You may have heard of Zillow.com or you may have even tried it yourself. Zillow has a web site that gives free estimates and offers various online tools for real-estate buyers and sellers. It makes money from online advertising, selling ads to brokers, banks, contractors, appliance retailers and anyone interested in reaching homeowners and buyers.
The big idea behind Zillow is to make real estate more like a stock exchange, a transparent market where all information about every property is readily available, and as a result pricing is perfect. The problem with building such a system is that “the best information about the real estate market is locked up in people’s heads. It’s happening in conversations in backyard barbecues.”
Zillow tends to work best for midrange homes in areas where there are a lot of comparable houses. It is less accurate for low- and high-end homes because there are fewer of those and thus less data available from comparable sales, known as “comps.” Values of rural homes are hard to gauge for the same reason. Zillow says it has estimates on about 57% of all homes. Zillow executives acknowledge that the estimates can be way off in some cases.
The first time you visit Zillow.com: You type in your address to check out the Zestimate, an approximation of your home’s market value. It appears in a little pop-up superimposed on a photographic map of your neighborhood.
Next, you realize that the information on your property is incomplete. What about the kitchen upgrade? Your new deck? The landscaping?
The Pros: Zillow lets users try to correct for things computers might miss. For instance, people can use Zillow’s “my estimator” tool to account for the value of remodeling or to choose what they regard as the most relevant “comps,” (comparable sales) screening out those that aren’t really similar homes.The site also accepts listings from homeowners and agents, and includes an a feature called Make Me Move.
The Cons: When vital information is missing, computer programs like Zillow’s can stumble . Data fed into the computer, for instance, may not reflect the fact that a house has just been remodeled, destroyed by fire or put into foreclosure. Reported prices can be misleading, too. Sometimes homes are sold between family members for a token price, or sellers offer incentives to buyers, such as help with closing costs, that aren’t reflected in the recorded price. Making estimates is particularly difficult in some areas. Some states, including Texas, don’t provide public records showing housing transaction prices.
The estimate “is a starting point” for people trying to figure out how much a home should cost, says Amy Bohutinsky, a spokeswoman for the company. “We don’t recommend it as the final word.”
James R. Hagerty, The Wall Street Journal