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.

Market Summary for the Beginning of July

What an amazing month was June!

According to the current ARMLS data, 2,216 homes closed on June 30 across all areas and types, the largest total we have ever recorded for a single day. It beat the previous record set on June 30, 2004 by nearly 57%! Not only that, but the total for the calendar month of June was 11,141, also a new all time record for sales through ARMLS. We know that the total sales recorded by the counties may have been a little higher during the summer of 2005 because so many transactions were completed outside of ARMLS in those days (mainly new homes and FSBOs). However in June's total we are not including the homes purchased at trustee sales which were very few in 2005 and likely numbered over 1,500 last month. However you look at it, June 2011 sales volume was enormous.

The make-up of these ARMLS sales was also exceptional. Short sales and pre-foreclosures totaled 3,057 across Greater Phoenix, up 49% from May. Balzotti's Note: Short sales in PV were only 14% of the market (72% normal) and Scottsdale short sales were 19% of sales (56% normal). Lender owned properties were up only 3.4% at 4,508, while normal sales were up only 3.8% at 3,416. These three counts don't quite add up to 11,141 because there were 160 "out-of-area" sales too, lying beyond the borders of Greater Phoenix.

Because so many of these closed transactions were short sales, we have to expect some volatility in these numbers over the next few weeks. The flexmls system automatically closes pending transactions when their COE date is reached. Sometimes a snag occurs in real life and a sale fails to close when expected and has to be manually reversed later. This is far more likely to happen with short sales than other types because of the large number of approvals and documents needed to successfully close escrow. As usual our sales counts will be constantly monitored and corrected as newer statistics emerge on a daily basis.

The exceptional number of short sales had another impact. With normal sales dropping from 34% to 31% the monthly average price per sq. ft. fell just under 1% from $82.55 to $81.75 between June 1 and July 1. REO pricing per sq. ft. went up 1.0% and normal pricing went up 1.1%, but short sales and pre-foreclosure pricing went down a huge 4.7% across Greater Phoenix.

Here are some key figures for all areas & types:

Monthly Sales: 11,141 is 13% higher than May 2011 and 21.7% higher than in June 2010, when sales numbers were still getting a boost from the government tax credit.

Pending Listings: 12,224 on July 1, down 7.9% from June 1 but up 16.1% compared with July 1, 2010.

Active Listings: 28,837 on July 1, down 8.0% from June 1 and down 30.0% compared with July 1, 2010.

So supply continues to drop while demand is extremely strong. However, during the summer months we expect demand to remain much stronger among investment buyers than among regular buyers. Particularly at the upper end, buying interest tends to fall off during the third quarter. For example in the range above $3,000,000 there were only 3 homes under contract on July 1 whereas there were 11 on June 1. If this trend happens in 3Q 2011 we could see average prices fall due to the changing mix favoring the lower end of the market. It seems counter-intuitive that prices could weaken when supply is dropping fast and demand is so strong. However we must remember that public sentiment toward housing is still very negative and most people have not noticed the change in the balance of the market. In late 2005 and the first half of 2006, demand was weak and supply growing like Topsy, but prices continued to rise and were still extremely high at the end of 2006 because public sentiment toward housing remained very positive until the moment prices could no longer hold their artificially elevated position. At the moment the market balance is reversed but prices are hardly reacting at all. It is possible to theorize that the longer this situation lasts the sharper the ultimate correction is likely to be. We will have to wait and see.

There are those who still believe a large "shadow inventory" of distressed homes is looming over us and is going to cause another collapse in pricing. To address this question, we have developed a chart showing the "shadow inventory" counts for single family homes in Maricopa County. You can find it here. The chart shows that the "shadow inventory" has been declining since November 2010 and is relatively small compared to the monthly sales rate. Of course successful short sales contribute to this decline in the "shadow inventory". We did not include loans that are delinquent but not in foreclosure in our graph, but instead we recommend an expert on these: Jay Brinkmann, Chief Economist of the Mortgage Bankers Association. You can find his press release on 1Q 2011 delinquencies here.

In contrast to the sales transactions, the foreclosure numbers for June were relatively unexciting. In Maricopa County we counted 4,477 new Notices of Trustee Sales, similar to both April and May but 27% below June last year. We counted 4099 trustee sales, the lowest monthly number since the Bank of America moratorium in December 2010. This total is also 14% lower than June 2010. Both counts are symptomatic of a foreclosure tsunami that peaked in 2009 and is now gradually ebbing.

From the Cromford Report

Home buying today versus back in the day…the evolving pursuit of the American Dream

March 1st, 2011

In 1995 Realtor.com went live, posting multiple listing information (MLS) from around the country in one database with public access. Before that, MLS information was proprietary. You couldn’t ‘see’ all the inventory of available homes without an agent / member of the MLS. Would-be buyers would drive neighborhoods looking for ‘for sale’ signs, or circle ads in the Sunday paper at the local coffee shop. But when they wanted more information on a home with that ‘for sale’ sign in front of it, or that ad in the paper, they had to call the phone number on the sign or ad. The real estate agent was the gate keeper.
Today you can see that same for sale sign, but now it may have a bar code-like ‘tag’ on it. Focus on the tag with the tag reader app on your smart phone and the next thing you know you’re looking at the home online, complete with a virtual tour of all the rooms. And if you don’t like what you see, another GPS powered phone app can immediately identify any other listed property in the area. In fact, by 2012, 20% of home searches will be done on a mobile device. The gatekeeper is nowhere in sight.

Things have changed a bit…but not the fundamentals.

For example, the common denominator in the above scenarios is that buyers typically initiate the home-buying process on their own. They rarely contact a real estate agent as their first step. What was true back in the day is still true today–buyers quite frequently find their agent through what we might call ‘the back door’ of agent inventory. However, now they can do it with a great deal of precision.
One reason for the delay in talking with a professional is the temporal factor. That is, from inception of the idea of making a move (‘honey, we’re pregnant’) until the actual move into the larger home (with at least one more bedroom for little Johnny) is statistically a 6-month to 2-year process.
This also explains why the classified ad in the paper or magazine typically doesn’t sell the house (only about 1% of the time). Similarly, the odds are against the ‘sign call’ turning into a purchase (about 12% of the time).
The common denominator that explains the low correspondence between marketing and advertising venues and selling the house is that when buyers are looking at the ad or the sign they tend to be early in that 6-month to 2-year process…they are not ready.
Rather than drive through neighborhoods, today’s buyers surf the web. 90%+ of today’s homebuyers will do at least some of their home searching online.
But the stunning statistic today comes from a large survey by the National Association of Realtors of homebuyers and sellers released 6 months ago. When buyers were asked where they first learned about the home they ended up purchasing, 38% report they saw it first online! This percentage has grown dramatically over the past decade and will likely continue…and why not. Purchasers like being empowered with both information and anonymity.

Has the importance of the role of the REALTOR diminished?

Ironically, internet savvy buyers find that in spite of and indeed because of literally millions of pages of online content, the local agent cannot be trumped by the web as the ultimate source for information. It is information overload within a minefield of legitimate risk management concerns.
Real estate will never be like buying an e-ticket or a stock online. It is fundamentally a local enterprise, where the idiosyncrasies of neighborhoods and individual properties can only be parsed by the professional who has lived and worked in those neighborhoods; who is familiar with those individual properties; and who knows how to maneuver the minefield of inherent risks. The online listing information won’t tell you if the property backs up to a landfill!
And when it comes to the decision-making process, the real estate agent / local specialist understands the many tradeoffs that every buyer must manage–like vintage versus proximity; square footage versus premium location, etc. There are always tradeoffs. Even the 2 million dollar buyer wants the 3 million dollar home!

Bottom line:

In the evolving pursuit of the American Dream technology will continue to redefine the home-buying process. Yet as true today as back in the day, one factor remains a constant—the local professional REALTOR is center stage. Only today, instead of carrying around a catalog of homes, they distribute free GPS enabled smart phone apps that track all the housing inventory in your area!

Cash Buyers Lift Housing

http://ping.fm/iOKVc

To Wait or Not to Wait: Financing versus Purchase Costs

http://ping.fm/56y7Z

Mortgage delinquencies lowest in 2 years

MBA economist: U.S. has 'turned the corner' in foreclosure crisis

By Inman News, Friday, February 18, 2011.

Inman News™

The percentage of mortgage holders who were behind on their payments dropped to the lowest level in two years during the fourth quarter of 2010, the Mortgage Bankers Association said in a report today.
At 8.22 percent, the seasonally adjusted delinquency rate was down from 9.13 percent during the third quarter and 9.47 percent from a year ago.
The percentage of mortgages in foreclosure climbed from 4.39 percent during the third quarter to 4.63 percent during the last three months of the year, matching an all-time high.
Fewer loans are entering the foreclosure pipeline: the percentage of loans only one payment past due -- 3.25 percent -- was at the lowest level since 2007, and the foreclosure start rate fell from 1.34 percent during the third quarter to 1.27 percent.
The percentage of loans three payments or more past due was down from an all-time high of 5.02 percent at the end of the first quarter of 2010 to 3.63 percent at the end of the fourth quarter of 2010 -- a drop of almost 28 percent over the course of the year. All but two states saw a drop in the 90-plus-day delinquency rate, and the increases in those states were "negligible."
"While delinquency and foreclosure rates are still well above historical norms, we have clearly turned the corner" in the foreclosure crisis, MBA Chief Economist Jay Brinkmann said in a statement.

While unemployment remains high, the economy added more than 1.2 million private-sector jobs during 2010 and first-time unemployment claims fell during the second half of the year, Brinkmann said. Absent a significant economic reversal, he said, "the delinquency picture should continue to improve during 2011."
The MBA National Delinquency survey covers 43.6 million loans -- about 88 percent of all outstanding first-lien mortgages. If the survey's results are extrapolated, about 4.1 million homeowners were 30, 60 or 90 days or more behind on their mortgage payments during the fourth quarter, and another 2.3 million were in the foreclosure process.