Would you sell your house for the zestimate? They say their accuracy is within 1.9% with on-market homes – no kidding! Of course, they concoct the zestimate after the list price is published, just like Redfin does.
There’s been no shortage of news when it comes to Zillow, a company that kicked things off in the early 2000s with a home-search portal that consumers now recognize as the place to go for market inventory. Now, the Zestimate, introduced by the company in 2006, is the latest cog in a machine that has taken on an entirely new model: brokerage, iBuyer, lender, title and escrow service, and, most recently, showing service.
Zillow has just announced that it will be pairing its Zestimate with its iBuying arm, Zillow Offers, as the latest way to use technology to “simplify and streamline real estate transactions from beginning to end.”
The Zestimate is now available as an initial cash offer for eligible homes in the following cities:
- Phoenix and Tucson, Ariz.
- Charlotte and Raleigh, N.C.
- Miami and Jacksonville, Fla.
- Orlando and Tampa, Fla.
- Portland, Ore.
- Denver, Fort Collins and Colorado Springs, Colo.
- Nashville, Tenn.
- San Diego, Los Angeles, Riverside and Sacramento, Calif.
- Dallas, Houston and San Antonio, Texas
- Las Vegas, Nev.
- Atlanta, Ga.
- Minneapolis, Minn.
However, the cash offer for a property’s Zestimate is only available in a limited subset of homes in these markets. Those who own qualifying homes will see the cash offer displayed at the top of their property information on Zillow, the company reports. As Zillow Offers grows, the company expects to continue expanding the number of eligible homes for the Zestimate cash offer.
Additionally, the company states the initial offer is before taxes and fees and is subject to both eligibility and the accuracy of the property’s description.
“For 15 years, homeowners and home shoppers have come to rely on the Zestimate as an essential first step. This exciting advancement demonstrates the confidence we have in the Zestimate and the lengths we are willing to go to make selling your home truly seamless and easy,” said Zillow Chief Operating Officer Jeremy Wacksman in a statement. “This is a proud moment for Zillow’s tech team and speaks to the advancements they’ve made in machine learning and AI technology. Zillow is transforming the way people sell and buy homes. Presenting the Zestimate as a cash offer to qualifying homes up front will save time, reduce friction and provide greater transparency—getting us closer to our vision of helping customers transact with the click of a button.”
A hot-button issue in the past has been the accuracy of Zestimates. Real estate agents have long complained of sellers pushing back on proposed listing prices that don’t meet the expectations set by their Zestimate.
“Zillow’s move to use their Zestimate as the basis for a cash offer is bold, although I’m more amused than concerned. The accuracy of Zestimates have long been a running joke among the real estate community, but I wouldn’t put it past Zillow to make it work through careful selection and their continued acquisition of more data,” says Josh Harley, chairman and CEO of Fathom Realty.
Kit Fitzgerald, regional designated broker for the Kit Fitzgerald Team at Equity Northwest Real Estate, says that because the Zestimate is algorithm-based, it’s impossible to get the same accuracy that a living person such as a REALTOR® can provide. “It plugs in a bunch of numbers, zip codes, mapping, etc., and spits out a general number,” says Fitzgerald, who adds that without going inside of a home, assessing the overall condition of a home, the layout, amenities, street scene, etc., the accuracy is just not there.
According to Zillow, the Zestimate is available for nearly 100 million homes in the U.S. with a “nationwide median error rate for on-market homes of 1.9%.” To come up with a property Zestimate, Zillow reportedly uses data from public records, multiple listings services, brokers and artificial intelligence that pulls information from photographs.
Is photo-based data enough to support neighborhood comparables to come up with a home valuation, however? Michael Hickman, CEO and president of Seven Gables Real Estate, a member of Leading Real Estate Companies of the World®, doesn’t think so.
“The issue with Zestimates is the interior,” says Hickman. “Any AI can look at comps, but what about the interior improvements that an AI would not pick up? Without AI scanning interior upgrades, the Zestimate will never be accurate.”
As Harley suggests, Zillow’s recent endeavors suggest the company is seeking out more data to build out their capabilities, and according to David Serle, broker/owner of RE/MAX Services, this could be a good thing—at least when it comes to Zestimates.
“I think this is a positive thing. There have been concerns since 2006, when Zestimates first became available, about the accuracy of these valuations,” says Serle. “This will create greater transparency for the consumer and the real estate industry.”
What it comes down to, however, is that Zillow’s iBuyer solution won’t meet the needs of every home seller, according to brokers and agents, regardless of whether or not they are offering an initial cash offer based off the Zestimate.
“There is a certain amount of people who would gravitate to an iBuyer sale and many who will not,” says Serle. “Typically, a cash offer in most iBuyer programs could be as much as 10-15% off the market value, especially in a ‘hot’ seller’s market around the country. I do not believe real estate brokers or agents are competing against iBuyer programs or consumer portals; we are relationship driven and strive to push forth the best consumer experience possible. All of these tools cannot replace what an experienced, knowledgeable and excellent real estate agent does.”
In today’s market, for example, Cathy Strittmater—team leader of Cathy’s Home Team of Keller Williams Solutions—says sellers can expect multiple-offer scenarios, and that should impact decisions about going on the market or accepting an instant cash offer.
“In today’s market of multiple offers on properties, and values rising quickly, it’s in sellers’ best interests to sell their home on the open market rather than sell to a single vendor who is also ascertaining value,” says Strittmater. “I would personally consider that a conflict of interest—no differently than dual agency is also a conflict of interest.”
Fitzgerald is of the same mindset, stating a Zestimate might give sellers a general idea of their pricing ballpark, but it’s not a great overall tool to assess value.
“In an ever-changing real estate market, you’d hate to potentially leave money on the table by not opening up the sale of your home to a much larger number of well-qualified buyers,” says Fitzgerald. “The instant purchase is a good tool for some, but I believe that for the vast majority of homeowners, the open market provides more healthy competition for your home.”
While the iBuyer model won’t appeal to all, Harley does caution that industry practitioners should maintain a competitive stance when it comes to Zillow and these instant-cash business models.
“They’re smart and they are a monster of our own creation,” says Harley. “We allowed it to happen and now agents are shocked that the foil-hat wearing conspiracy theorists were actually right. iBuyer programs have a long, long way to go before they are a real threat. Right now, it’s more smoke than fire, but if we’re not careful and figure out ways to compete effectively and provide a true value exchange for our services, REALTORS® and their clients will be the ones who get burned.”Link to Article