This is a true story but I have to leave the property address out for now so you will have to trust me. I do 
make things up but only on Fridays.
There is this home that is valued at $270K on Zillow. Zillow makes no claim that the home prices they list are accurate. In fact they call them Zestimates and they state that they use a proprietary formula and that the number is not an accurate home valuation. Proprietary means secret and they don't show their math and could be using a dart board.
The home that is valued at $270K on Zillow is valued at $176K by the Ramsey county tax assessor. They don't show their math either and are likely to be using a dart board to come up with values.
That very same home was listed in our MLS for $199K, and an appraiser came up with a value of $195K for it and it actually sold for 196K. At one point an appraiser using software only with no knowledge of the neighborhood came up with a value of $65K. I guess the place doesn't look so good on paper.
Pricing real estate is difficult. To date no one has invented software or a even a proprietary system that can replicate the kind of fuzzy logic that is needed for an accurate appraisal. The standard practice used by appraisers is to find three comparable properties in the immediate area that have been sold in the last year. Comparable properties are rarely exactly the same as the subject property and so the appraiser makes some adjustments.
It is important to know what the source is for data. Just because you saw it on the internet doesn't mean that it is accurate. Having said that I stand behind the data on this blog. It almost always comes directly from out MLS which is a reliable source for data. I can always show my math and there have been times when my numbers have been challenged. I can explain my numbers and show my math.
Twitter
Flickr
LinkedIn
Facebook
RSS
Posterous
Email
FourSquare
Yelp
SlideShare
Let me guess – the appraiser who put a value of $65k was from the sticks and drove into the metro because they worked for an appraisal management company. I could go on and on about the appraisal process these days, but I’ll save that for my blog.
Although your numbers and stats come from the MLS, exactly how accurate is that information? Garbage in = garbage out. I’ve seen a TON of false information on the MLS, primarily Realtors claiming that a house has several hundred square footage more then what it actually does. Which in turn makes the appraisal process more difficult.
So true. I tell all my customers to not trust anything on-line (even the MLS) since the market is so upside down right now.
Despite that, many customers continue to want to rely on the tax value (which in my opinion is only a good tool in a slow and steady market).
First of all, I’m glad it’s not Friday – at least for this post.
Numbers are always a problem no matter what you do because they can be made to show anything you want. It is all about integrity when it comes to online information and about track record. It would be interesting to track Zillow for a while and see how accurate they are. As for how they do the math, that may be considered a trade secret – it comes down to precise the information is at the end of the sale.
Benn – the data I publish is average prices, absorption rates, actual sale prices etc. it is accurate. I wouldn’t doubt that the square foot ages are messed up. some times those are taken from the tax records and I have found mistakes on the number of bathrooms too but not very often. the data is monitored and there are rules. we can’t just put a false sale price in or a false listing price or change how long the home is on the market. There is always a margin of error with data but the data I am using is the best that we have.
Your post is very timely because I’m working on one right now about zillow pricing accuracy (or lack thereof). Pricing a home can be very hard, and because homes are usually a very large investment for folks, being off by any amount can be grounds for heart failure to the owners!
Not only can it give sellers heart failure but I often have buyers ask me to explain Zillows price. Most will ask me what I think but it Zillows number is very different from the asking price it is always a problem. Sometimes they are too high and sometimes too low and sometimes they actually have a price that is close.
I also think zillow prices are so erratic, i can never understand their Zestimate pricing.