In a world where technology seems to be taking over, the Zillow Zestimate has definately impacted the real estate landscape. Of course, Zillow is not the only provider of valuation tools, but it is one of the industries biggest players. This new trend to automate at a feverish pace may have been premature. This is certainly the feeling of a group of suburban Chicago homebuilders. They have filed a classaction lawsuit against the internet giant for their publishing of what they call, "low ball" figures.
Zillow contends that they have never characterized the Zestimate as an appraisal, so they believe that the case is without merit. The plaintiffs state that, while it may well be true that they disclaim that the Zestimate is not an appraisal, many homebuyers use it to determine a home's value. In essence, many buyers rely on the Zestimate when making purchasing decisions. Here are some of the facts so far:
Nationwide Satistics on Zestimate Accuracy
within 5% of value 53.9% of the time
within 10% of value 75.6% of the time
within 20% of value 89.7% of the time
Zillow and other valuation programs receive their data from public sources
In my opinion, there is no substitute for an appraisal. These valuation algorithms do not take many variables into consideration, and as such can be flawed. The troubling figures are within the 10% range. In essence, almost 1 in 4 home valuations will be between 5 and 10% off. On a $200,000 home, that can amount to between $10,000 and $20,000 off. Whether on the buying side or selling side, this can negatively impact a purchase. A potential purchaser could believe that a home is overpriced, and could decide not to look at it. This, in effect, decreases the homes that they consider. A seller could lose potential buyers as well. They could also price their home according to the Zestimate, and leave money on the table. One thing to consider is whether Zillow clearly states that the Zestimate is not accurate enough for decision-making. When viewing the Zestimate, one may not see any disclaimer about it's potential to get the value wrong. Only upon clicking "Zestimate", which is both small and in no way indicates that it is clickable, would one read a brief disclaimer. Whether this is enough of a disclosure is a matter for the courts. I would believe that a more prominent, and straightforward disclosure is in order. In short, online valuation tools are fun to use, but they should be only a first step in finding a home's value. There is no subsitute for an actual person who has seen the property, and how it "stacks upi" against the competition. At least, not yet!