CAUTION SMOKE & MIRRORS AHEAD! - Why Using Zillow & Zestimates Are Not in Your Best Interest - The Hank Miller Team
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CAUTION
SMOKE & MIRRORS AHEAD!
Why Using Zillow & Zestimates
Are Not in Your Best Interest
Question the Source & Know the Facts
Background: Zillow is an online real estate database company
founded in 2006. In their financial statements, they state that they
are a media company that generates revenue by selling advertising on
its website. The overwhelming portion of Zillow’s data is available from
other public sources for free. Zillow Group simply aggregates multiple listing, public tax
record, census, and other publicly-sourced data (all of which is frequently inaccurate)
and packages it for sale to whomever will buy it. Zillow’s primary source of income is
real estate agents who pay Zillow to become Premier Agents. Premier Agents pay a
monthly fee to receive buyer and seller leads from Zillow in specific Zip Codes.
Who owns Zillow?
Zillow Group is a publicly held company with class C stock selling on the NASDAQ
exchange using the symbol Z.
How profitable is the Zillow Group?
Not at all. For the first quarter of 2018, they lost $18.6 million on revenue of $299.9
million. Interesting that $213.7 million (71%) of revenue was derived from selling leads
to Premier Agents. The majority of the remaining revenue came from rental and new
construction advertising. For 2017, they posted a $94.4 million loss.
Do they sell their data?
Yes. Zillow sells data derived from other sources and information entered into their
website by consumers to their Premier Agents and anyone else willing to purchase it.
This includes your information, too!
2 | Harry Norman REALTORS® Zillow Consumer White Paper
Zillow reports that they generate over 17 million leads a year
to their Premier Agents -
That is more than three times the number of residential sales in the U.S. Given that
the majority of sales in the U.S. Do not involve Zillow, they are clearly churning out
leads to the highest bidders, regardless of real intent to sell or buy. The fact is that
the overwhelming majority of sellers and buyers prefer to work with professional
sales associates with high level of local market knowledge who they like and trust.
Harry Norman REALTORS® Zillow Consumer White Paper | 3
What is a Zillow Premier Agent?
Premier Agents are any real estate agent
who agrees to pay for leads in specific Zip
Codes. There are no other qualifications
to become a Premier Agent. Fifty-eight
percent of these subscribers pay Zillow
more than $5,000 month.
How do they choose their Premier Agents?
Obtaining Premier Agent status is easy, just pay Zillow
for a subscription. There are no requirements for local
market knowledge, proficiency, skills, reputation, or past
success. Zillow obtains more than 70% of their revenue
from their Premier Agents, the program and Zillow’s ad
practices are under scrutiny from government officials.
Zillow’s only qualification
for Premier Agents
is that they are willing to
pay a monthly fee to Zillow,
not that they have any
level of expertise
in your area.
4 | Harry Norman REALTORS® Zillow Consumer White Paper
What is a Zestimate?
Zestimate is one of many
options known as an Automated
Valuation Model (AVM). These
software programs use public and
prior sales data to estimate the value
of a property. The accuracy of these
algorithms varies wildly.
Are Zestimates accurate?
Generally not. Zillow reports that in Atlanta, the likelihood of their Zestimate
being within 5% of the actual sales price is 51%. They also report that it is as low
as 11.1% in other parts of Georgia. The likelihood of a Zestimate being within 10%
of the actual sales price is 70.4% in Atlanta and as low as 22% in other parts
of Georgia. In fact, Zillow’s own numbers show that even with a 20% margin of
error from the actual sales price only occurs 83.4% of the time in Atlanta and all
the way down to an astoundingly low 38.9% in other Georgia areas.
Most residential properties in the metro Atlanta area sell for around 95% of the
list price. If a seller relied on Zillow’s valuation model, the typical Atlanta area
seller would have left money on the table 49% of the time!
Keep in mind, these are numbers reported by Zillow. There are thousands of
other examples where Zestimates were different than the actual sales price.
Harry Norman REALTORS® Zillow Consumer White Paper | 5
Should I trust that Zillow will come up
with the correct value for my home?
Absolutely not! Even they admit that their
Zestimate is highly inaccurate. The fact is that
no automated software takes into account the
special features, condition, livability, finishes,
and many other non-data driven features that
are part of the home pricing formula. If you want
to obtain the best estimate of your home’s worth,
you should either hire a licensed appraiser or a real estate
agent that you trust. It will save you time, money, and heartbreak.
Do you have examples of erratic Zestimates relative to actual
sales price? Yes. The following are randomly chosen closings that occurred in
the Atlanta area from July 1, 2018 – July 31, 2018. These 10 closings represent
a $438,187 variance of actual sales price versus their Zestimate - $43,818
average per home!
Address Zestimate* Actual Sales Price Difference
2216 Smoke Stone Circle $438,926 $475,000 $36,074
3874 Cochran Lake Drive $763,440 $775,953 $12,513
52 Russell Street $558,860 $590,000 $31,140
1845 River Forest Drive $3,898,302 $3,950,000 $51,698
41 Candler Street $635,953 $660,000 $24,047
52 Kirkwood Road $635,582 $665,000 $29,418
130 The Prado $2,093,276 $2,240,000 $146,724
2817 Stone Hall Drive $1,667,582 $1,726,485 $58,903
1268 Reeder Circle $716,305 $725,000 $8,695
351 Leland Terrace $635,025 $674,000 $38,975
6 | Harry Norman REALTORS® Zillow Consumer White Paper
Other interesting examples include:
Zillow’s CEO, Spencer Rascoff. In February 2016, Mr. Rascoff sold his Seattle home
for $1.05 million. The Zestimate was $1.75 million! This is a 40% difference. Months
after the sale closed, the Zestimate was still at $1.75 million. Shortly thereafter, he
purchased a home in the affluent Brentwood area of Los Angeles for $1 million more
than the Zestimate! If they cannot get their algorithm correct for their CEO, what is
the likelihood that they will do a better job for your home?
What is the best way for me to get
the highest return on my investment?
Work with a real estate licensee with a high
level of local market expertise. Harry Norman,
REALTORS® sales associates are highly
trained and are subject-matter-experts in
their markets. They understand the nuances
to effectively price your home to sell at the
highest price and in a timeframe that meets
your needs.
Harry Norman REALTORS® Zillow Consumer White Paper | 7
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