Inaccurate Zillow 'Zestimates' a source of conflict over home prices - By Kenneth R. Harney

When "CBS This Morning" co-host Norah O'Donnell asked the chief executive of Zillow recently about the accuracy of the website's automated property value estimates — known as Zestimates — she touched on one of the most sensitive perception gaps in American real estate.

Zillow is the most popular online real estate information site, with 73 million unique visitors in December. Along with active listings of properties for sale, it also provides information on houses that are not on the market. You can enter the address or general location in a database of millions of homes and probably pull up key information — square footage, lot size, number of bedrooms and baths, photos, taxes — plus a Zestimate.
Shoppers, sellers and buyers routinely quote Zestimates to realty agents — and to one another — as gauges of market value. If a house for sale has a Zestimate of $350,000, a buyer might challenge the sellers' list price of $425,000. Or a seller might demand to know from potential listing brokers why they say a property should sell for just $595,000 when Zillow has it at $685,000.
Disparities like these are daily occurrences and, in the words of one realty agent who posted on the industry blog ActiveRain, they are "the bane of my existence." Consumers often take Zestimates "as gospel," said Tim Freund, an agent with Dilbeck Real Estate in Westlake Village. If either the buyer or the seller won't budge off Zillow's estimated value, he told me, "that will kill a deal."
Back to the question posed by O'Donnell: Are Zestimates accurate? And if they're off the mark, how far off? Zillow CEO Spencer Rascoff answered that they're "a good starting point" but that nationwide Zestimates have a "median error rate" of about 8%.

Whoa. That sounds high. On a $500,000 house, that would be a $40,000 disparity — a lot of money on the table — and could create problems. But here's something Rascoff was not asked about: Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. Though it's not prominently featured on the website, at the bottom of Zillow's home page in small type is the word "Zestimates." This section provides helpful background information along with valuation error rates by state and county — some of which are stunners.

 

For example, in New York County — Manhattan — the median valuation error rate is 19.9%. In Brooklyn, it's 12.9%. In Somerset County, Md., the rate is an astounding 42%. In some rural counties in California, error rates range as high as 26%. In San Francisco it's 11.6%. With a median home value of $1,000,800 in San Francisco, according to Zillow estimates as of December, a median error rate at this level translates into a price disparity of $116,093.

Some real estate agents have done their own studies of accuracy levels of Zillow in their local markets.
Last July, Robert Earl, an agent with Choice Homes Team in the Charlottesville, Va., area, examined selling prices and Zestimates of all 21 homes sold that month in the nearby community of Lake Monticello. On 17 sales Zillow overestimated values, including two houses that sold for 61% below the Zestimate.

 

In Carlsbad, Calif., Jeff Dowler, an agent with Solutions Real Estate, did a similar analysis on sales in two ZIP Codes. He found that Zestimates came in below the selling price 70% of the time, with disparities ranging as high as $70,000. In 25% of the sales, Zestimates were higher than the contract price. In 95% of the cases, he said, "Zestimates were wrong. That does not inspire a lot of confidence, at least not for me." In a second ZIP Code, Dowler found that 100% of Zestimates were inaccurate and that disparities were as large as $190,000.
So what do you do now that you've got the scoop on Zestimate accuracy? Most important, take Rascoff's advice: Look at them as no more than starting points in pricing discussions with the real authorities on local real estate values — experienced agents and appraisers. Zestimates are hardly gospel — often far from it.

kenharney@earthlink.net
Distributed by Washington Post Writers Group.

Have you wondered about how the slash in oil prices and stronger U.S. dollar will affect residential real estate this year.?

This Inman News article makes some interesting points.

Declining oil prices: boon or bane for real estate?

by Bernice Ross

It depends on which demographic you're targeting

Most Americans are thrilled by the 50 percent reduction in prices at the gas pump. The strong U.S. dollar also helps our purchasing power for products manufactured outside the U.S. The real question is to what extent these shifts will positively or negatively affect the real estate industry.

No matter how the real estate or the overall financial market changes, there are always winners and losers. In terms of the current downturn in oil prices and the surge in the U.S. dollar, the short-term impact for most agents will probably be positive.

1. The historical upside
According to a recent Bloomberg Business article, “U.S. food retailers, pharmaceutical companies, makers of construction materials, banks and insurance companies have typically performed best in times of dollar strength.” Consequently, these sectors should be prime growth areas in 2015. This growth should increase sales wherever these companies have a strong presence.

2. A boon for Gen Y buyers
For Gen Yers, lower gas prices means they have extra cash to pay down their student loans. With their student loans paid off, they can begin saving for their down payment on their first home. Repaying their student loans also means that it will be easier for them to qualify for a mortgage.

As Gen Yers enter their prime child bearing years, family is a prime focus. As realtor.com Chief Economist Jonathan Smoke put it, “Baby needs her own room.” 2015 will be a great time to prospect for first-time buyers in high-end rentals as well as Gen Y couples living in condos who may be starting a family soon.

3. More opportunity for mom-and-pop investors
As the institutional investors started to move out of the market in 2014, more mom-and-pop investors have begun to buy investment properties. Many baby boomers are choosing to buy a condo for their college-age child rather than paying dorm costs. Others see investment property as a way to create a consistent cash flow for their retirement.

The challenge over the last few years has been that foreign investors were snapping up many of these properties. The rise of the dollar has just made it much more expensive for these investors to purchase here. This should open the door for more American mom-and-pop investors to purchase.

4. Time for a European vacation or that Beemer you’ve always wanted?
The dollar’s rise against other currencies makes both travel and products manufactured outside the U.S. less expensive. To illustrate this point, the euro recently hit an 11-year low against the dollar. The drop in the euro means not only are European vacations going to be cheaper in 2015, so will buying that European luxury car. If you’re thinking about purchasing any type of product manufactured in Europe, the strong dollar means you have more buying power than you have had for many years.

5. A more generous mileage deduction
Have you been taking the actual costs of operating your vehicle or have you been taking the standard IRS mileage deduction? In 2015, it may be smarter to take the 2015 mileage deduction as opposed to the actual costs of operation. The IRS set the mileage deduction this year at 57.5 cents per mile. This was based upon $4 per gallon gas prices. At tax time, check with your tax professional about which option is best for your bottom line.

6. The downside: foreign investment
Cash-laden foreign buyers from China, Russia and the Middle East have repeatedly shut out many Americans buyers who needed a mortgage to purchase. There has also been a substantial influx of South American cash into areas such as Miami. These purchasers have been a driving force in the luxury market boom. Their influence, however, touches every price point and most locations across the U.S.

The collapse of oil prices has already begun to hit the luxury market, as a recent Bloomberg headline summed up: “Manhattan condos sit on market while foreign buyers wait.” The collapse of oil has also hit the trophy property market where Russian and Middle Eastern buyers have been major players.

The opportunity for agents here is to prospect your past foreign clients. For example, the collapse of oil prices and the skyrocketing inflation in Brazil and Venezuela have resulted in nationals from these countries canceling their contracts to buy new construction in Florida. If you have represented people from these countries in the past, they may need to liquidate their current holdings to keep their business or families afloat back home.

7. The double whammy for luxury
Because of the high demand, many high-end markets have experienced a building boom. This translates into too much supply resulting in declining demand. It appears that 2015 could mark the beginning of the next glut of luxury construction, even in high-demand areas such as Manhattan and Beverly Hills.

It looks as if a strong dollar and low prices will be with us awhile. Enjoy the lower energy prices and capitalize on the shifts to grow your business this year.