Feb. 14, 2015
I wrote about a major problem in home valuation 3 years ago, so some readers of my newsletter will be familiar with the issue. It's finally starting to get national recognition. The problem is Zillow, and people's reliance on their "Zestimates" -- home valuations based on automated assessments of national statistics. While I applaud Zillow for trying to bring transparency to the marketplace, the truth is that their numbers are quite frequently inaccurate.
As this article states, Zillow admits a median error rate of 8%. This is substantial, but if everyone knows it's 8% off it shouldn't cause problems. The actual challenge is that many people are using these numbers are the de facto valuation, and actually negotiating with them in mind. That's causing a lot of otherwise sound transactions to become unraveled.
Far worse, though is that 8% error rate is the tip of the iceberg. In many areas, the error rates are astronomical -- 20% in Manhattan, 42% in Maryland, 12% in San Francisco, and the list goes on.
It's terrific that this issue is starting to get the attention it deserves. One would expect that more accurate automated valuation is only a matter of time. However it's still not here yet, so please take those Zestimates with a grain of salt. In Paradise Valley, I've seen numerous Zestimates off 30%.