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The Dangers of Zillow and Trulia

The Dangers of Zillow and Trulia

“What is the Zestimate?” the buyer asked…

Well, we can be sure it is within 10% of the actual value about 65% of the time. I don’t know about you but I am looking for a lot more accuracy than that.

The rise of the AVM (Automated Valuation Model) has brought a new wrinkle to valuing property that has been considered either controversial or accepted (depending on whether it supports your position on the value) and it is not going away. Appraisers and Realtors (read about the difference between Appraisals and Zestimates here) generally don’t like it because it attempts to estimate property values based on inputs that are questionably accurate. Zillow or Trulia never see the houses that they value nor do they see the houses that they use as comparables, but somehow they spew out an estimate of value that the marketplace seems to accept as accurate more often than not.

When do these sites work well?

Zillow and Trulia work fairly well when there are homogenous properties (similar in age, scope and construction method) and a large sample of sales to draw from….but even with a larger sample and similar properties, it is still not without issue.

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In cases where there have been ample sales in a subdivision of similar homes, then yes, an AVM can predict values with some degree of accuracy. In urban neighborhoods or neighborhoods that have a large degree of diversity in style and size/custom neighborhoods, AVM’s do not work well at all.

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With any method of valuation, make sure you understand what is underpinning the analysis. A computer in Seattle telling me about an modern home with an addition overlooking the James River in Manchester is not going to yield an accurate result. Likewise, a home that had a high degree of similarity with neighboring properties when first built can vary greatly over a short time frame due to upgrades, unfinished space being finished and maintenance differences.

Why Zillow?

We have found that the market tends to believe in Zillow more than other sources. Perhaps it was because they were the first to really develop the home estimation algorithm or perhaps it was just really good marketing, but Zillow seems to be the one place where people go, despite the flaws.

We have a saying that there is nothing wrong with using Zillow in your analysis, just don’t use it as your analysis. Zillow and Trulia and Realtor.com, along with the other 10-15 other sites that offer home valuation, are but one part of making the decision. Using the most up to date information (that comes from MLS) is the best way to make the best decision.

So when you are getting serious about buying, use the best tools available. Zillow is good, but MLS is better.

At the end of the day, diligent research about available options and watching what properties go under contract will lead any buyer or seller to a much more accurate decision than any AVM.

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