When Zillow.com launched its website in 2005, the world was a buzz with the company’s ability to bring appraisals, called Zestimates, to everyone’s fingertips. It was fun to type in your own home address, or that of your colleague’s or boss’s house to see what they paid. Some of the estimates were way off and were course corrected by owner’s ability to log on, claim one’s home, and update the data will all relevant features under oath.
Zillow empowered buyers to become smarter shoppers by understanding comparables and knowing when and at what price the house was last sold. When you know the seller paid $1,000,000 at the top of the market for example, you know it would be ludicrous to pay more by definition. Zillow brought once exclusive information, available only to real estate agents and people who paid for it to the masses. There was hope for an industry which generally is maligned for it’s two-faced ways, shady appraisal practices, and aggressive lending standards.
My biggest hope was that Zillow would make the markets more efficient for buyers and sellers, thereby cutting out a lot of unnecessary middlemen, and ultimately lower fees from 5-6% down to perhaps just 1-2% of selling price. Boy was I wrong.
Zillow Could Have Helped The Industry
Zillow has created a heard of zombies who rely on their zestimates to tell them what value a particular property is. Here’s a news flash for all of you: A property is only worth what someone is willing to pay for it. As a seller, you can’t go around sticking to a selling price because Zillow or your real estate agent said your house is worth $1,000,000. If nobody has bought it after 6 months, it’s definitely worth less!
Buyers are no better when it comes to relying on Zestimates. A big problem with Zillow’s database is that it is based off comparable sales. In the downturn, volume dried up, making real-time comparables hard to find. All the data is lagging. Feel free to pull up estimates around the entire neighborhood to educate yourself, but if you have only one or two sales in the past 6 months to a year, they are hardly reliable.
Eratic Estimates
I’ve had Zillow increase the value of my house by 23% during the housing collapse. As we begin to recover, their estimate has gone down by about 7% from the peak. One of my rental properties also skyrocketed by about 25% during the housing downturn to about 50% higher than when I purchased it 4 years earlier. Now the estimate is only about 17% when I’ve seen comps trade at 40% higher this year. And one of my other properties can’t even get a Zestimate, even though there are many units in that building and is located in one of the best places in Lake Tahoe.
The point is, anybody trying to buy my properties during the multi-year downturn would be scratching their heads at ever increasing prices. In fact, anybody trying to buy any property using Zillow during the downturn would be misled. Now that prices are recovering with all the pent-up demand, low rates, and internet money, my estimates are declining. Go figure. There is a serious lag and volatility in their estimates.
Zillow’s best use is for trying to figure out what the seller paid and when. Their Zestimates and Rent Zestimates give ball park figures, but they are just one of many considerations one should take before setting a price.
The Biggest Problem With Zillow
The biggest problem I have with the real estate industry is not the shady appraisers, or the unscrupulous agents whose motto is, “It’s always a good time to buy, or sell real estate.” No. The biggest problem I have with the real estate industry is the absolutely ridiculous 5-6% selling fee the homeowner has to pay the real estate agent.
If it costs $10,000 to sell a $200,000 home, does it really cost $40,000 to sell an $800,0000 home based on a 5% selling commission?! One could argue that it might take more effort to sell the $200,000 home, because it is likely in a less desirable, or lower demand area. Imagine if you owned a $2 million home, which is quite typical in places such as San Francisco and New York City. Are homeowners really expected to pay a whopping $100,000 to sell their home? This is utterly ludicrous and something that companies like Zillow, Trulia, and Redfin should have fixed. But they haven’t. Why is this?
The reason is simple. Zillow is in cahoots with the real estate industry. They derive advertisement revenue from real estate companies and agents who want to use Zillow’s platform to broadcast their services and homes for sale. 74% of Zillow’s revenue comes from fees agents pay for customer leads and apartment leads, 8% comes from fees banks pay for mortgage leads, and 18% comes from advertising based on their latest 3Q2014 earnings results. As a result, Zillow goes limp dick on the fight to lower selling costs for sellers, which ultimately creates higher prices for buyers.
One of the biggest reasons homes remain illiquid and turnover remains low is transaction costs. If it only cost $10 bucks to sell your home, you’d probably be more willing to sell. But if it costs $50,000, you’ll think twice and might be stuck and lose money because of it. If the industry can drop down to a fixed fee model, or a scaling percentage fee which declines as the price of your house goes up, that would go a long way into helping the industry get out of its funk. The barriers to selling is just too high.
My proposed selling fee structure is simply $2,000 for every $100,000 value range in a home up to a $1,000,000 value cap. Hence, a $500,000 house will cost $10,000 to sell (2%). A $1,000,000 house costs $20,000 to sell (2%). While a $4,000,000 house also costs $20,000 to sell (0.5%). Sounds like a great solution doesn’t it? Bring it up to any real estate agent and they’ll scoff.
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Zillows estimates are about $50-$75k off in my neighborhood. When I had my last home on the market, I received an offer over $100k to what Zillow said it was worth.
Over $100,000 sounds fantastic!
What is $50-75K off percentage wise?
It is about 7-10%. This is in San Diego.
Not bad man, not bad at all. You aren’t pissed by the still 5-6% selling fees in the industry, with one the largest lobby groups?
You keep trashing the 6% commission fee, but you have no idea the marketing costs to work with selling a home, the fees Realtors pay to stage a home correctly, to have a home photographed rather than take horrible pictures themselves, and to market a home for sale. Signs, websites, access to list a home, and the costs associated with selling a home aren’t free. So why don’t you do a little more research rather than make comments about what you don’t really seem to know a lot about other than some research and writing an opinion.
Sure I know the marketing costs.
I was quoted $10,000 to stage my house that I had to pay for.
I know how much marketing handouts costs per 100 glossy pages. I know how much websites cost to run.
In case you don’t know, I run a website, and have consulted in the marketing department of various fintech startups, and I’ve spoken to and visited over 1,000 realtors.
Spending $150,000 via a realtor to sell my house is utterly stupid.
No wonder why sellers are on strike and volume is so low. Why lose 6% instantly.
What’s your background and experience?
I’m a Realtor in Oregon –
-There are usually two realtors involved in a transaction who split the 5%-6%. One representing the buyer and one representing the seller. So each is making about 2.5 – which is basically what you proposed…
-Unless a Realtor is his/her own principal they split the 2.5% with a brokerage that takes about 30% of all their earnings up to a ‘cap.’
The numbers you presented are different.
There’s plenty of homeowners in this country who are to busy with their own lives to take several calls a day, do showings and commit to the research that it takes to sell their house appropriately. So they leave it to those who have dedicated their lives to selling houses and have been through enough in real estate to orchestrate the transaction smoothly.
It takes a warm body inside of a home to determine what will always be an ‘opinion’ of value. Zillow leaves the description and the specs of the home to the seller which usually leads to an inflation in value, on top of the lagging historical data that you mentioned.
Selling homes is a business. Yes, it makes money. If you bake the best cookies in your city, I hope that you have the courage and the work ethic to put together a business, generate/maintain clients and believe in yourself enough to charge whatever you know you need for your cookie business to sustain through an economic drought and any uninformed banter that someone may decide to publish.
HA! Wandered across this page via Google. Realtors just can’t admit that this business model is a dated rip off, and it WILL end, it’s just a matter of time. Our modest house in Oregon has appreciated $250k in under 4 years, and average days on the market is under 10 in our neighborhood. I talked to several realtors, as we intend to sell this summer. They all wanted bring in their “pre-existing” list of buyers who are trying to get into this neighborhood. So let’s assume they could actually do that, and get the whole 6%. Yeah, not one of them had a game plan that was worth $40k, sorry. Do you think under two weeks of work is even worth $20k? Come on. If I had more time I’d do a sale by owner and use our lawyer, but as we have a looming interstate move and pets, we’ll likely go with Redfin.
I agree that 6% is ridiculous. I live in Oregon and have been investing in real estate for the past 8 years. Typically, the sellers agent takes 3.5% and the buyers agent takes 2.5%. Of course this amount can vary, but that’s pretty much the standard.
Maybe it’s my realtor, but it seem s like the job of the realtor has changed. Before there was an RMLS system, realtors would sit down with a buyer l, get to know them and the specific needs they might have in a home, go away and then come back with maybe 3 or 4. Properties that would be a close fit based on price, location, size, etc. You’d get in the realtors car and they’d drive you to the various properties and show them to you.
Fast forward to today, and the job is not the same. The realtor will still meet and get an idea of what you are looking for, but then, they go back to thier office and set up a filter that they apply to the database and then send what I would describe as a “data dump” of listings for you to dig through. The emails are generated automatically and I would be surprised if the realtor actually even looks at the listings. This is only a little better than what I would probably be able do on my own using my computer.
To me, it would seem that with all the automation in place that the commissions would reduce, nope. I think that something in the 2-3% range TOTAL would be more equitable.
BTW, someone mentioned ‘arial views’ as a realtor expense.
I just chuckled.
If you have an open listing, you the homeowner had professional video, pictures and ariel photos and paid for MLS and is in the system and offering 3 % that’s just as good as going with an office for 6 %. You are not committed to a listing agent you just offer 3 %.
I am totally guilty of using Zillow to look up my boss’s house, haha. I completely agree their values are volatile and far from real time. It’s fun to look up places in the neighborhood though to get more color on values and prior sales.
You make so many interesting points on the agent fees. I like your $2,000 for every $100,000 proposal.
The thing about house prices is that your house is only worth as much as people are willing to pay for it. For example, in the 2008 crisis, many banks were threatened with writing off their real estate assets as $0 because no one wanted to buy it! Hence, it’s literally impossible to make an accurate prediction as to how much a house is worth.
Well, yes, but this is true for virtually everything, including the price of milk at the grocery store, but that doesn’t mean that it’s not possible to come up with reasonable estimates based upon comparables in the same neighborhood.
If comparable properties in your neighborhood are currently selling for $200,000, it’s a pretty sure bet that yours wouldn’t sell for $400,000. In fact, it’s not at all difficult to predict that your sale price is going to come in around $200,000, give or take a little.
And this is what makes these “Zestimates” problematic: For about a year and a half, Zillow’s Zestimate for my house went up by 10s of thousands of dollars until they had it valued at more than double the market price for similar homes in my neighborhood.
Even though my house is worth “what someone will pay” for it, that price would never, ever (under any circumstances) be twice the current market price for similar houses in my neighborhood.
Tony, there actually is such a thing as a good vs a bad estimate, and it’s actually kind of silly to throw up your hands and say that estimates in general are wholly bogus, because they can’t predict the exact amount that someone will ultimately pay for a property.
The fact of the matter is, good estimates actually do come pretty close. And the problem with Zillow is not that they are in the business of providing estimates but that they tend to produce unreliable estimates that vary widely for similar properties in the same market (even for similar properties that are right next to each other) and commonly trend in the opposite direction as the local market. (Astonishingly, mine doubled in value right in the middle of the housing crisis, according to Zillow.)
John, it’s not just that these online estimates aren’t consistent amongst similar nearby homes, but that they often suffer from the opposite problem too.
Consider two houses next to each other, with identical square footage and room count. From the computerized perspective of real estate sites, the values are a match. But upon inspecting the properties, we find one to be a featureless stucco and drywall box with no built-ins, a terrible floor plan, and in dire need of new electrical, plumbing and foundation. The other home turns out to be a beautiful Craftsman jewel, with lovely built-ins, a wonderful floor plan, and recently upgraded electrical, plumbing and foundation. The result? It turns out the latter residence is quite capable of selling for almost twice the amount of the former.
I know from personal experience, because my home falls into the latter category.
So don’t take these online quotes too seriously without personal investigation.
I used Zillow quite a bit last year when looking for homes but I didn’t trust the “zestimates” at all. What I liked was you could easily click on a property and see the prior home sales, prior list prices, etc. So, it was good for real historical data, but the zestimates were always completely off in my experience.
Yes, it’s the main thing I use Zillow for is historical data. Can’t fudge that! Why don’t you think they haven’t been able to lower selling costs?
That was our experience as well when looking for homes. Personally I prefer to use Redfin if it covers the area you’re looking at – it’s a much better interface and if you’re hung up on estimates it shows Zillow’s as well as eppraisal’s where available.
I take Zillow’s estimate, recent sales, and the county’s assessment to come up with a ballpark figure for our home’s worth for our monthly review. Most of the time the Zestimate is within the current range, but I’ve seen where it’ll jump up for no reason and then go back down next time I check.
It’s a bit volatile for my tastes.
You recalculate an estimate on what you think your dwelling is worth as part of a “monthly review”? The way you mention it seems to indicate that you are under the impression that re-guestimating your home’s worth 12 times a year is normal….
I am trying to find out how I keep my closing price from when I purchased off zillow? I look at many homes in zillow and some have nothing in that spot or just the land value sale, not the house sale. I don’t like misleading buyers with the close of my home 9 yrs ago. I bought a foreclosure but the house was built previous 120k more so it isn’t fair placing the figure down. I put a lot of money in the house.
In the absence of anything better, I’m forced to go with Zillow. It does make it easy to do a quick lookup! :)
Now that they are a public company, they’ll have to get even more creative to make profits which of course, may not be aligned with what home owners would like to hear.
as a real estate investor, i find myself on Zillow quite a bit. that said, it’s more a sniff check than anything else. fluctuations are beyond belief, and mostly determines by the very last sale in the area (may it be a foreclosure sold at a significant discount). it’s good to use as a benchmark, but certainly not as a bible. i like broader MLS comps to get a “truer” / better picture of values. from an internet perspective, i like Trulia better between the two as i find it more accurate . . . here comes another dot com bubble.
It’s a good sniff test, and better than nothing for sure. But, why haven’t they been able to lower selling commission rates from 5% down to 2% if they are so good? This is the real point of the article.
The simple answer is that’s not their business model. You stated that your “hope was that Zillow would make the markets more efficient for buyers and sellers, thereby cutting out a lot of unnecessary middlemen, and ultimately lower fees from 5-6% down to perhaps just 1-2% of selling price.” The key word there is HOPE and the fact that it is your HOPE. Zillow does bring efficiency. I used my Zillow price to justify an artificially higher valuation on my home that allowed me to re-finance at a lower rate, get out of escrow, and pay off a HELOC. Could I have done it without Zillow? Probably, but being able to hand that data to the appraiser along with Trulia data and tell him the number I wanted surely helped and made my process far simpler.
It’s not hope actually. It’s logic. But logic dictates you protect the hand that feeds you, so the consumer loses and they get rich.
I’m not sure how it’s logical? How does reducing the rate that all buyers/sellers pay in commission help increase their website utilization? How does one monetize this because logic would dictate that Zillow should profit by making a market more efficient?
Maybe you should create a website where realtors can bid on the opportunity to represent a property owner in a buying or selling transaction based on reduced commission percentages. This could achieve your hoped for Zillow goal. #givingawaybusinessmodels
I’m not sure how it’s logical? How does reducing the rate that all buyers/sellers pay in commission help increase their website utilization? How does one monetize this because logic would dictate that Zillow should profit by making a market more efficient?
Maybe you should create a website where realtors can bid on the opportunity to represent a property owner in a buying or selling transaction based on reduced commission percentages. This could achieve your hoped for Zillow goal.
Zillow is a tool and nothing more. I never expect that it accurately reflects what a home will go for. I do use it as one input to estimating my home price when I calculate my net worth, but there are other factors that go in.
As far as real estate fees, on one hand I agree. On the other, I’m compelled to tell what happened when we bought our house and sold my condo in 2007. I complained openly that the realtor seemed to be making out excessively as he got the full commission on my condo and half on the house. When we were negotiating on the house, I was prepared to take the seller’s ‘final offer’. My realtor said, ‘Let’s go $5k lower’. We did and they accepted. He very politely pointed out that a good chunk of the fees I’d been b*tching about had just been erased because of his work. I couldn’t really argue. The risk with capping / lowering realtor fees is that the good ones stop working as hard, and buyers/sellers will end up paying, just in other ways.
That’s a decent example, but is only known after the fact. If the seller didn’t have to pay 5-6% and only 1-2%, calculate what 2% times the price of the house you bought. That’s theoretically what you could have saved, which blows $5,000 out of the water.
“Zillow’s best use is for trying to figure out what the seller paid and when.”
Sam, that’s public information and many states and counties have sites that let you run a search on that sort of thing. The one for NJ lets you search by street address and it shows the actual price that the buyer paid as well as current property taxes, assessments, etc. I managed to find something similar for San Francisco but it doesn’t seem to have as much information. Here’s the link if you want to play around…
It’s not exactly what you’re looking for but if you dig around a little you might be able to find what you need.
I always thought the sales commission was somewhat negotiable particularly for higher priced homes. Although that can be a double edged sword since sales of homes depend on brokers who connected with the negotiation to sell it. They may back off it the commission is too low. I think there are some companies who offer a flat fee, but they are not the predominant force, so they are at a disadvantage. This smacks of a monopoly doesn’t it.
Zillow and the other online services are dependent on real estate people for information which may contribute to the inaccuracy. When the market is moving up or down quickly, the information is even more inaccurate. I think I checked once and never went back. I find out more calling a real estate friend.
(This is a reply to your comment on the Sunil thread – for some reason I could not reply there)
I’m not sure how it’s logical? How does reducing the rate that all buyers/sellers pay in commission help increase their website utilization? How does one monetize this because logic would dictate that Zillow should profit by making a market more efficient?
Maybe you should create a website where realtors can bid on the opportunity to represent a property owner in a buying or selling transaction based on reduced commission percentages. This could achieve your hoped for Zillow goal.
If you can’t understand how a reduction in transaction costs helps the market, I can’t help you. And if you can’t understand the reason why commission rates remain high and Zillow hasn’t pressed to reduce bc the real estate industry pays most of its revenue, I can’t help you.
Never used Zillow, will be in market shortly for our first home. Glad to know such a thing exists, even if it gives wrong figures,can’t help, I will try once :)
I love Zillow, but more for amusement than an actual way to price the market. Besides price, I like the square foot and other info Zillow provides.
When we sold our last house, someone tried low-balling us using some internet info and we walked away from them.
We have always sold our homes ourselves, but that was always in good markets. I just don’t think it is realistic to expect Zillow to really know the value of a house. Sure, it can be a starting point, but then you have to take other aspects into consideration. For instance, our home backs up to a park and is totally updated. There is no way that Zillow incorporates that info into their price. Hopefully buyers are smarter than that, but if Zillow is underestimating (which they seem to be doing here), the buyer still may feel like they are getting a bad deal.
No way would I invest in a Zillow IPO.
My reason for using zillow is to see how long the property has been on the market, how much it has dropped and how much they bought it for. I agree the zillow estimates don’t work.
“Here’s a news flash for all of you: A property is only worth what someone is willing to pay for it.”
Amen, Sam! And it doesn’t matter how much you owe on the house or how much money you poured into upgrades and renovations, either. A lot of people make the mistake of thinking since they spent $30k on a new kitchen that the house is worth $30k more. Unfortunately it doesn’t work that way.
Zillow isn’t the only one in the game either. If I compare estimates from Zillow to eppraisals.com and to trulia.com, they’re all different and the highs and lows are absolutely not in the same ballpark. In the same token, the valuation determined by the country is WAY overpriced but then it’s in their best interest to do so, right? Anyway, if you’re not selling or getting a mortgage on the home then it doesn’t matter.
I have noticed a street in my city where almost everyone has pulled their houses off Zillow. I don’t know how they did this or their rationale. I suspect it is the volatility of the market and that it is hurting property values. How is it possible to remove your property off Zillow?
Zillow caused the housing market crash.
I believe it….at least they’re contributing to it, that’s for sure.
zillow caused the bubble to burst in real estate market
I find that Zillow hurts home sales rather than helps them. Of course they’re promoting the buyers market and by listing their so-called zestimates which are always low, (besides including a lot of wrong data) they kill the chances of a seller ever selling their home for a decent price. We might as well give them away.
Yes, with imperfect information comes imperfect bidding and selling. Zillow can be one of MANY factors used to assess a property. I hope people don’t use it as more than a 10% factor.
I think the “biggest problem” statement regarding realtors is a common misconception. However, one does not realize how much a “good” realtor can save a potential buyer or seller or realize how much work a “good” realtor does for their fee. One does not quibble about paying a high price when hiring a lawyer to look over complex contracts that could potentially leave an unsuspecting individual at a massive loss or in a legal mess, had they not consulted a professional. Buying and Selling Real Estate is not that much different. Just like all the professions it takes a few bad ones to tarnish those who are more than worth the money they are paid
They based their estimates on previous sales. That means if someone sells their home at a rediculously low, you could get screwed with their appraisal of your home.
Someone should sue them for false claims. Or better yet, they should leave out that portion on their web site.
Zillow estimates are way off many times. I was able to buy a distress sale in my building for about 20-20% lower than the market. Ever since, Zillow continues to list the unit at 20% lower than every other unit in the building(even lower than my purchase price), even though there are sales going off at 30% higher per sqft price in the same building (in many cases in units not nearly as good).
Zillow is a complete DISAPPOINTMENT! I still can’t believe after 40-50% decline in sales volumes for 3 years in a row the 5% selling commission has not been lowered.
Every single business has seen lower commissions thanks to the internet. Not the real estate market b/c they are in collusion.
Zillow estimates cannot be trusted. Too easily manipulated.
There are two identical vacant lots across from my house at 1120 W Ironwood Dr in Phoenix. Zillow thinks that one of them is worth $11,000 and the other one’s worth $272,000.
Gotta love it!
It’s a good idea for owners to claim their property on zillow and make appropriate changes to the properties. Algos will update accordingly.
Zillow took my property 5 years ago in Florida from around $1,000,000, down to $400,000 then in the last year up to 2,300,000, and now down to 1,600,000. Talk about a roller coaster ride.
Wow, that swing is absurd! Never seen from $400,000 to $2.3 million. Clearly is Zillow is messed up!
See this post: https://www.financialsamurai.com/either-zillow-is-broken-or-were-in-a-massive-housing-bubble/
I completely agree with your complaint about selling costs and for the exact reasons…it HAS to be a fixed fee model and it’s amazing that competition hasn’t come in to force it down. The huge costs (I’m a new homeowner in a currently hot neighborhood of San Francisco) to ever sell has me contemplating alternatives (getting my own real estate license, self-listing, etc…but I know the market doesn’t make it easy)
Spot on. Also I have left negative, but well considered and honest feedback for unscrupulous realtors on Zillow – and they simply don’t publish it. Until the agents get out of their pocket it isn’t anywhere near an honest guide to anything relating to home buying or renting.
As a Realtor I can state factually the Zillow offers a sub-standard product and for the consumer Zillow also offers a sub-standard product.
From a Realtor’s perspective having use lead generation systems which can cost $1500 for several months, I would have been better served by advertising In print media, which is not ideal in itself. They are not innovative, their technology is not robust and their product is lousy.
From a consumers perspective their product falls way short of being a reliable source. Outdated dated bases, faulty data, estimates that many times are not nearly accurate.
It escapes me as to how this company has been sold to the public and the stock price it currently sits at.
Zillow is a company I would never refer a client to nor one that I would ever use again.
I am an investor and own several rental properties. I recently complained to Zillow about erratic data in several Zillow estimates.
All of a sudden (within 48 hours of my complaint) all of the properties I own had their “make me move” prices taken off (all at once) even though I had recently “renewed” several of them, and I can also no longer get into Zillow using the account that I “claimed” the properties with.
I know my password is correct (I have a password manager) but the site says it isn’t, and when I go to recover/change it, the website now just ends the process with “ERROR” I started a case with customer service 5 days ago and got an automatically generated email, but no other response since… Just in case, I started another case, got the auto-response, and haven’t received any reply on that either…. I don’t know if I have been blocked, or what is happening (I have no way of knowing for sure) but the timing is amazing, and the response is nonexistent. (Stay Tuned)
As for “Zestimates” themselves… They are absolute junk. Actually worse than junk, because they tout them as having value, and quite a few people listen. I have 3 properties that are identical (yes literally identical) on the same street, built at the same time, by the same builder, with the same floor plans, same amenities, lot size. etc. etc. Zillow shows them at various times being as much as a 25% difference in value… I have other units that have (according to Zillow) gained and lost 25% of their value is a day, only to gain or lose it back a month later (for no good reason) and then have the whole affair disappear a month after that. Imagine trying to buy or sell looking at THST kind of estime(s). Completely…. Demonstrably….. Preposterous.
The problem is that some times, people have to sell. And sometimes quickly Luckily I am not in that situation, so I am not making a “my house is worth more” argument, but I digress….When Zillow gets is worng (and they often do) somebody gets hurt, and the house that sold for a lower value (based on a faulty estimate from Zillow) goes into the next “Zestimate” and down we go in a spiral… Meanwhile, Zillow tells desperate agents, they “need” them to sell houses. The quintessential “self fulfilling prophecy” in this case with something to gain by Zillow perpetrating it….
Thanks for your feedback. I use Zillow to get a gauge of the direction of the overall market. I heavily discount the Zestimates for my property b/c I KNOW they are way too high.
Take a look at this post. Check out the Zillow chart in particular: https://www.financialsamurai.com/increasing-passive-income-through-leverage/
To be more precise, people rely on the information IF it is favorable to them. A person whose house shows up on Zillow at 20% overvalued thinks Zillow is 100% accurate; The same person with a value 20% too low will tell you that Zillow is totally worthless.
I agree with you here.
But, I want Zillow to estimate my house WAY LOW so I can use the figures as evidence to lower my property taxes.
Hello,
I have recently tried to sell my house thru a real estate agency and they have put my house in zillow. The problem is the school district is wrong and it ranks 2 out of 10 and the right one is 7 out of 10. from 2800 viewers I had 2 people that came to see the house. zillow causing me loosing money with their inaccurate information. After contacting them more then few time also thru my agent … no reply.
What can I do?
Thank you,
Josh.
Values change from home to home in high density areas and from block to block in suburban ones. Yet, AVMs aggregate data from “rings”, for example, a 1 mile radius around your home, which often includes areas of greater or lesser desirability. As a result, home values are skewed. Baseless comparisons are never fun to work with, are they?
I actually like Zillow and Trulia a lot. They provide an interface that is easy to use and full of information. I am working with a realtor for my weekend home purchase, and it is fun to see all the homes available, inside and out, as well as the land and the neighbors street views. I have also compiled a spreadsheet with over 50 somewhat similar homes to use a comps for the one I am looking. I find the recently sold home information very valuable, specially when I can see the pictures and really compare homes. I never, ever look at their estimates or trends. My spreadsheet is more accurate because it contains truly similar homes in all the aspects that are important to ME.
Turnstone, that is exactly how you use Zillow and Trulia. If you use it for anything else, it either gets complicated or the information can be very inaccurate.
A realtor wanted to sell my house for $49k. But I went to a bank and the banker told me my house worth $99k or more due to all improvements and the age of the house is newer. I don’t trust Zillow or the realtors. The calculations go only 2 miles radius, where the banker told me to go 5 miles radius around my house, them price it to homes who are similar to yours.
The realtors are for their pockets and rip off homes from owners of their profits.
i met several home buyers who told me, ” I got my house practically for nothing”!
I have buyers who come to see my house and their cars, suv’s, hummers’ are more expensive then my house. for some buyers with expensive cars only their hub caps are worth more then my house whole furniture. Everybody is a scammer and a free loader. If they want cheap homes there is the ghetto.
Zillow and Trulia are total scam! The home prices are so low, invites all the criminals to buy homes in good neighborhood and create one big ghetto city. The good homeowners who put so much money and effort to keep their home intact, now they are forced to move to a new locations due to many home buyers who are moving in, and cannot take care well for their new homes, creating poor neighborhoods, and all the good home prices are plunging down to nothing! The sellers are loosing almost 50% of their home value.
Senior citizens are most victims ripped off their homes who are trying to sell their homes to move to assisted living facilities. Zillow and Trulia created a rip off web.
DON”T PUT YOUR HOME FOR SELL AT ZILLOW OR TRULIA!
Sam,
I’m surprised you didn’t touch on selling the house yourself. This is what I did. I had professional signage made, paid $300 for an MLS listing, and went to staples to print up very pro flyers (template was free).
Yes, I did STILL have to pay the buyer’s agent…but upfront I SET the rate, rather than having to negotiate it. That shows up on the Agent’s MLS sheet, so they know going in what they’ll make.
Paying have the going rate made a big difference to me. The work involved? Not really too much. Stage your house, take careful pics and make sure they show well, keep it clean. Yes, the time wasters coming through were a drag, but not worth thousands of dollars to me to avoid.
Real Estate agents – particularly VERY good ones who know the market are worth it. But I’ve met alot of folks who don’t seem to know much more than I do about a home…and many who know less (background in construction).
So, I would do it again for sure. Thanks for the writeup.
Hi Ryan,
What did you end up paying the buyer’s agent in terms of commission rate?
I absolutely agree with the way you did it. But I’m on strike selling any property until there is a flat fee or a total fee of 2% or less. One of my properties is worth $2.5-$2.9M. I’m not paying more than $50,000 to sell it. What a waste!
https://www.financialsamurai.com/property-sellers-go-on-strike-dont-sell-your-home-if-you-dont-have-to/
I agree with you….assuming you have the ability to “hold”. In my case I didn’t.
I paid 2.5% commission. The broker mentioned to me “this is lower than my normal rate” (OK, whatever!).
He was cool and all, but the whole process just highlighted how unnecessary agents are in the age of the Internet.
You *might* be able to sell without the commission thing given the locale (S.F.), but for most people, you have to pay to get access to the buyers. I Sold My House.com has been a bit of a flop. It only works in super hot markets.
Given the expense of buying a home, people want hand holding. The crazy bit is they aren’t really analyzing what they’re getting.
When I was trying to determine if I’d sell myself…I went to the NAR website and read “why you need a realtor”. And it was basically all scare tactics. All you need is the MLS listing access and 6 months of sales to price correctly.
Still…I don’t think real estate agents are going the way of travel agents…and ironically that is because of 1.) consumer fear of getting the purchase ‘wrong’; and 2.) buyers who don’t pay “anything” to their agent.
At first blush the second point seems wrong. “Sure they pay, it just gets tacked on to the cost of the home!”. Wrong. I didn’t lower my price relative to other homes to shave 2.5% off the price…I pocketed it as payment for my time and the ‘risk’ of going it alone.
In a market where ALL or MOST buyers are foregoing agents, then yes, that unwarranted premium goes away. But it won’t be in our lifetimes I’m afraid.
I’ll give your second article a read! Best.
Every home I’ve sold made at least more than $50k of Zillow’s Zestimate. -Washington, DC
I bought my house less then 3 years ago, at that time Zillow valued my house close to what I paid for it. Within a year, Zillow valued my house at 17K more then what I paid. Today it is valued less then what I paid for it and less then what I still owe on it. It makes no sense, I have made improvements, repairs, and updates on this house. The lot next to mine has an old mobile home on it and is valued close what my house is, because it has one more bedroom then my 1993 built house. I think Zillow has it way wrong. My taxes were assessed at a higher value then what Zillow listed, I fought it, and the county reduced it back down to 14k over what I paid for it, based on comparables. Now Zillow says it is worth 21K less then the county’s assessment, and 7K less then what I paid for it. Very unreliable information. I am not in the market to sell it, but their information, devalues my property so much that if I was, I could not even get what I owe on it back out. Sicking!
Zillow is making it hard for me to sell my property. It is worth 4x what they are posting. I own lake front property . But their bad estimate is making it hard for me to get what I would like out of the house. Too bad there is not a way we can file a class action at Zillow for degrading our values. Shouldn’t they be arrested for racketeering. You would think with the way they are ruining our financial situation; charges would be pressed by our DA’s.
checking Zillow estimates is like watching the price of pork bellies.. up/down, up/down, up/down… even the comps make absolutely no sense in our neighborhood… homes 30% smaller in size with fewer bathrooms are valued 25% more than our home, and sales of smaller homes that are on the same street have no effect on zillow’s ‘zestimate’ of our home even though the verified sale price of those smaller homes in much, much worse condition were many thousands of dollars higher! Zillow is a joke and time-waster like Facebook!
The reason most of the public, however cognizant of the true marketing costs involved in selling real estate, feel that 6% or 5% or 4% is exorbitant is that they do not think of real estate as a business, or they haven’t run companies or been entrepreneurs. And the two things which the general public may not consider in forgetting that real estate companies are a business are:
1) Total costs. Marketing is a smallish part of a real estate business. Staff payroll, rent and building maintenance, insurance, utilities, equipment, furnishings, supplies, licenses, education…the list goes on, for both the company and the agent.
2) “Non-performing” clients. If your property doesn’t sell, the realtor doesn’t get paid a penny. Many either don’t sell during the listing period, or take a LONG time to sell, often because the price is too high and the seller won’t lower it. No one pays for that time, nor, with some exceptions, any portion of the costs associated with that time. On the other side, perhaps 70% of “buyers” don’t buy, and no one pays for those costs. Realtors could bill by the hour, but no one would pay that way when they can pay nothing unless they sell, or pay nothing whether or not they buy. Payment by commission will always be the public’s choice, and most of them will never realize that the business costs MUCH more to operate than the commission on their home.
As you’re guessing by now, I have a real estate business; with 10 agents. We’re in a high-value area, and our annual expenses are $1.8 million. With an average selling or listing side commission of less than 3% and an average company share of those commissions at about 35%, you can do the math…we have to sell a lot of real estate to break even. Of course there are unscrupulous realtors. Just like there are unscrupulous lawyers, accountants, contractors, even journalists…or doctors. But trying to make a living providing a valuable and usually much needed service for the public does not qualify someone as unscrupulous. The average realtor in America earns $50,000, with NONE of it guaranteed. Some months they earn nothing, and work just as hard. Harder even. Most of the realtors I know are very hard working folks; they don’t do it for the money as much as the relationships and because they just love houses and the business. And helping people.
Just like most things we think we understand, we usually don’t. We think that whatever we believe is the truth. I’ve found that thinking that way is not a virtue. It’s a vice, and it belittles everyone involved. And, unfortunately, it is VERY seductive. Human nature, we call it.
I would be happier paying a realtor an hourly fee, as I would any “professional” (lawyer, doctor, etc.), rather than the commission. As Sam points out, the justification for the commission is not scalable to higher-priced properties. Why wouldn’t a realtor prefer to be paid for their time spent, as opposed to getting a commission? Because, as price goes up, the commission gets higher and it becomes free money. The amount of work is about the same. Yes, very high end homes ($5M up) may require a certain level of contacts, and higher-end, more expensive advertising. But other than that, there’s no way a $2M home costs 5x what it takes to sell a $400K home, or 8X a $250K home. On a $2M home, at $100 an hour, is a realtor really going to put in 1000 hours of work, and spend $20,000 for pictures, etc.? Of course not, most of that $120,000K commission is just gravy.
And really, what is the need for a realty office anymore? A realtor can work for himself now. It’s not like a car lot, where you have to be where the inventory is. There’s no need to be paying these commissions to support a big brick-and-mortar setup. Those will be going the way of the dinosaur.
The way most homes are presented for sale by realtors is pretty underwhelming too. 10-30 pictures, and little puff description, and that’s it. Most of the pictures are more of the decorations and furnishings of the house, rather than what the rooms are like, and more importantly, how the rooms sit in relation to each other and the house layout. When I sell my home, I’ll do as Ryan did, and most importantly have a dedicated website for the property, with pictures of EVERYTHING. Flyers will refer to the website, where voluminous information will be provided – dozens of pictures, floor plan, survey, list of remodeling, improvements and updates, all dated, etc.
What is gobsmacking is that less than 5% (probably more like 2%) of properties ever show a floor plan. Yet this single thing is more important than 30 photographs of rooms with the sellers furnishings and decorations in it, with no idea of how the rooms flow. A very simple thing to provide. The other thing that I want to see is a survey of the property. Those 2 things, along with supporting photographs, will tell a person whether that property and that floor plan is suited to them so much more quickly then just pictures of 2 or 3 walls of a square room. And a floor plan with dimensions is even better. Anybody who’s gotten an appraisal or bought the property is going to have these items, so why not provide them? Because most realtors are hide-bound and dated in their thinking, and just think that throwing up a few pictures and a bit of happy-talk about the house is the way to sell it, as it has always been, before the advent of alternatives. It’s the minimum they need to do.
I’ve had both good and bad realtors. The bad realtors took me to 3 or 4 houses over the course of 2 hours, and then asked which one I wanted to buy. When I said none of them, they hit the road. The good realtors worked with me until I found what I needed. In one case, it took about 3 years. Now, that was in the 80s, before we had access to the listings. They ended up just giving me their MLS books, and I went through weeding out properties, so in effect I was doing part of their job. But she was very supportive, and worked with me until I found the perfect house. I drove every street around the lake front of the 10-12 lakes on the chain, dozens of miles. I knew virtually every house, as did she, because she lived in the area. I had no problem with her getting paid her commission. For buying a house, I think I’d go the route of hiring a realtor as a buyers agent, for a fixed, agreed-upon amount up front. That way, they won’t be steering me to a more expensive property just to get a higher commission.
13 years ago, we needed to sell my mother-in-laws house in FL. I went there, talked to 2 realtors, got an estimate of the price (this was before Zillow). I then found a guy with a realty license who was willing to do the paperwork for me for $1K, we put 3 signs up – 1 at the house, and 2 at busy intersections near the house. We sold it for $1K off my asking price in 1 week (and that asking price was what the realtors suggested it should sell for). Guy did the paperwork, done deal within 3-4 weeks total. About 2 weeks after that, I get a call from one of the realtors, asking when I wanted to put the house up for sale. I told him it was long sold, a done deal. There was silence, then he asked what it went for. I told him $1K under his estimate, plus $1K for the paperwork (I was in TX at the time, and needed someone to do the paper locally for me). A longer silence, and then he muttered, Wow, you really did good, and hung up. A real go-getter, that one! Yes, the market was hot at the time at that location, but I certainly can’t see paying this guy over $10,000 to do what I got done for $1k, and in less time.
As with any paradigm shift, there will be a transition period, and I think that’s where we are now. In 10, 20 years, the current realty business model will be akin to that of the buggy whip manufacturers.
Yeah, but you could argue that there should be some incentive for your realtor to get as much as s/he can for you. Disturbingly, this also creates an incentive for the buyers agent to make you pay as much as you are willing to
See: The True Cost Of Selling A Home Today (It’s Ridiculous)
In September 2015 we were fixing our house up to sell by doing new landscaping etc. We looked at Zillow to get an idea of the recent home prices in our neighborhood. We talked to our realtor and he said that Zillow’s estimates were very low. He was right. The house sold for 300K more than Zillow’s estimate. It really helped the values of the rest of the homes in the neighborhood that are similar.
Four months later we bought a new house in Southern California and looked at the Zillow estimate which was exactly what the owner was asking and what we offered. Six months after purchasing the house Zillow dropped the value by about 100K. They must have changed their algorithms. I don’t trust Zillow to be accurate.
Yep, Zillow is all over the map. Check out my 2016 Year In Review Post that has another two Zillow examples with charts that are out of whack.
Thank you for this article! I am a certified residential real estate appraiser in the Raleigh-Durham area of North Carolina.
I have a master’s degree and more than 10 years of experience in this field, and have completed thousands of home appraisals. I also have a broker’s license, though do not use it.
I do have to admit to laughing out loud at your quote from a real estate agent calling Zillow “the bane of their existence.”
Because … I cannot tell you how frequently incompetent and lazy real estate agents actually do rely on these Zestimates — instead of completing a competent Comparative Market Analysis — to innacurately price homes based on Zillow’s erroneous data.
Real estate agents like these are the bane of our existence. It is their job to temper seller expectations, yet many go along with it and require the appraiser to reveal that their contract price was off the market by half a mile. And then it is the appraiser who catches the wrath for professionally doing their job and providing the true market value.
In my experience, Zillow is sometimes off by more than 15-20% on a regular basis. I just completed an appraisal on a home on a 7.5 acre lot with a horse barn with comparables many miles away and yet Zillow attempted to put a price on this property.
Ludicrous. They can’t even get it right in large cookie-cutter suburban neighborhoods.
Zillow is doing a real disservice to the valuation profession.
Zillow has become such a thorn in this industry that I may start asking lenders if it is OK if just start providing them with Zappraisals.
I am house hunting and didn’t realize that the estimated mortgages Zillow posts are based on 20% down conventional loans and do not take into consideration taxes and insurance etc. Very misleading.
I find the rental estimates very confusing for my rental. I have a rental in a grouping of homes which have essentially the same square footage and layout (with small variations) to my home. However, when I look up the rental estimates for my home it says it is $400/mo less than all other properties that match mine. The only thing different about my home from the others is I have a detached garage whereas the others don’t. Maybe this puts my property in a different comp pool but really…… how can a house with the same sq footage and same basic layout have a $400 difference than the estimate of my next door neighbor.
As I see it, Zillow, is not perfect and can’t be 100% accurate in all it provides to the viewers and visitors of its content. How-ever it is a great tool to have, information that in the past was keep for those in the industry and very difficult for those of us to get to make an intelligent decision when buying or selling. The real state industry is plagued by many dishonest individuals that can take advantage of those of us that don’t know all of it and have to trust them. We have to be vigilant as these transactions are huge and life long. There are many great people in the industry and I have bough four homes, refinance, and have a rental but can tell you, we have to be extremely careful and aggressive at times with this business and like other business as well. Zillow has given us an edge with information. Lets face it now a days information is power. Now we have a better bargaining knowledge and understanding of the information provided for those who want to enter the field. There is more of course that goes in a transaction of this type and we have to get familiar with it as well. I want to say thank you for those in the business who are ethical and do the best for their customers. There are many of those as well.
IMHO
As far as I’m concerned, as of the Lilac fire and fires around southern California, Zillo and Trulia are scamming customers. It is against the law to price gouge and with their algorithm, they space it out to everybody. I’m disgusted! Oh, let’s not forget they seem to be separating certain homes that fall under rental protections and then algo-rhythm the “premium market” separately, therefore making the market look more depleted than it actually is. Some of these scumbags need to sleep on the street one night and maybe then they might know what it’s like.