Zestimate Bullshestimate

Just the other day—at our company Christmas Party--some of the conversation turned to Zillow. That's the on line automated real estate site that estimates the value of nearly every house in America. Right or wrong, millions of consumers are clamoring for their data since they provide a no-obligation idea of what your house—and those of your neighbor's up and down the street—might sell for. In a housing market that's been mostly a cause for gloom, so-called home-valuation technology has become one of the few sources of excitement.

The question that we debated, over a couple of beers with carols playing on the CD, was how accurate are these estimates? After years of us real estate pros holding all the informational cards in the home-sale game, Web-driven companies like Zillow, Homes.com and Realtor.com all want to be consulted when you are trying to determine the likely selling price of a home. Probably your home.

For most of real estate history, of course, determining a home's value has been the appraiser's job. Appraisals involve gathering data on recently sold homes in a given area and comparing them with the "subject property" on matters like size, bedrooms, bathrooms, garage, general condition and other characteristics, before coming up with an estimate of the home's worth. If the property has, say, a 4th bedroom, but most of the recently sold homes don't, the appraiser might add a premium to the sale value. This exercise involves as much art as science, as anyone who has done a few will attest..

The more unique or luxurious a property, the harder it is to accurately value. Subject properties may be so unique that no comparable properties can be found. You only have to tune into HGTV's unique homes shows to see what I mean. Where will you find another home that rotates to use as a comp? Or another one made out of old airplane parts that might have recently sold?

Buyers use the web site estimates to get a feel for what's on the market and, later on, to figure out whether their offer will entice a seller to play ball. Sellers might check their home's value to help decide whether it's worth the hassle of selling or just refinancing, even some Realtors use them to gauge if their listings are priced right for the market. As a practicing real estate agent, I'm increasingly resigned to spending time with potential sellers answering questions about the estimates.

Realtors know the estimates are wildly inaccurate. Valuations that are 20, 30 or even 50 percent higher or lower than a property's eventual sale price are not uncommon. The estimates frequently change, too, for reasons that aren't always easy for homeowners to discern. According to the web companies themselves, some quotes have swung by hundreds of thousands of dollars in as little as a month as new data gets plugged into the algorithms the sites rely on.

And the sites acknowledge that people like you and me can enter information that might push estimates higher. The sites invite you to add photos, and make corrections.  But what I'm trying to say here is a Trulia or Zillow estimate is just that -- an estimate.  Zillow even publishes precise numbers about how imprecise its estimates can be.

Every major site urges home-price hunters to always consult with a real estate agent or house appraisal specialist. And yet, consumers and pros alike say many homesurfers put their faith in the estimates to sway the way they shop and sell.

Since 2006 Zillow has been providing it's “Zestimates” to the masses. The company runs data on more than 100 million homes through its own algorithms that recognize relationships between property characteristics, tax assessments and recent transactions. Indeed, in a market where listing prices often reflect more hope than reality, some agents say that online tools are a useful tool—if only to open discussions with sellers.

Their iffy accuracy notwithstanding, critics say the sites' business models may pose a bigger problem for consumers than their algorithms. These online firms earn significant revenues from their advertising, and the more traffic they get, the greater that ad revenue is. Their advertisers are the likes of home-supply store Lowe's, realty franchisor Century 21 and builder KB Home. Meaning on the one hand they provide a free service to shoppers, and on the other they sell a service to the real estate industry—but think for a moment, who's their daddy?

Dane Hahn is a real estate professional in Englewood Florida. He can be reached at dane.hahn@gmail.com or through his site, http://www.danesellsflorida.com/.