Zillow.com has been widely popular in the real estate world in the past several years. However, I have serious questions as to its viability and usefulness going forward and believe its future is worth rethinking.
Zillow’s Home Page:
We’ll come back to the home page.
My “Not-so-indepth research”
Now, as a Realtor, I hadn’t visited Zillow in a very long time and so I compare my user experience to the non-real estate professional visitors to the site. I navigated my way around and played with some of the different features. However, I have the edge that if I see something unusual in terms of property values or properties in general, I can do additional research. I also have the benefit of having worked in the corporate world in the high-tech industry for both established players and a start-up. So, my perspective here is a little different than just as a real estate professional.
I am also going to tell you that visit to Zillow was focused entirely on my local market here in Phoenix and more specifically, Chandler. I didn’t go off and do empirical analysis as I don’t have the time. Originally, I wanted to talk about why Zillow users have to be careful when looking at valuations there. But as I perused the site, several items came up that raised questions in my mind. As a result, the topic of this post began to evolve.
Zillow’s Origins
Zillow.com was founded in 2005 by Rich Barton and Lloyd Frink and made rapid inroads into the real estate market from an brand and web standpoint. Both had helped to propel Expedia.com to success. Zillow started off with providing real estate property values, or Zestimates, on their site. As such, Zillow is probably one of the most brand name recognized websites in terms of real estate. It is linked up with numerous affiliates in the marketplace. Personally, I was surprised at the number of inquiries I received from non-industry folks about Zillow.
What does Zillow do?
Zillow.com provides what it calls its Zestimate for the value of your home by taking into consideration comparable activity in your area. Enter your address and Zillow will compute the approximate value for your home.
This can be a helpful tool but it has its serious limitations and should only be used as a rough guide and datapoint for home sellers and buyers. Why? Because the data is not granular enough.
Zillow is basing its pricing estimates for your home on past sales data plus a host of other factors in a complex algorithm they employ. This use of past sales data is correct and typically the most reliable indicator for the value of a property, but it is limited in utility in the market we have faced the past five years. Because sales data occurred in the past, it can’t tell you what the likely value of your home is now in a down market where prices are changing rapidly. Inevitably, the data will trail the market. Reliance on Zillow Zestimates would put a home buyer or seller at risk for paying too much or pricing too high.
Zillow data also doesn’t take into consideration the condition and special characteristics one home may have over another. How is the home situated? Does it back up to a street or commercial area? Is it nearby a landfill, airport, or other cause for concern? What is the specific condition of the property and what kind of features do the properties have in common and not in common?
Because Zillow is an automated tool, it can’t simply perform the deeper analysis and review to give a home buyer or seller a truer picture of the value of your home without a Realtor performing this analysis or getting an appraisal performed (at a cost of $300+).
Having said that, Zillow does call out exactly the points I am making, that the Zestimate is a starting point and that buyers and sellers should consult other sources such as Realtors and appraisers for more analysis on the value of a property. In a more normal market, Zillow’s accuracy would likely improve though that isn’t helpful right now. How many Buyers and Sellers pick up on this through the site is questionable. Certainly, the topic comes up regularly as I found in the Zillow comments page on their site.
The view from above
Another aspect of Zillow currently is its use of satellite imagery. Site visitors can see the satellite overlay for their property and the area around it. Take a look at the two images below. What is the difference between them?
The difference is that the first image is from Zillow.com and shows a large dirt area with some contouring. The second image is from Google Earth and shows that same area developed as a City of Chandler park that was completed several years ago. The satellite data in Zillow is simply dated. From a real estate perspective, a City park nearby has value to a potential buyer.
Not that a buyer would rely just on a satellite image and not drive around a neigborhood to see firsthand but the fact that the imagery is significantly dated is of concern, especially in areas in the Phoenix area such as Chandler, Queen Creek, Surprise, Maricopa, Peoria, and other areas did experience significant growth in the last five years.
Where did this property come from?
During my brief review, this property came up as down the street from one I was looking at. It was marked as “For Sale” for $524,000.
It was the price that piqued my interest. As a Realtor, I have a sense on pricing and when I saw this, I dug deeper. I couldn’t initially find any listing in MLS for the property and called the Listing Agent about the property. I then got the actual reference MLS number and looked up the property again. The reason I didn’t find the property in MLS the first time was because I didn’t believe the “Closed” property I saw was the current listing. In fact, it was.
This property sold in October 2007! What it is doing up on Zillow for my eyes and others’ eyes to see, I have no idea.
What about that home page?
The interesting point about the home page is that the of the three properties and their associated information shown highlighted on the page, only the middle property’s information is current. The home on the left is now under contract as of one week ago. The home on the right is still available but is now priced $10,000 less.
Regardless of the workings (realtor entered?) that power the data for the highlighted listings on the home page, the fact remains is that the information is dated and not accurate. With literally hundreds of sites that can provide more real time, up to date information, this presents a serious gap.
Zillow’s Future
In October, Zillow.com announced that it was laying off 25% of its workforce to prepare for and weather the current recessionary climate. Rich Barton, CEO, in a New York Times article , was cited as saying he didn’t foresee Zillow being profitable this year or next.
My personal take is that Zillow set off to jar the industry from its foundations. The strategic problem may be that Zillow initially focused on the data, and not the process (if a technology company would like me to elaborate here under NDA, I would be more than happy to), and in the end did not provide anything truly unique or compelling.
My initial review of the site having not looked at it for likely two years is that it provides limited utility to users and that the data it holds is questionable. If the problem of data is more systemic, then there are many more competing home search sites available to end users that will provide data at near real time.
I have to wonder if Zillow’s popularity is “perception of a solid offering” versus what the site actually brings to the table. If the focus is to give buyers and sellers all the ready information they might want with regard to purchasing a home, then I don’t believe they have succeeded. And I don’t believe that affiliates would cling to Zillow if there were more foundational concerns for the information that is provided.
Personally, I have to question Zillow’s longevity not in terms of how many dollars in capital it currently has to survive on, but by the awareness and business logic of its board members and investors. They may want to ask the question as to whether Zillow really has a future and if more money could be made by reinvesting elsewhere.
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{ 5 comments… read them below or add one }
Hi, it’s David G from Zillow.com,
This is by far the funniest review of our website that I have ever read. Read on and you’ll see what I mean. I hope that we can both learn something from this …
2981 S Iowa Street is in fact still on the market … at least it is according to your brokerage. RE/Max Elite is still advertising the home for sale: http://www.allarizonahomes.com/listing/49730447 and the listing agent is sending it to us via a feed from his Number 1 agent website.
Could you please see what you can do about having your brokerage stop advertising this listing … and I’ll get someone working on updating the maps.
testing - are comments moderated?
In response to the comment here, I wanted to layout my comments policy. In effect, I will post any comment unedited that comes through as long as it is professional, courteous, relevant, and not spam or especially harsh in tone. I do moderate only because it is clear to me that some spammers do literally go site to site personally and I don’t want their material being posted unchecked. I do really want the site to invoke discussion so I will be much more inclined to publish any comment, than not to.
Next, I want to thank David from Zillow.com for coming to the site and making a post here. It tells me that Zillow.com has their Google Alerts going and Zillow.com took some time to come to the blog here and read through the post. The ‘funniest review of our website that I have ever read” comment is regrettable but let’s focus on the rest of the rebuttal.
Now, David G makes a great point that the house I called out that is actually sold is a listing from a Realtor out of the same brokerage where I am employed. This is correct. He is a very successful Realtor and known by many. I checked the link and indeed, the data on his personal site is showing this house as available (though it looks like this might be an old page).
However, it’s important to explain that RE/MAX Elite has well over 200 Realtors working for it spanning at least 3 office locations. In the resale side of the business, each Realtor is effectively operating as an independent business entity other than hanging their license with RE/MAX Elite. I am not the broker for RE/MAX Elite. Nor am I Pete’s (the other Realtor) Business Manager. As Realtors know, this is true across the industry.
But this isn’t really the point. Let me be clear that if I had a website that attracted 5.4 million visitors, and that many of those visitors were coming to see what valuations are for a property as well as search for properties, I would not allow old information or incorrect or aged data onto the website. IDX search tools on hundreds of sites are updated daily and even hourly, so the standard should be the same for Zillow.com. The lack of accuracy of an individual Realtor’s website information would not and cannot be allowed to impact the accuracy and integrity of Zillow.com.
The burden is on Zillow.com to put business processes and safeguards or Cs & Bs in place to ensure that all the data is accurate and up to date for their site or knowingly take the risk of any impact that that information or awareness of that information might have.
Additionally, my post called out two other instances where the data was aged from properties listed on the home page. So, the items I saw were not isolated to just one property.
Another note. I didn’t do an empirical analysis here. I kept my review fairly straightforward and was surprised to see what I did. Having been an Auditor in a past life, I understand about testing business processes and applications. As an Auditor, the results I saw from doing this cursory review would have spurred me to do a broader test. I also understand the importance of solid data and information from a business standpoint.
As a courtesy to Zillow.com, I will forward this dialogue on to my colleague. But whether there are a lot more incorrect properties in the system is something for Zillow.com to check on.
Finally, I made a comment about the ‘focus on the data and not the process’ in the post. This is more a broader comment that focusing on the actual specific details of an individual house. I meant this as a core strategic choice. I can elaborate more here as to what I mean but will only do so under NDA.
David, thanks for such a detailed and thoughtful post on Zillow. As a Realtor in the metro D.C. area, I have analyzed Zillow’s estimates in my area. For neighborhoods where homes are very similar (especially townhome communities), I find their estimates to be pretty good. I have other neighborhoods that have a lot of variety - age, style, lot size, etc. Zestimates here can easily be +/- 20%. Even with the best algorithms, I don’t believe Zillow could ever have adequate data to get these right.
In general, I find that buyers and sellers in my market do not rely on Zillow as reliable reference for home values. When they do, we are usually able to have an intelligent discussion on it’s gaps. Still — I think Zestimates can be more of a hinder than a help for buyers and sellers. It’s very tough to buy and sell right now — values that are off-base only adds to the confusion.
Last comment - consumers are pretty smart. They quickly move on if they find a source of home information with outdated or incomplete data. If Zillow doesn’t get it right, they’ll go elsewhere.
David G. - Zillow shouldn’t be pulling listing data from Trulia or individual agent or broker sites. A local MLS is the only controlled and regulated source of listing data (this doesn’t include FSBOs, of course). Don’t blame RE/MAX Elite for your bad data — you shouldn’t be pulling from this unregulated source.
Bruce-
Thanks very much for your post. I fully agree. It is Zillow’s responsibilty to manage the integrity of the data on the site and keep old or incorrect information from hitting their site. Users will shift their usage of the site the more they become privy to this. Thanks again for your post.