In 1980, the Talking Heads released the song Once In A Lifetime and sang the refrain “the same as it ever was” over and over.
I remember the cool kids playing the song over and over on their cassette tapes to make sure we knew they were cool.
It didn’t work.
I saw those kids at a class reunion a few years ago, and they all got old and fat, despite listening to the Talking Heads.
I bring up that song because it reminds me of Zillow and all of the other algorithm-based home value estimation models.
Everyone thought they’d get more accurate over time, but they seem to be as flawed as they ever were.
Steve Eisman Predicted Zillow’s Demise By 2024
In 2019, I blogged about Zillow’s impending demise and quoted a famous investor, Steve Eisman, who insisted they’d be gone in four years.
Eisman was right about Zillow’s flawed estimator and its failed efforts to get into iBuying, but he was very wrong about Zillow going the way of the dodo bird.
Zillow is still here, along with other well-known value estimators like Redfin and Realtor.com.
I blogged about Zillow’s flaws many times over the years, starting in 2014, and I am amazed things have not improved more, particularly with the advent of AI.
I am bringing it up again today because I see so many frustrated appraisers and listing agents complaining about Zillow.
Agents and appraisers in soft markets are especially frustrated, as Zillow and similar models often cause homeowners to cling to massively inflated value estimates.
Three years ago, I wrote this blog: #1 Factor Zillow Estimates Get The Most Wrong – and listed 8 major factors that Zillow gets wrong.
I am repeating them today and adding another factor (deferred maintenance) that I recently watched a seasoned appraiser complain about in an interview.
9 Things Zillow Gets Very Wrong
Here are some of the things Zillow often gets very wrong:
1) Appreciation/Depreciation Trends
In areas where properties are depreciating or appreciating quickly, Zillow will still correlate to comps that closed 3 months earlier, and that went into contract 4 months earlier. In hot or cold markets, this factor alone can cause value estimates to be off by 10%.
2) Pending Sales In Excess of Listing Price Or Way Below Listing
Zillow will also correlate to listing prices in many cases, but those listing prices can be much lower than the actual pending prices (in hot markets) that are not showing up on county records or in the MLS yet. I read about two modest properties in Silicon Valley selling for $1 million over list price recently, as perfect examples. Similarly, we’re seeing properties sell for way below listing in other markets right now.
3) Updating/Remodeling
A neighborhood near my home in the SF Bay Area is comprised entirely of $2 million tract homes built between the 1950s and early 1970s – so updating and remodeling significantly influence value (as much as $400,000). But – Zillow is not able to recognize the recency or the extent of a property’s updating, and that can easily result in a huge miss when it comes to a Zestimate.
4) Views
We had a borrower who insisted his home was worth $150,000 more than it appraised for because his friend’s nearby home had recently sold for so much more than our borrower’s appraised value. His friend’s home, however, was at the top of a small hill with a drop-dead gorgeous panoramic view of the nearby mountain. And that view alone was worth $75,000. (more about this in #8 below).
5) Lot Size
Most of the lots in the nearby neighborhood I reference above are either 1/4 acre or 1/3 acre – with the 1/3 acre lots selling for a huge premium – given the price point of the neighborhood. Zillow, however, often misses those lot premiums and massively undervalues or overvalues properties as a result.
6) Lot Utility/Sloping Lots
This is a Zillow mistake that I see in the SF Bay Area often. A home on a steeply sloping 3/4-acre lot will often be worth less than a similar home on a flat 1/4-acre lot because the 1/4-acre lot has far more “utility.” Zillow often misses this factor by a mile.
7) Builders
Even after 40 years, buyers and agents still pay attention to who the builder was in the area near my home, interestingly, as some builders had better floorplans or built with far more quality. Zillow misses this factor entirely.
8) Location/External Influences
This is the #1 factor I see Zillow miss the most often. In the area near my home, location is a huge factor because there are several schools, shopping centers, and very busy arterial through-streets. Hence, homes that front or back to the busy streets will sell for far less than homes on quiet streets or courts. The borrower I mention above, who insisted his house was worth so much more than it was, lived on a busy through-street near a high school, while his friend, who sold the nearby comparable sale, lived at the end of a very quiet court. This factor alone caused Zillow to be off by another $75,000.
9) Deferred Maintenance
This is the factor I just heard an appraiser complain about Zillow missing. Zillow misses significant deferred maintenance factors as well that can significantly impact values. Deferred maintenance items include worn or very old floors, paint, roofs, and landscaping. It also includes foundation issues that are often problems in Texas.
