It seems like any conversation about the business of real estate ends up coming back to Zillow. Sellers often see a very generous “Zestimate” and wish it worked like the prices the see on Amazon where a buyer merely presses the button and the money is exchanged. Buyers watch Zillow (and Trulia) like hawks, and with a few day’s research believe they are real estate professionals. These attitudes inevitably lead to frustration. Why?
The “Zestimate” is a great tool for a thumbnail estimate, a best-guess, or a “it looks like” type of number, but should not be the basis of a significant investment. Is that just my opinion? Well, actually, Zillow iteself documents this.
Their website has a section (link here) that not only explains the basis for their estimates, but offers the most current range of variance by city. As of this writing, the average variance is 6.1%, which means that half of their estimates are wrong by more than 6.1%, and half are less than 6.1%. A real estate professional typical receives 2.5-3% of the sales price to offer, among other things, a detailed and professional estimate.
While I have not conducted a comprehensive survey, my personal experience when comparing Zillow’s estimate to that of other services the Zillow Zestimate has always been the highest. This also makes sense, as Zillow is selling the seller leads it generates and a more generous estimate would only encourage more sellers to reach out to Zillow’s paying customers. A clear conflict of interest that results in an incentive for mis-information.
Since Zillow started, the biggest complaint from real estate agents with the service has been the number of leads generated by misidentified rentals, mistakes in listings (wrong zip code resulting in a property listed for $100,000 appearing in Beverly Hills), or properties not really for sale. As members of the Multiple Listing Service, real estate agents have to keep their own MLS database clean or face penalties, sanctions, or even dismissal. Zillow, however, by selling each lead, actually gets paid for bad data. I was shocked when I read a Redfin study (link here) that shows 36% of the listings on Zillow are not really for sale, versus 0% on the MLS. I have always maintained that Zillow could not exist if it did not sell the 36% of inaccurate listings, as those listings tend to generate a disproportionate number of the buyer inquiries. Some days, 90% of the listings are either rentals or not really for sale. Again, I have not done a scientific investigation but based on my last few years in this area I am sure over 50% of the leads sold by Zillow or at best worthless and worst waste resources of their customer.
What is an agent to do?
Working with sellers: it is our job to help our customer learn the actual value of their home. It is difficult when they seller is enamored by visions of sugar plums generated by Zillow and other sources, but our job is to show, based on our superior knowledge, information, and experience where the market really is.
Working with buyers: as I tell real estate agents every day, if a buyer could buy a house online like they do socks, we would be out of business. The fact that they cannot means we have to focus our job on reducing the friction in the process and to provide the information that only a trained and experienced real estate professional can offer. When we do that, we win. Big.