Misleading Towson Zillow Zestimates Explained Further

As I wrote March 2, Towson Zillow Zestimates in general, are statistically off by a large amount.

Last week I had a client call me because his HELOC was reduced by a large amount right in the middle of construction to improve his home. He could not understand how the bank could make the determination that his Towson house value had dropped over $200,000 in the past 18 months since he opened his HELOC.

Upon speaking to the bank, the representative pulls up Zillow, and proceeds to tell him this is how they discovered the value change.

“Is this true? Has my value really dropped by THIS much? I knew we were in a depressed market, but did not think it was THIS bad,” he asked me.

Based on a true market analysis, his value has really only dropped by $25-50,000. So how is Zillow off this much?

Enter the powers of social media!

I was able to find both the COO & the Director of Community Relations for Zillow on Twitter.

I contacted COO Spencer Rascoff and he tweeted back:

“Lenders shouldn’t rely on Zestimates. Use an appraisal.” “We have “a Zestimate is not an appraisal” language all over the site. http://twurl.nl/7lj6mc

He then emailed me directly because he wanted to get to the bottom as to why they are so far off.

Director of Community Relations David Gibbons tweeted:

“…it may not change outcome by he {sic} can’t reduce heloc based on Zestimate alone.” “Lenders are supposed to use commercially licensed AVMs & appraisals, not Zestimates!”

While they are both correct, and I agree with them wholeheartedly, lenders ARE using their site, and if the site’s purpose is to provide real estate information, then the site should be more accurate.

Through emails and more discussion, I was able to find out more about how the Zestimate values are determined.

David direct messaged me that it: “looks like your purchase price and taxes have the biggest impact on your Zestimate…”

I asked what that had to do with a current value of a home, because there is no correlation whatsoever in the real estate market from what you paid for it and what it is worth now.

His answer: “homes only sell on average once every seven years so when figuring out what a home is worth its last price is important – though 2002 is…we count past sales in less and less over time … a sale last year would have much greater impact.”

NO WONDER the values are off so dramatically. And if Zestimates continue to be calculated in this respect, then we should be looking for values to be tremendously off in 2013-2014 in the other direction. So my client can be assured that in 3 years his Zestimate should be approximately $200,000 OVER true value!

Please be aware that the Zillow Zestimates, at least in the Towson market area, may have no relationship to the true value of any home.

This reiterates the point that REAL ESTATE IS LOCAL and, as COO Rascoff wrote: “a Zestimate is not a replacement for a real estate agent. Far from it.” For your free Towson Home Price Estimate, contact me today!

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5 Comments

  • Adrian Cox says:

    Marney, this is great information. I remember when Zillow was first released. After reviewing the Zestimates for various clients I was working with, I realized there were huge disparities in the data. I Zillowed my own home at the time, and the Zestimate was $100,000 less than my model-match neighbors on my street. I determined that because I had recently purchased that home, the sale date, sale price and appreciation assumptions were very different for the homes in my neighborhood.

    Zillow does a good job of disclaiming that a full appraisal should be used to determine a particular property’s value. It’s more than a little dismaying that a lender would use Zillow as data to make a lending decision. Thanks for the update, Social Networking to the rescue!

  • Brian Craig says:

    Marney,

    When I first started hearing about Zillow from clients, I was interested. But when I saw how wildly different the prices were from true market prices, I was scared. It doesn’t take a rocket scientist to figure out that a foreclosure shack that an investor walked away from with 2000 square feet shouldn’t be valued the same as completely remodeled home.

    While many banks do give quick thoughts of Zillow due to their perceived correctness, most experts will always rely on expert appraisers and Realtors to assess true value.

  • Kelly says:

    I recently tried to get a new HELOC from a different bank, to replace one we already have (and get a higher amount) and the banker told me zillow says my house isn’t worth much. So i checked it out-I think the house is worth about $400,000.00 and zillow says $308,000.00. We pay the lowest taxes on the block. Zillow says the house next store is worth $50,000 more and I know that is not true at all. A house sold down the street this past summer for $500,000.00 and zillow is showing it as sold for $230,000.00. So this was very interesting reading for me. The banker did say he “starts” with zillow as an estimate. It already makes me not want to bank with that bank though. Thank you for very interest reading.

    • Marney Kirk says:

      Kelly, you can try to fight it, but the only real way to do so is to pay for a full appraisal. If you need the HELOC loan, and feel your value is that much higher, then it might be worth the $$ needed…I am so sorry this is happening to you as well. It is a shame this is the route taken to approve/not approve rather than actual value…

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