A New World
Some websites promote their equivalence to or superiority over the flesh and blood real estate agent. While mathematical computations can be completed much faster by microchips and microprocessors, they lack the same thing Dorothy's beloved Scarecrow lacked: a brain.
Today's Lenn Harley post on Zillow caused me to consider: Just what is it that makes a real, live, on-site agent better than the Zillow machine?
What's Wrong with a Machine Estimating Value?
Probably the largest fault to be found with Zillow's calculations is that they are entirely mechanical. Data In - Data Out.
And what is wrong with evaluating data? Absolutely nothing, so long as the unquantifiable facts are considered as well.
Consider the Following
Suppose 3 really run down homes sell recently in an otherwise upscale neighborhood... wouldn't Zillow guestimate that all the other homes in the neighborhood are worth significantly less than they really are? While this may be good if the Seller is willing to give his home away, it doesn't help anybody who wants to buy or sell a home in the real world.
Suppose those same 3 homes are subsequently renovated... all values in the neighborhood should rise, right? Yet the formula within Zillow can't see past the raw data, which remains unchanged.
Hallelujah!
At one point Zillow had my property valued at 1.3 million. I was ready to call them up and sell it to them for 1/2 it's value!
Often, Sellers who have such good fortune will leave a copy of Zillow's justification for their ridiculous asking price on the kitchen counter. Buyers who are off their guard might even be influenced by such an unbiased, third party's "appraisal" of the homes value. Unrepresented Buyers might go into the transaction feeling confident that they are getting a good deal, all the while significantly overpaying for the home.
Has the day arrived that I can send over a LOW Zillow Estimate as justification for a Buyer's ridiculously low offer and not be laughed at and called unprofessional by other agents? It has not.
Unquantified Factors
With time, Zillow might be able to give a rough estimate of value for a neighborhood, but a Zillow estimate should not be considered an accurate representation of actual market value.
Does a "zestimate" even take into account lot size?
Mitigating factors? (Power lines, busy street, view, etc...)
Does it consider the finish level of the home or take into account whether or not there were any concessions on the comparable sales?
Does it take into account that a home might have major structural problems?
What about whether or not the home has been stripped of appliances and fixtures (or maybe even copper wiring)?
Likewise, just because a few people relocate to the same area and overpay for their homes within a short period of time doesn't mean that the actual worth of surrounding homes has risen. It just means a few people recently overpaid.
If 2 or 3 people overpay within a limited geographic area, can Zillow comprehend this? Or will it add value to the surrounding homes as if their value actually did rise?
The Bottom Line
Data needs to be interpreted by a professional who can reasonably discern whether or not certain issues were taken into account when determining the sales price of a comparable property.
Buyers should seek out such an agent who will represent their interest only in the real estate transaction.
If you are planning a home purchase in the Salt Lake City area, make sure you get an Agent on YOUR side of the transaction!
If you have excellent credit and will be buying a $250,000-$750,000 home in the next 30-60 days and would like an agent who will work exclusively for you, call us at (801) 969-8989 or contact us via the link on this page.
©2008 Homebuyer Representation, Inc. "The Real Estate Agents on the Buyer's Side" ™ Exclusive Buyers Agents (EBA) - All Rights Reserved
Exclusive Buyer Brokerages do not list homes and never represent Sellers. Their agents represent Buyers ONLY on the Buyer's side of the transaction. They work to get BUYERS the Best Price and Terms when they Buy...
©2008 Homebuyer Representation, Inc. - Salt Lake City, UT
Exclusive Buyers Agents (EBA) - All Rights Reserved
Finally...
Great post, gives one lots to think about.
Really opens ones mind to where the real estate industry is headed.
Great analogy Ross! Thanks!
Ross what about buyers under 250,000? They need representation too!
Great post, regarding Zillow and their Zestimates!
It is all a bunch of BS hype to seperate the need for using you to the need of using them.
Kristin - I think you meant to ask me that question! I currently have clients who don't fall within that price range and I sometimes take on clients who don't have excellent credit at my discretion. I take on most referrals from family, friends and past clients regardless of their circumstances or I help them find someone who can meet their needs better than I can.
My target clientele are people who are purchasing a single family home to live in. If someone is buying property solely as an investment (to flip it or rent it) I will refer them to someone with an expertise in that type of real estate. Just the same, prospects who call and have zero down payment or poor credit need someone else who specializes in helping them accomplish those goals.
The vast majority of my clients fall within the $250,000 - $500,000 price range, so rather than say "if you are looking for a $10,000 mobile home or a 3.5 million dollar mansion" I stick to the segment of the market where I do the most good and have the most expertise.
There are segments of the real estate market where I am not the best choice. Some would be: corporate leases, apartment buildings, rental properties with more than 4 units, mobile homes, businesses (as in a bakery or a tire shop sale where the business transfers with the property), the purchase of a single family home exclusively as a rental unit, and "unique" real estate (such as geodome homes, basement homes, grain silo homes etc. etc.).
Additional qualifiers I could add to my list (but don't):
(1500 - 4000 square feet)
(on less than 5 acres of land)
(existing or new construction)
etc. etc.
If you are planning on buying a single family residential home to live in in the Salt Lake area and don't have poor credit, give me a call. (801) 969-8989.
The worst that can happen is that I will refer you to someone who will do a better job at helping you than I can.
4 out of 5 people use a real estate agent, on average, for a reason. We do add value. Thanks for your post!
Great Blog! I' been writing about Zilow and their Zestimates many times here on AR... to the point that they singled me out and followed me around... It was an experience! I am glad others are taking on them and their business approach to real estate market.
Hey Benjamin,
This is interesting reading --> http://seattletimes.nwsource.com/html/businesstechnology/2004349486_wamuappraise150.html
and specifically:
"Michael Evans, international treasurer with the American Society of Appraisers, said some lenders eventually began using computers alone to establish home values. Others used them conservatively, as an additional tool for their appraisal staff, recognizing that "speed can kill," he said."
I often wonder how many buyers made their decisions based on an online home valuation service...
I always love your analysis on the value of using an 'agent' and 'buyers' agent'......They help me with my presentations! And its interesting what you have to say about 'zillow'...I was just reading another agent's blog discussing how realtor.com was losing ground to 'zillow'....Its hard to keep track of it all......but I love hearing the differing points of view...
Not solar power, not batteries, not nuclear energy, not steam power, not robotics and never machines.
Very thought provoking post and pretty much amazing. Thanks for sharing.
This is good. It is interesting how people not in the industry take what zillow says as absolute. Saw some newspaper editorial recently talking about how zillow was pretty much the be all and end all. Think some are missing the boat. Our 2 cents.
Preaching to the choir,,,the public thinks they are in the candy store...ah, but the pendelum swings...hopefully soon. Wonder if they'll ever be a lawsuit that a buyer overpaid or a seller got less because they relied on a zestimate. Hum...the sellers think that they have got a friend in their corner, well, the news is that they would like you to think so, but have NO accountability for their data. Sad but true.
To the anonymous poster who brought this out of the depths of obscurity, THANK YOU!
Arina - Thanks for stopping by. What do you mean they "singled you out"? I bet it's an interesting story...
Paul - I tell clients this all the time. Even with a real live person doing the appraisal, the purpose of the appraisal is to protect the lender's interest, not necessarily to protect the Buyer from overpaying. We want to get a good enough price that an appraisal doesn't even become an issue. With appraisers being under such scrutiny in today's market it's a wonder some will even commit to a value at all...
Liz - You are always so kind. If you want more to think about, I hear NAR has a "National MLS" in the works that apparently nobody can stop. Think about that for a few days!
David - Are you running for Congress?
Pam - Congratulations on your REALTOR of the Year award!
Bob and Carolin - People are missing the boat all the time! Sometimes they just don't know what boat they are supposed to be getting on. That's why they need us!
Terrylynn - Congratulations on your award! Yes. I'm sure that lawsuit will come!
Not congress.
Benjamin,
"the purpose of the appraisal is to protect the lender's interest, not necessarily to protect the Buyer from overpaying."
-------- not the point of providing the article.. I have 15 hours of appraising classes under my belt and appraisal standards for FHA financing... I certainly have respect for what appraisers do and what they had to go through to get there...
The reason why I brought up the article and the quote from the article --- "Michael Evans, International Treasurer with the American Society of Appraisers, said some lenders eventually began using computers alone to establish home values."
How many Billions are the banks in the hole? How many of these same banks were using "computers alone to establish home values"?
In other words.... do some research on which lenders went to the online valuations for their appraisals, how much money they are in the hole and you've got a very compelling reason of why online valuations can be very, very dangerous.
(And their online valuation systems are much more complex then just scraping numbers...)
Why would lenders rely on online valuation models? To save money.... Why would less educated buyers or sellers use an online valuation service? Unfortunately.... it's not for entertainment reasons..
oh Ben... machines will never replace people. Zillow will never replace Realtors. Very rarely do I have a seller pull out a Zillow quote, in my area most have been too low. Our county recently lowed the SEV and taxable values of properties, it will be interesting to see what happens to the zeestimates.
I don't think so that Machines can replace with real estate agents........
http://www.sellingtorontohomes.com
Excellent. Zillow may never replace agents, but their consistent pounding in the media and on search engines will eventually cause many to doubt the accuracy of a live agent's market valuations.
Zillow cannot possibly produce accurate estimates of MARKET VALUE when their system is heavily reliant on ASSESSED VALUE. One thing a good agent learns early on is that there is no connection between assessed value and market value. Assessments are for tax purposes and homes may be reassessed every few years. In my area, when property transfers or about every 3 years. WHAT?? EVERY THREE YEARS??? How accurate can that be??? Fact is, it cannot.
When the premise is false, the facts cannot be sustained.
Zillow should take the term "market value" off their web site and admit that it is merely a combination of assessed value, not a reflection of market value" and not to be used to estimate market value of your home.
Sure, that's going to happen.
Computer programs can not show a house or negotiate a sale.
Here is not one thing accounted for also using tax records: concessions.
Charges were filed against an agent and her husband for setting up a fraudulent mortgage/straw buyer scam and what they would do would inflate the price of the house and get some big cash back.
I did a default BPO on (quite possibly) one of these homes yesterday. The asking list price was $488K and it was sold for $535K. Sitting down? $45K in concessions. Whether the fraud was involved or not, that does inhibit value by 10% when you looking at tax records ONLY.
In the current climate if a buyer was able to receive (let's say they are FHA) around 6% of concessions. 6% is still a lot!
In LV, casitas and unpermitted things like garage conversions are not accounted for in tax records for living space. Detached casitas can add quite a bit of value to a home depending on where they are located!
So, in a nutshell, your post is most awesome :) It takes a trained eye to come up with a list price your home can sell at or a value the bank can lend at.
Generation X and all the other folks who know more than realtors because they lived in a house once, need to read your post....thank u !
It seems to be getting harder and harder to convince people.
Paul - I absolutely agree. Relying on computers for appraisal is, well, surprisingly like using the "Zestimate" to calculate value.
Cutting corners by relying solely on computer calculations for valuations certainly added to the mess we are in, but it is only one of many contributing factors (105% loans to 500 FICO scores, etc.).
The right numbers are important but in the end the home has to be better than all the others to get the buyer to buy. Good advice.
Great information! I have run into a few sellers that tell me " I know the value of my home, I've been to Zillow!" Then they wonder why they can't sell their home at the Zillow price, and wind up eventually having me come in to give them the real comp and list their home! This is an outstanding post! Thanks!!!!!
Lenn - The media does play a role as does Zillow's representation to the public as to the value of the information they are providing.
Zillow does have disclaimers and disclosures to cover themselves, but the public has to know what to do if they realize the "Zestimate" cannot simply be accepted as market value, which is what many people assume it to be.
Laura - Negotiating is one of the most enjoyable and rewarding parts of my job! Even if a computer could negotiate, it wouldn't get any satisfaction out of doing it. That's worth something too, right?
Renee - The computer is also unable to take into account where square footage may be grossly exaggerated.
I have seen homes in old Salt Lake with basements that can't be more than 5 feet tall from floor to ceiling. That square footage should not be considered the same value as "living space" (although some of those basements are actually made into living space...). Likewise, attic rooms where the ceiling meets the floor don't hold the same value per square foot as a room where there is 8 (9, or 10) foot clearance throughout the room.
We could go on and on about different real aspects where a computer can spit out the wrong conclusion based on not truly understanding the nature of the data going into the equation.
Missy - Thanks for stopping in! You are right. Computers cannot replace people. But... we (the people) do continue to use more and more "machines" and technology to serve each of our clients better, so I suppose we can coexist and work together, right?
Sally & David - Thank you!
I have absolutely no problem with my clients having all the data available to enable them to make a good informed decision. I even said that maybe someday the information on Zillow might just be worthy of evaluation. But, as pointed out by many, there are flaws in the equation at this point and the values swing both ways. (Read this post about the accuracy of Zillow's Zestimates)
If someday the data becomes useful, it will still need to be evaluated by an on-site, real live person who can evaluate and interpret it in the context of reality and compare it subjectively to the realities of the current market and account for the unique factors of the home being compared to.
Heather - Welcome to the age of information! It's both a blessing and a curse, isn't it?
Terry - It would be nice if more Sellers and agents not only realized that but competed accordingly.
My clients always pick what they consider to be the best home among the bunch that meet their criteria. It's strange how many homes you see with 200, 300+ days on the market, yet they still aren't competitively priced. What? Do they think someone will come to town and say to their agent "I ONLY want to see this house. I don't want to see any other homes. Just show me this one."
Buyers will look at the competition and buy the home that best meets their needs that also competes well in the price arena. Sellers and listing agents would be wise to do the same. After all, does it really matter if 4 homes sold 3 months ago for $50,000 more than the asking price if there are currently 6 other homes to choose from that are asking $50,000 less than the list price?
Yet another area where a professional will beat out a computer in assessing value.
(Oh yeah, and the professional will be able to negotiate for the better value.)
There's a time, place and use for computers...but real estate is one area where you need the human's ability to see and then make - in this case - pricing determination. People will always be part of real estate...that is until computers start buying homes ;-)
Janis - Thank you! It would be great if I could go into negotiations using a printout of Tax Value, Assessed Value or a Zestimate and Sellers would just roll over and accept those values as true. They are willing to accept them as true when they are inaccurately high, but are unwilling to accept them in the cases where they are inaccurately low.
Buyers and Sellers determine the true market value of the home when they come to an agreement. Sellers usually have representation OR they tend to price their home higher than market value. That's their call.
It's ultimately the Buyer who loses in the transaction. Perhaps they are without representation, relying on the Seller's Agent for advice, or they have chosen poorly when choosing who to represent them. In all of these cases, a Buyer is more susceptible to believing whatever data is placed in front of them by the Seller, the Listing Agent and/or data provided by third parties such as Zillow.
The only true protection is to make sure the Buyer hires an agent who will exclusively represent their best interest throughout the transaction.
In the Salt Lake City, Utah area, that would mean picking up the phone and calling Homebuyer Representation, Inc. at (801) 969-8989.
Jeff - As you said, even in real estate, us humans do rely on computers alot. But we can see past the numbers and make reality based observations and evaluations. Wisdom is what the computer lacks. That isn't to say you couldn't have a person who lacked wisdom as well... Buyers & Sellers - Choose your advocate and counselor wisely!
thanks for the post. Zillow is great as a resource but that's it. Sometimes, I've seen where it can help, and other times they are WAY off, so I just make sure my clients know that it's just one way to look at value, and then I show them 7 other ways that make a lot more sense.
Benjamin, I can think of so many ways the agents already has been replaced by technology that never should have happened, but solutions were sought for situations that weren't working.
Will machines replace Realtors???
...NOPE! :)
Live good. Be happy.
-Mimi
No machine could take such abuse :)
The worst part of all of this information is the "garbage in, garbage out" aspect. People who get their information from the internet believe it is more reliable than what the agent tells them. It can be a real challenge educating the buyer.
LOL no machine could take such abuse is right; and even if they made a computer that looks like Angelina Jolie, I'm sure my clients would still miss my sense of humour.
I think the more we educate the general public, about why we make a difference, and how we look after their best interests, the less likely we are to be replaced - by anything/anyone.
I can tell you this much. Until someone makes a flesh-and-blood "terminator" machine that can think like a human there will never be a program good enough to produce "comps." Any "professional" program I've used that claims mathematical knowledge is usually off (one direction or another) by 5-17%. That can be a big loss!
By Zillow's own disclosure, in the New York Metro Area (CMSA), their estimate is within 10% of the sales price, 48% of the time.
Now, if we told our clients that we'd be happy to give them a market valuation and we're only off by 10% or more, half the time, how much confidence do you think they'd have in us? Yet these same individuals trust Zillow implicitly. Shows you what some hype and effective marketing can do.
I'm not worried about machines so much as a cooperation between Google and Ebay for instance. The possibilities are endless
A data base is never going to replace a seasoned professional standing in the house.
Someone should tell Liz (up toward the top) that the article she read on Zillow doing better than R.com was written by someone from Zillow.
I've only had a couple sellers even mention Zillow. Those that do, comment about how bad it is. Not a factor here. Their zestimates and comparables are simply garbage.
Benjamin: This is a very good post. I'm starting to hear lots about Zillow. I have not looked into it at this time... maybe I sould at least know more about it.
Thanks for the good post. Eventually computers will get there but it will be a long time.
Just shows how important that "hands on" and "eyes on" approach are to accuracy. I hated the drive-by appraisals we had just a couple of years ago.
Whew... I should be safe for awhile. Your post makes alot of sense, at our office meetings we have virtual tours of new listings which is great but my concern is the elimination of car tour. You just can't beat that look, touch, feel, smell aspect.
Ben- I'm glad I came across this post as I had missed this topic of conversation on the Rain. You make some great points. I believe that valuations simply can't be done effectively in mass and without actually seeing the home. This is a flawed system and the danger is that people will buy into inflated valuations. As I'm sure those who feel their zestimate is too low will continue to seek other opinions and vehemently disagree with the quote;-)
Benjamin, and in a non-disclosure state such as Texas Zillow has the wrong information in there to boot.
Technology will never replace a living, breathing and thinking real estate agent. Remember a few years ago when use of the internet was just beginning to sky rocket? There were people saying that because buyers and sellers could do so much research on their own they wouldn't need a real agent. Sites like Zillow can provide some useful information assuming a person knows how to interpret the zestimate - looking at the individual comps for date of sale, lot size, bedrooms and bathrooms, etc... But for real values people still need an agent who is active in their area to put together a CMA.
All this technology strengthens the need to have real estate agents representing the public as they try to understand all the information they are getting from the internet. I think it also helps the agent by allowing buyers and sellers to some of the work for the agent like getting in the right mind set to complete a transaction.
Joan - Educating the Buyer is what it's all about! There are all sorts of cool things you can do with Zillow, Google Street View etc. etc. It's understanding what the numbers mean, how they were produced and what else needs to be considered to make sense of the data.
It's not as easy as looking at the last 3 homes that sold in the neighborhood and throwing down an offer price that's an average of the 3 prices and both Buyer and Seller jump for joy.
Marie - Funny!
Marilyn - I wrote an entry on this exact subject! (Read this post about the accuracy of Zillow's Zestimates)
Elaine - You are right. There ARE sellers and buyers who understand how bad Zillow's value estimate's can be.
Robert - We'll see. I still think computers will just add more and more tools to make an agent's job easier (and more difficult!).
As more parties are educated about all the factors that go into a home sale and transfer each side will have more reason to back their position. While at the same time having more data to rebut each side's position!
Bob - And there are still some Buyers who buy homes sight unseen!
Matt - Exactly right! Just like any other data presented in a real estate transaction, the party that benefits most from the data will attempt to use it to their advantage in the negotiations. The people at the greatest risk are the consumers and those who are at the best advantage are the Sellers.
Ben- I went back and read your previous post. Those are exactly the awful statistics, to which I was referring. In some market areas, Zillow gets it wrong, more often than it gets it right. It reminds me of the old line, "even a broken clock is right twice each day." I just wouldn't want to rely on that clock for the other 22 hours.
Ben,
Good post. My favorite example is how Zillow doesn't account for crossing school boundary lines or for the difference between a house on a busy road and a home directly behind it that is on a quiet more private road.
I've been sharing some Zillow insights on some of the other blogs I write for. I think consumers need to know!
I believe that Realtors will be replaced by machines about the same time as everyone else is...wasn't there a movie about that...The Matrix!!! Luckily we are a long ways away from machines having the brains and reasoning that we have.
So at least we're safe for the next couple years or so. Nice post!
I grew up in Sunnyvale California, and I can tell you of the imperfections of machines. Machines are and have always been unstable, they have to be constantly maintained by humans who are imperfect also, and so job stability in one form or another is developed, and lets face it people crave great service and personal attention. I find it annoying when I sit on the phone listening to an automated system, and at the end of my choices I still don't have my problem resolved or my question answered. We as humans will always need eachother and so we will never take a backseat to machines.
I agree with your review. I find sites like Zillow to be interesting. I use Zillow quite often to check what consumers are viewing. I also find it an interesting conversation point to have with a buyer or seller. Understanding what makes up the calculations can show a consumer the depth that a true CMA needs to cover.
Ben,
Great post and I think you've just touched the tip of the iceberg when it comes to making a purchase of this magnitude, guided strictly by a machine.
I agree with you for any number of reasons. I think that machines and computers will only go so far in assisting us without replacing the human factor and our ability to think and reason.
Excellent post Benjamin. Consumers need to realize that Zillow is far from accurate and that a local real estate professional will have a much better handle on the market. Zillow is fine for mapping and some ocmmunity information, but, as you have said, it is all just machanical calculations and data drown from other sources.
Hi Benjaim,
Interesting and sure did get a lot of response. Zillow cannot replace an agent who knows his/her market, Zillow just plugs in numbers. We understand the numbers and what they represent.
I'm pretty sure we all agree. I wonder what percentage of the buying public feels the same. And contrast the public as a whole with those who use Zillow.
When I was in college I took a graduate level statistics course (yes, I'm a nerd.) I was working in real estate at the time, paying my tuition with sporadic commission checks, and I decided that my project for the course would be a statistical model that I could sell all across the United States - specifically designed to accurately predict, within a 5% margin of error, the ultimate selling price of the home. I created the model using paramatric multiple regression analysis, quantifying everything, including location (by assigning numbers to neighborhoods) and by using current sold data. It was a marvelous model. The final test was to determine the level of predictability of each factor, and to eliminate those that did not add to the veracity of the model. I used T-factor analysis and the results were amazing! There was absolutely no predictablitity in the entire model! Ha! Later, in law school, I remember learning that the definition of "fair market value" is the price that a willing buyer will pay a willing seller if all the pertinent facts and circumstances are known by both parties and neither party is under an undue influence (i.e duress.) Therefore, I conclude, scientificially, that pricing a home is a subjective task, done best by humans. On that note, the listing price is, in fact, only an offering price, and the art involved is to create an intial offering price that attracts the best buyer.
Good Post! I think in this day and age it would be easy for some folks to rely on machines.
We refer it to ""Getting Zillowed"' I saw a Ad in which a Zillow member quoted that 65% of the time the valve was dead on. I would hope my house was not in the other 35%.
From http://www.despair.com
Sarah - Funny!
It's not just Zillow that refuses to take a more subjective approach. Have you dealt with any out of state or out of country asset managers lately? This can be an amazingly frustrating process. I have spent hours doing current market valuations for some of these companies only to have them call me back and say that the valuation wasn't in sync with the one they had done a year ago. It's like some of the banks know they made poor lending decisions but here in the middle of the shake out mess they are trying to defend the numbers. Just because some fool got scammed into buying into a development in the middle of nowhere that never got developed, doesn't mean that the property is really worth 100 times more than the tract across the street. Unfortunately, all these folks are doing is prolonging the agony. All agents and appraisers need to stress the true value and the lenders need to accept it for what it is.
Machines vs humans? In a lesson from the 60's, James T. Kirk was the Captain, Spock was the science officer. Thru the series, and the movies, the Human elimate was needed to guide the science. Even Data from the newer series so strongly desired to be human. Machines compute data, humans use it.
Trying using data 2 years old to price a home in Las Vegas....
A great article. No substitute for the human factor!
Jerry
Last week a client told me that Zillow valued a property at $150,000.
I asked the client if Zillow told them that school buses line up in front of that home six times a day every week!
Still need people to get the real scoop.
well ,these machines are responsible for the current situation ,they blinded every body ,killed
jobs,destroyed a lot of money and it's not over .doe's anybody want more of them .
I afraid they will try to cure the desease using new machines .
this is science fiction; let's find some human with common sense if you can find one
and put him on the throne .
Computer vs. Man, the science fiction future is here and it is funny how many people trust the computers.
We, invented the machine, we have the brain. We have what is missing in the machine. Great Post. Thank you and will be book marked.
This post is RIGHT ON! Zillow continues to bill themselves as experts in the real estate market, while all they really are is experts in marketing. Marketing themseves that is!
I carry the same beef with lenders that rely on AVM (automated valuation models) as a back up or substitute for appraisals. You would think that with so many failed lenders having built their models and business on these AVMs that the other lenders would wake up and realize that you can not replace the intellectualy mind of the human with any computer program.
I love computers.. have so for much of my life. But they will never replace mankind when it comes to reasoning and thinking. The computer can tell you that 2+2=4 but will never be able to explain WHY.
Good Points!!!
I'd like to comment on this statement:
"Often, Sellers who have such good fortune will leave a copy of Zillow's justification for their ridiculous asking price on the kitchen counter. Buyers who are off their guard might even be influenced by such an unbiased, third party's "appraisal" of the homes value. Unrepresented Buyers might go into the transaction feeling confident that they are getting a good deal, all the while significantly overpaying for the home."
In my market, the above scenario simply wouldn't work for a seller because even if they get a high priced offer the buyer usually wouldn't be able to get it funded! Unless they are a cash buyer, their mortgage company is going to do their own appraisal...if the price is so overinflated the lender is going to say "NO WAY."
And that just highlights another problem with this issue....some sellers just don't understand the process. They think if they can get a buyer to pay $500,000 for their $200,000 home they have hit the lottery...what they don't realize is that unless that buyer is coming to the closing table with all that money, it's just not going to be possible to close a sale like that. My area (Metro Detroit) has a mortgage fraud spotlight shining on it....
Seller's AND Buyer's need us...a computer won't break down the reality of a down or up market to them. And it probably won't be able to find an answer to the million of crazy questions my clients ask me! ;)
Great Post, the trouble with National websites is they are just that, they do not know how to take neighborhoods, areas, that specific region of the country into consideration, because that is a human thing and machines can't think, remember the saying garbage in garbage out, sometimes that's what you get.
Have A Great Day and Thanks for the Post
Excellent comments.
Excellent analysis. I didn't trust zestimates in the first place, but you have given great examples of how they could be way off.
I love Zillow and all of its copy cats. The more these come to the lime light, the more people realize reality. If I get with them, it is a no brainer to sell over. If I don't, the other agent most likely will not sell the home and I will get it later. Thus, I could care less about Zillow. This business is only about relationships and not Zillowology. Many tend to lose the focus.
Comment #100! What a great job you did with this post! Well written and explained. KUDOS! :-)
AS an origniator we are seeing plenty of issues on appraisals due to AVM's. Not really Zillows fault but the industry pulls the AVM and sees it differ from the appraisal (Physical inspection) and wants desk reviews, rebuttal etc... My question is why send an apprasier out to inspect and adjust comps if you are going to look soley at CPU AVM data and not care about condition, marketabiliy etc... Screwed up industry if you ask me. I have a FHA refi that was cut due to an AVM, they required us to use bank transfers (not sales and not listed on the MLS) for final value. The homes they asked to include were from an AVM pulled and in horrible condition, my clients home is in perfect conditon and is beign considered the same as these transfers. Really a tough time in this transitional period. Banks need to set a standard and go with it, the in between technology and old school is rediculous.
As an appraiser, I could not agree more! The lenders want to use what they call AVM's or automated valuation models, which is the same thing as the Zestimate, basially.
For all the reasons you noted in your post, unless you live in what we call a "cookie cutter" subdivision, where the homes are all very similiar in all the important ways, ie: square footage, age, condition, quality, etc. then the AVM's or the Zillows of the world are...excuse the "french"...CRAP because most of what goes in is CRAP, so that is what will come out.
They are compiling a bunch of sales in a geographical area along with some courthouse data and other information sources and coming up with a ball park number. People also need to know when they purchase a home that they make sure the lender does NOT use an AVM, because this could be faulty and could get you in trouble down the line if the estimate happens to be too high as it can go either way.
You should require a FULL appraisal of your home, whenever you get a loan...no driveby or exterior only report. You want someone to see the interior and exterior of the home in order to provide a true value for you.
As for Realtors, there is NO way a machine will ever take over everything you do from start to finish! NO POSSIBLE WAY!
If you have a special property, like lakefront for example, not only do you need a Realtor and Appraiser who specializes in this kind of property, you need a lender who knows what they are doing as well!
Be careful out there, it is YOUR money.....
Hi, it's David G from Zillow,
Good post, Benjamin - I'd agree with most of it. Zestimate values are automated estimates and are not a substitute for a CMA or an appraisal. Zillow is a research tool that can be very useful when trying to figure out where you could afford to live but a Zestimate won't tell a seller what price to list at and it won't tell a buyer what price to offer.
Where you are wrong, Benjamin is in your opening paragraph. Zillow certainly does not claim to be either superior to or a substitute for a good Realtor. Quite the opposite. Not only do we promote agents to our users as the definitive source of CMA's but we're also constantly adding tools for agents and loan officers to promote their listings and services on the site. Remember that your client is looking for a confident salesperson; so you don't want to leave them thinking that you feel threatened by a website. See Missy's comment above for a good example of the type of confidence that I'm talking about. Actually, it's really encouraging to see that so many of the folks who have commented here have a healthy understanding of Zillow's role and how to use the site to promote themselves and their listings.
One finer point on how Zestimates are calculated: because we consider such a vast data set and include things like tax assessed values of all homes in our calculations, the examples in the post that talk about 3 abnormal sales are unlikely to have much of an impact on Zestimate accuracy. The rest of the reasons discussed for why automated estimates will never replace a local experts opinion are however accurate - most importantly, Zillow has never visited the home and so can not know its current condition.
I was reading about a new supercomputer and how fast it is. Great! It can assist the humans running it in finding the answers to many complex problems. However, the level of detail the human brain can process through the senses is thousands of times more complex than this supercomputer can in a fraction of the time.
On Zillow, the numbers are wack, but the pics and plot maps are cool. As long as Zillow doesn't have little bots on the ground reviewing and calculating the differences between 'like kind properties' in an area, they have a long way to go for any kind if accuracy. Until then, it is side show.
Machines are good for riviting cars together on the assembly line, they are not good for working with people - how could they be? They have no personal skills.
Good points, The data has to always be analyzed for other factors. You cant just compute an average and say thats it.
You are right, but I still think people will fall for it more and more.
Machines will never replace the human element. Machines are designed to enhance it. Now a days mosts buyers of anything will go to the internet to get their info first before moving forward. What makes the sale is the agent on the other side of the numbers that make sense of all of it and make them comforable with what they are buying. People do not buy out of need they buy on emotion and only a real live person can assist in navigating the waters of emotion. Machines can never replace that element.
Businesses are built on the relationships that are made between agent and client not client and a machine.
Great article.
www.henrydelangelo.com
GREAT post, thanks! We don't see anyone using Zillow in our area, I doubt it even has our stats on it, I haven't checked. We are too small a market. I am armed and dangerous now though with your info!
Thanks for the post! The Internet and computer based analytics have brought real estate to a different plane. In some respects, the availability of information on the Internet has made our jobs easier by educating clients, allowing them to share listings of interest, and yes, even get an idea of pricing. The trick is merging these benefits with the more targeted and insightful information a local real estate agent can provide. We will never be replaced by machines, however, we must learn to leverage them to our clients' and our own advantage. It will be the only way to be successful in the future real estate world.
Best wishes,
Christopher Rich
Fairfield County Real Estate .com - CT's Top Real Estate Website
As these 'machines' get better and better, they'll be a good tool. But, nothing replaces a person and building that trust with a client.
when they're able to use emotions as data....then they will replace humans!
Buyers and sellers cry when something goes very wrong; machines don't carry tissue!
When buyers and sellers add 1+1 and get 3, they a machine to do the math.
Real world -- we need both the personal touch and the plug-in, battery-up machines (including computer pricing and calculating)!
Very True! There are lots of things a machine can do to make our lives easier, but it could never replace the feelings, the human touch, understanding once desires and wishes when looking for a home. Sometimes people will overpay just to have what they WANT, sometimes the seller will undersell, just to get out and move on, and the machines will never be able to pick up on the EQ of the process!
Congrats on the newsletter feature - your post is right on.
Excellent post with a lot of attention Benjamin. No wonder it was featured, By ACTIVE RAIN!
Machines can never replace a live person with a heart... much like the Tim Man in the wizard of Oz. People care, machines don't and IT never will...
Great Post.....I don't think that machines will replace real estate agents but, It does make you think.
Keep making us all think like this and maybe we can get better at what we do.
Good Post. I happen to agree with Kevin Harbor. In movies it might sound real, like in matrix or artificial intelligence but still we are the boss and we have to make sure it stays that way.
<a href="http://www.toronto-condominiums.ca/toronto_lofts.php">Toronto Lofts</a>
Benjamin-Good post, as always. I've had clients who used Zillow when they wanted to make offers. The Zillow estimates are wildly inaccurate in either direction. In one area, I think they were using old pricing from unimproved lots to estimate the value of new homes. I think that people will always need agents to give the human touch and experience to the buying process.
I think many sellers think Zillow's estimate is god...and thats when they feel justified on their overpriced list price...a CMA would be a better option for Zillow to add - from a live agent.
One good thing about computer estimates! I got a HELOC for way more than I ever expected back in 2006! They took it away recently, however! Surprise! Surprise! Great Post!
A very interesting article -- gives you lots to think about!