Tuesday, February 21, 2006

Zillow, more or less

The buzz surrounding the launch last week of Zillow.com was thick. This handy online tool aspires to be a user-friendly, automated property valuation machine but falls short, at least in my opinion. At this point Zillow is best approached as entertainment, but it is likely to be embraced by those whose unrealistic price expectations are confirmed by Zillow's faulty estimates. In my experiments with Zillow, I found quite a few errors and some valuations were off by hundreds of thousands of dollars. I suspect that both sellers and buyers with unrealistic expectations of property value who get a confirmation from Zillow may be even less flexible when faced with market realities.

Imagine that your real estate agent suggests a selling price of $500,000 for your condo based on research and adjusted comps. Being an astute, computer-savvy person, and having heard of Zillow, you run an estimate and Zillow returns a market value of $650,000 for your condo. Do you suspect that the agent is trying to get you to under price your property so she can make a quick easy commission? Sure you do. You immediately find another agent who will list your condo for the Zillow estimate of $650,000 and congratulate yourself on your wisdom, at least for the first few months.

Now imagine in another scenario that Zillow returned an estimate of $420,000 for that same property but you trusted your agent's suggested price and listed for $500,000. You can expect that any buyer who runs an estimate on Zillow will be very reluctant to offer close to your asking price even though it is backed up by adjusted comps.

Go to Zillow.com and do your own research, but, if you're buying or selling, don't trust these valuations to be anything other than broad estimates.