Thanks to our friends at Bosshardt Realty for sharing their excellent post about the Zillow Group. We share their perspective and believe others may benefit from this important information.
Why Buyers and Sellers Don’t Need Zillow (and What They Really Need Instead)
By Rick Chin, Chief Information Officer, Bosshardt Realty
Monday, April 13, 2015
Technology has definitely given consumers easier access to information about the housing industry. However, buyers and sellers need more than just information. They need an analysis of how that information impacts them. Everyone should feel confident when buying or selling a home when working with a trusted and experienced real estate agent who can simply and effectively explain a complex housing market.
Recently the housing market got a bit more complicated due to some actions by Zillow, an online site that displays property listings to consumers and sells access to those consumers to realtors using an auction/bid sales model. This property information primarily comes from local Multiple Listing Services (MLS) that agree to send their data to Zillow. Since some MLS boards chose to not send their data, Zillow had access to only about 80% of the available properties but they provided one place to look.
Zillow has attempted to become a destination for home buyers and sellers to visit to find properties for sale. To try to gain this mindshare, Zillow has advertised heavily to the public and tried to create or increase traffic to their website using a variety of problematic tactics such as:
Showing properties that are not for sale
Analysis of Zillow’s listings has shown that 30% of properties on Zillow’s site are not actually for sale. While they use this to drive traffic to their site, it confuses and frustrates buyers when they contact a Realtor® who then has to explain that regardless of what Zillow displays, the property is not for sale.
Showing inaccurate house price estimates
Zillow uses a computerized algorithm (branded as Zestimate) to attempt to predict the market value of a house. Even after years of attempts to improve these calculations, Zillow’s Zestimate is still frequently incorrect by a significant amount. (The Zestimate often relies on outdated information in public records and cannot account for local conditions and variables that are not easily discoverable by machine data collection.) This often leads to unrealistic expectations from buyers or sellers and makes negotiations more difficult when one party believes an unusually low or high value calculated by the Zestimate formulas.
Showing agents besides the listing agent for the property
For every property listed, Zillow auctions off multiple slots to agents who compete and bid to appear as the primary agent for a property listing. To cover the cost of this advertisement placement, these agents will try to retain the buyer lead and sell the buyer a house. They may do this by discrediting the existing property in some way and then recommend a property they have in their own inventory. This is certainly not in the interest of the seller and likely doesn’t serve the buyer’s best interests either.
Showing bad or misleading data
Redfin was hired to assess the accuracy of sites like Trulia and Zillow and their study found that approximately 36% of the listings shown as active on Zillow and Trulia were no longer for sale in the local MLS, compared with almost 0% on local brokerage websites. The study further found that brokerages using their local MLS feed displayed 100% of the MLS homes listed for sale on their websites while Trulia only displayed 81% and Zillow 79%. To summarize – over 33% of the listings the buyer sees are not actually for sale and buyers only see 80% of the listings that are actually available for sale. This was before many MLS boards and real estate companies made the decision to stop sending their listings to the Zillow Group. While Zillow’s website will experience different amounts of impact nationwide, in our local market Zillow is expected to lose between 25-50% of the listings.
Not acting to the level of integrity required of Realtors
Zillow is not a real estate company. Because of this, they are not required to maintain the same level of integrity in advertising that real estate companies and agents must maintain. Nevertheless the public perceives them as a real estate company and assumes that the information Zillow publishes is held to the same level of trust and reliability that a Realtor would provide. Unfortunately that is not the case. Zillow is willing to display properties that are not listed for sale as “available for sale at the right price”.
Now, as more and more MLS boards have decided not to send their information to Zillow, they continue to display the information but with the incorrect status of “Off the Market” even though the property IS AVAILABLE FOR SALE. No licensed real estate agent or company would ever be allowed to misrepresent properties so severely!
Based on past experiences, current circumstances, and future expectations, our local MLS, along with many other MLS boards throughout the US, have decided to no longer send data to the companies that make up the Zillow Group.
What does this mean for Sellers?
Sellers may be concerned that their property will not appear on Zillow. Here are some reasons why they can feel confident that their house will be seen by serious buyers:
- Buyers have shown that they are resourceful and find websites that contain listings in the area they are interested in. Local real estate brokers have dedicated resources and a substantial budget to market the properties in our area so that buyers will find your property.
- As people start to learn that Zillow has only a fraction of our local listings, they will turn to other websites to view all the available properties in our MLS. Most local real estate broker websites display all available properties in the Gainesville MLS, making them an excellent source for buyers and sellers looking for information.
- Local sites often have more specific local information than generic big box sites.
- Local Realtors understand the local market and can help you price your home to get the most exposure. Automated Valuation Models (like Zillow’s “Zestimate”) frequently show values for homes that are unrealistically low or high. This causes false expectations, frustration, and distrust during negotiations. Local realtors know their community in depth and can advise sellers how to get the best price for their home.
- Your house is properly represented by a local real estate professional with your best interests in mind. Since Zillow auctions your house’s listing to the highest bidding agents, the agent the potential buyer contacts may or may not do a good job trying to represent your house. They are concerned with converting this lead into a buyer – for any property – and may try to move them over to one of their listings instead of showing them your house. They are trying to recoup the cost of advertising on Zillow.
Some sellers may still want their property to appear on Zillow. Sellers should know that:
- Zillow controls the advertising, Zestimate, and agents shown on their property detail pages
- Multiple agents will show up as the contact point for your house. (The highest bidders will appear.) The buyer will choose from among the agents displayed and how that agent represents your house is unknown.
What does this mean for Buyers?
Buyers may be concerned that they will not be able to find all the available homes when they are ready to buy.
- Fear not! Studies show that local real estate broker sites have always had a more complete inventory of listings than Zillow ever had. Even at its peak adoption, Zillow did not receive all the MLS listings, meaning buyers looking for homes often only saw 80% of the available homes. Now that many MLS Boards and real estate companies across the nation have chosen to not send data to Zillow, their percentage of listings will plunge even further and local, feature complete websites will continue to be the best place to find your next home.
Why should you choose to work with a local real estate expert.
The Internet is full of information – people will always have access to information. Yesterday it was Zillow, tomorrow it will be some other startup. Regardless of where the information comes from, what you really need to know is, “How does all this information affect me?”
Local real estate professionals have their finger on the pulse of local trends and developments. They know what’s happening in their market, why it’s happening, and they can help you analyze and understand how it affects you as a seller, buyer, or investor. They provide you with expert advice to help you make the best decision.
How Accurate Was Zillow Anyway?
Zillow is extremely protective of their Zestimate. Whatever formulas and calculations it uses, they want it to be a “black box” – data goes in one side and Zestimates come out the other. The principle behind a black box is this: if you keep everything inside it hidden and proprietary, you can charge for the use of it – assuming someone wants what the black box puts out. (This is the same model that pharmaceutical companies use – create a new drug that does XYZ, ensure you have exclusive rights on it, market it, sell it for far more than it costs while you have the exclusive (to pay back your research and fund other research for the next drug), then move onto something else when the drug is required to become generic.)
The problem with Zillow’s Zestimate is that while it has gotten better, it’s nearly impossible for it ever to be good enough. Zestimates are a form of Automated Valuation Model (AVM). All AVMs have limitations. They work best on mass produced items with few or quantifiable variances, like cars (miles, condition, options). However, houses aren’t mass produced and different markets affect the value of the house. Because of the differences between every house, it is almost impossible for a computer program to accurately determine the value.
Additionally, as houses get renovated, updated, and add additions, their value changes. Complex markets like housing are a worst-case scenario for AVMs. Worse yet, Zillow relies on aggregating public records data, but public records are riddled with errors. Garbage in, garbage out.
Zillow actually publicizes the accuracy of their Zestimates city by city. To measure the accuracy of the Zestimate Zillow compares the actual home sale prices of homes with their Zestimate. They’ve found that the Zestimate is within 5% of the actual sale price around 33% of the time and within 10% of the sale price around 50% of the time.
These following links will lead you to Zillow’s pages about their data.
“Nationally, the Zestimate has a median error rate of 8%…” This means that 50% of the Zestimates are closer to the correct value than 8% but 50% are more than 8% off the correct value.
This is a Microsoft Excel file of their data. You can use this to look at their accuracy nationwide or in any combination of areas you select.