Thank you, Al. I am singing your praises. For the 10 years I have been active in Real Estate I have had to fend off "Zestimates" when speaking to sellers who are interested in selling his/her house. I can't tell you the number of times I've appeared at a seller's door with a well researched CMA (Comparative Market Analysis) in hand and told that I was undervaluing the house based on what Zillow's "Zestimate" is. It is simply impossible to formulate an estimate of a house's value based on location, number of bedrooms & bathrooms, square footage & recent sales without a deep understanding and knowledge of the current local real estate market.
Sellers and buyers need to understand the following:
1) A "Zestimate" is a estimate of a houses value based on a computer generated formula, unlike an appraisal where you have an actual human being walking through each room of a house to determine it's value.
2) A "Zestimate" does not take into consideration recent renovations, upgrades, or levels of finish in a house.
3) A "Zestimate" has no way of including any or all positive or negative emotional factors that a buyer would have in terms of layout, design, decorating, light, etc...
4) Zillow states the following in terms of how they come up with their new valuation algorithm: "For computing accuracy metrics, we look at transactions over a three-month window of time and pair each transaction in that time period with the Zestimate value generated for that home immediately prior to the sale date." Zillow is comparing new data to it's own old data. A "Zestimate" has no knowledge of other possible factors in a transaction which may have influenced a closing (transaction) price.
To see how the algorithm works see the following: http://www.zillow.com/blog/research/2011/06/14/upgrading-the-zestimate/
Thanks again, Al, for your "Alstimate"!
Zillow Talk Isn't Comfy
By AL LEWIS
Zillow.com is worth squat. That's my official "Alstimate" for the money-losing real-estate pricing machine.So what if the stock market valued the website at more than $1.6 billion during its initial public stock offering last week?
My Alstimate is based on my own secret formula, and I'm not telling what it is. I'm just going to publish it -- like Zillow, which deploys a "Zestimate" to tell us that our homes are worth Zilch-O.
Last month, Zillow unveiled a new "proprietary algorithm" that puts its Zestimates on nearly 100 million homes.
"The new Zestimates are 33% more accurate than the older ones," the company said on its website. "We hope you enjoy the new Zestimates."
What could be more enjoyable than watching the value of your largest investment plunge with the weedy bank-owned property next door? And now Zillow boasts new and improved accuracy, too?
Like many homeowners, you may not like the Zestimate on your abode, especially if you think you got a deal after the housing bubble began to pop.
Zillow recently released a study that showed sellers who purchased after June 2006 are more likely to overprice their homes than those who bought before the market peak. That's because these people can't always admit the housing bubble is still popping.
"Obviously, the idea that your largest asset has been devalued significantly is difficult to accept," Zillow said.
So if you've got a buyer beating you up over a Zestimate, take the punches.
Existing-home sales fell 0.8% in June, putting 2011 on track to beat 2010 as the worst in 13 years, according to the National Association of Realtors. It was the third monthly slide in a season when home sales are supposed to pick up.
The Realtors group also reported an unexpected spike in buyers pulling out of contracts. Maybe they got spooked by the stalled recovery. Or maybe they just checked Zillow and decided the homes were overpriced.
What was really overpriced last week was Zillow's stock. Greater fools paid $60 a share as the IPO launched -- a price that values the company at about 50 times its $30.5 million in 2010 revenue.
Zillow has no earnings but boasts declining losses and rising revenues. Its run-up was not driven by these improving fundamentals so much as demand for a silly IPO stock outstripping supply.
Zillow made sure this would happen, only offering 3.5 million shares, or about 13% of its total shares outstanding, in an IPO market that is somehow starved for unprofitable Internet companies.
Zillow's price soon slipped back, and closed below $35 on Friday. That's an amazing leap from its $20 offering price, but an amazing plunge from its $60 high.
It's like the Internet bubble, followed by the housing bubble, followed by the Internet bubble all over again.
Who knows what it's really worth? Like Zillow, I will be unresponsive to complaints about my Alstimate. But I will work on my secret formula so that I can be 33% more accurate in the future, perhaps upgrading from "squat" to "diddley squat."
—Al Lewis is a columnist for Dow Jones Newswires in Denver. He blogs at tellittoal.com; his email address is al.lewis@dowjones.com
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