Is my guess as good as Zillow’s?
– Who should we trust to help us make good real estate decisions?
As a Realtor in San Francisco for almost 25 years, I’ve observed with interest how the digital revolution impacts the real estate industry (e.g. Zillow/Trulia), as it has the hotel industry (e.g. AirBnB), retail (e.g. Alibaba) and the transportation industry (e.g. Uber and Lyft). Just as Uber owns no vehicles, Alibaba has no inventory, AirBnB owns no real estate, Zillow/Trulia have never sold a house.
Given Zillow and Trulia’s basis in the virtual world, can consumers trust the accuracy of the information presented to them on these sites? Most of the time, the answer is “no”.
Here is a typical example from Zillow’s popular Zestimate, referred to by so many buyers and sellers when valuing properties.
536 Moraga Street, San Francisco, CA
Zestimate: $1,269,361
Actual sales price: $2,500,000
Zestimate off by $1,230,639 or 51%
Property completely renovated since previous sale, not reflected in Zestimate.
The estimate was off by 51%! Relying solely on the data and the algorithms contained in these sites can actually be detrimental to a consumer making real estate decisions. There is misinformation and just too many inaccuracies. The information cannot stand on in its own. It must be interpreted and analyzed by a professional in order to help you make smart real estate choices.
My advice for consumers is to use the resources provided by the Internet, but to understand their limitations. The gap they leave is filled by the resource that Realtors provide.
Realtors help separate fact from fiction in the real estate world, providing the accuracy their clients need. Keep in mind that the value-add of the Realtor is not so much MLS access but turning that real estate information into knowledge. Knowledge is the market know-how acquired through training and through experience to interpret the information.
To understand the real estate industry, let’s go back a bit to see how the past has shaped the present.
To do this, we need three letters: MLS (Multiple Listing Service). The MLS is the system of gathering and sharing listing information by Brokers. A Listing Broker makes listings known to all other brokers using the MLS and shares the sales commission with the Buyer’s agent. The MLS has been around for more than a century, providing a collaborative incentive for brokers to share listing information to the benefit of broker, clients, customers, and the public at large.
Before technology, Realtors advertised their listings by holding signs on the side of the road. Later, the MLS came out in print every two weeks. It was the1990s before listings were put into the computerized database for the first time here in San Francisco.
Today the MLS is shared by Realtors with the public using a system called IDX (Internet Data Exchange). This is a real estate search site that allows the public access to part of the MLS that is deemed “publicly accessible.” Also, there are other sections of the MLS that have information that only Realtors can access.
With access to the MLS, buyers and sellers are now empowered, knowing what is on the market, and what has sold. The relationship between Realtor and client is more collaborative and transparent. They now work as a team in an ever-more competitive market to achieve the real estate goals before them.
Enter Zillow/Trulia (recently merged into the Zillow Group, referred to as Zillow). Known as “real estate aggregators,” they are online real estate database companies. They present real estate information to the public on their sites, and have reported almost 137 million unique users. Their income last year was reported as almost $344 million. I would call Realtors and Zillow “frenemies”. Ironically Zillow’s main source of income is from Realtors, who buy leads and ads from the site.
It’s an interesting business model. Zillow has never listed or sold a home and they say they never plan to. They depend on Realtors providing free content and then selling leads to this content back to Realtors looking for new business.
Zillow Group is doing well, as are the Realtors who benefit from the leads. But what about the consumer? Zillow does not have full MLS access to populate its data. Without full MLS access the Zillow information relies heavily on having individual Realtors manually input their listings on to the site, and on public records to provide sales information. As a result the listings are not always up-to-date, comprehensive, or accurate.
What about the Zestimate?
It is based on this incomplete data that Zillow provides something called “Zestimate” on its website, an automated tool that estimates a property’s value. Put in an address and the algorithm calculates the value of the home, sight unseen.
This is where it gets tricky for buyers and sellers. People often want to know what their home is worth without having to contact a Realtor to do a market analysis. However, every property is unique, and every buyer and seller situation is also unique. Convenient as it is, there is no way the Zestimate algorithm can quantify these unique variables, which makes the Zestimate, for the most part, inaccurate.
To illustrate, here are a couple more Zestimates comparing the estimate to the actual sales price:
3566 17th Street, San Francisco, CA
Z estimate: $1,191,058.
Actual sales price: $1,400,000
Zestimate off by $208,942 or 15%.
Property still shows as available but is already sold.
75 Caire Terrace, San Francisco, CA
Zestimate: $893,124
Actual sales price: $699,000
Zestimate off by $194,124 or 28%
Property still shows as available but is already sold.
Inaccurate data creates buyer and seller perceptions of real estate values that are not in sync with the real world. When the time comes to actually buy or sell, the buyers and sellers with a better read on the market will have an advantage.
What is my advice to buyers and sellers who want a competitive edge?
Combine the virtual world convenience of Zillow with the real world knowledge offered by a well-chosen Realtor.
Realtors work in the physical real estate world, not the digital real estate world. When I do a market analysis of a property, I do a careful, physical walkthrough and assessment of the property’s condition. I have personally seen the interior of most of the homes which are comparables so I can accurately compare the properties. I use my experience and the resources of the real estate community to create knowledge from the information I gather and the specific questions I ask. The final analysis is custom and unique to the property I’m analyzing, and not just a “hunch.” It takes hours of labor, years of experience, and analysis of the current market to know just what to focus on and how to interpret the information.
I take my job very seriously. I understand fully that the Seller is hiring me to get them the highest price and most favorable terms and to make sure they comply with disclosure requirements and local ordinances. The Seller trusts me with one of the most important investments they have. I give them my loyalty and all my skills to achieve their goals.
Realtors advocate for their clients. Do real estate sites really care if a buyer is successful in their house hunt or a seller gets the most money possible for their house? Of course not. They are selling advertising. Realtors however, do care, as it is both in their best interests and their clients’ to achieve their clients’ goals. Good Realtors are loyal, team players experienced in the art of making the deal so that everyone wins.
Realtors can maintain a pulse on the ever-changing dynamics of the marketplace. Algorithms cannot.
How to win at real estate?
Combine Internet information with the services of a Realtor. But don’t just “click” on a Realtor. Deliberately choose a Realtor. Use the same criteria as if you were choosing a dentist or a doctor. Choose a Realtor who cares about you and has the knowledge to best help you. Choose someone you can relate to, who is competent, works hard, is loyal and is looking out for your best interests. That person should be your team member. Together you will succeed. Real estate always has been and always will be a people business.
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