I insisited it be marketed as is, at a realistic price, and it sold in 2 weeks, after I was told it was unsellable, mystifying them all. So, when even the most experienced realtors can be wrong, how can a computer model ever (realistically) be expected to be right? It can't. Not when you're dealing with something that isn't a commodity, like cars or tract housing, but as unique as upscale or "luxury" homes...

[JD]

Again, I think you're giving far too much credit to zillow's valuations and overlooking it's usefulness based upon it's other functions. I've been using zillow pretty much since its launch, but I long ago gave up expecting its zestimates to be accurate. But when I think about selling my home, I do use its "recently sold" search feature to see what nearby homes have gone for, and reach my own conclusion what houses are worth. Most people I know do the same - they use zillow to see what houses have sold for, and other things, but NOT for the zestimates - people know they're inaccurate. Or at least internet-savvy, informed people do. But again, I think you're obsessing over the zestimates at the expense of everything else zillow has to offer. Think of it like the inverse of Google - Google wants to be everything to all people, but how many people do you know that use it for anything but search, despite all the new functionality they've added? Zillow is the opposite - it advertised itself as a place to go for accurate price estimates, but they never actually offered accurate price estimates, so over the years users have learned to take the estimates with a grain of salt and use all the other features it has to offer.

[Walter]

Okay, "clueless" and "idiots" was a bit harsh, but seriously: if a person is internet savvy enough to look up a Zestimate on Zillow, presumably he or she is capable of looking at Zillow's Zestimates for nearby sold houses and can see the wide disparities which you so easily and thoroughly documented in your last two posts on the topic. It is certainly not Zillow's fault if a seller or buyer decides to ignore all of that data and instead blindly grasps hold of the Zestimate. These are the same type of people who go to the car dealership and demand "blue book" price for their trade in. Eureka! Perhaps I just stumbled across the best corollary to use when describing Zillow: it's the Kelly's Blue Book of houses -- widely read, and rarely right.

[john schneider]

I see. But being "not quite as savvy about zillow’s valuations" does not make one either an idiot or clueless. Not in my book anyway. Though apparently it does in yours.

[Walter]

I was just talking about how frustrating it must be to explain the worthlessness of zestimates to people who are so clearly clueless.

[john schneider]

Walter, I don't know what you're talking about, telling people they are idiots. Where did that come from.

[Walter]

It must be challenging to be diplomatic when telling people they are idiots.

[john schneider]

The evidence I have is that buyers and sellers tell us, 'zillow says the/my house is worth...'
To what degree they rely on that valuation varies, I'm sure, from one individual to another. So it's not helping things one bit.
And in the fine print zillow says "A Zestimate® home valuation is Zillow's estimated market value. It is not an appraisal. Use it as a starting point to determine a home's value."

It beats me why anyone would want to handicap themselves by starting off with such blatantly incorrect information.

[Walter]

You really think buyers or sellers are relying on Zestimates? What evidence do you have of that?

[Laura Mance]

I know of many Buyers and Sellers who have been mis-led by Zestimates to offer too much or too little or ask for too much or too little. For some reason "if it's on the web it must be true" seems to come into play much as it did for print media. People gravitate toward the information they prefer and it's difficult to convince them otherwise. That ends up being the Seller who starts with a high price and ends up following the market down. For a Buyer it means not getting the house they really want because Zillow says they are paying too much or happily writing a contract for too much and not having the property appraise. You still can't beat a well thought out and executed market evaluation done by someone who can walk around the house and drive around the neighborhood.