True Zestimates?

These days it’s the rare Sedona real estate buyer or seller who doesn’t “tiptoe through the tulips” with Trulia or Zillow. With those two giants of the Internet about to merge, we’ll see their influence become even more pervasive. Stands to reason. Those sites provide a “veritable plethora” of data about home values, sales, past and future market trends, demographics, schools, and even weather. Useful stuff.

Problem is, a lot of that information is just plain wrong. We frequently receive inquiries about properties folks have found on Zillow that don’t actually exist. True recent example: a house with a value of $700,000 that Zillow had listed for $139,000, turned out to really be a lot. But, that’s more of an annoyance.

The more serious issue is mis-information about property value estimates and trends. “Zillow’s forecasts are for entertainment purposes,” according to THE real estate guru in Arizona, Dr. Mike Orr of ASU’s Carey School of Business. “Zillow is not predicting changes in home prices. They are predicting changes in their own Zestimates.”

Both buyers and sellers increasingly go online to get a fix on real estate pricing. Put in your address on Zillow and obtain an automated “Zestimate” of the value of your home – or just about any home in town. Handy, but how reliable? Well, let’s just say that it may be a reasonable place to start. We’re talking about an automated service. The Zeester techies plug in various bits of public information into a “proprietary algorithm” and the computer spits out what the secret formula deems is the current market price. The main problem with statistical formuli is that they often look more scientific and dependable than they really are.

To give it its due, the computer is doing an exercise somewhat like the Comparative Market Analysis that a live real estate professional should. The difference is that the real estate agent, in most cases, actually has a brain, market knowledge, and the ability to place value on such things as view, neighborhood desirability and amenities (location, location, location…), construction quality, architectural elegance, design touches, landscaping, environmentally-friendly factors, and a dozen other intangible attributes that the computer simply can’t compute.

It knows what the Cost per Square Foot has been recently among the “Solds” in the area for the type, age, and size of the house and the other Zillow parameters. Essential information if drawn correctly. And, drawing it correctly is as much art as it is science. You need an expert on the ground actually seeing the house to account for the more subjective aspects of a property. Zillow does not know nor care that my home borders National Forest, and if it did it, has no way of accounting for the added value.

In Plainview, USA, Zillow probably works fine evaluating tract housing. In Sedona, where most homes are custom and a great red rock view can add hundreds of thousands, they seem more often to get it wrong. Start with Zillow if you like, but heed the expertise of a live professional who knows the market and can flesh out the Cost per Square Foot bones of Comparative Market Analysis with the essential intangibles and knowledgeable insight.

By the way, at the end of August, Cost per Square Foot and Median Recorded Selling Price of Single Family Homes was up 6% over 2013, but sales numbers were down 10%. More market analysis next month


Dr. Roy Grimm is the Head of The Buyer Brokers Group of Russ Lyon Sotheby’s International Realtyand a member of The Pennington-Grimm Team. For questions or comments email him at [email protected]