Real estate value Web sites good but not perfect
"Try a few of the sites and you'll see you're getting answers that look like the result of a pinball machine," says Frank Gallinelli, president and owner of RealData, which produces software for real estate investors and developers. "If you just want to make yourself feel better or make someone else spend some money, you can prove virtually anything with these sites."
The frequent inaccuracy of the estimated values
was one of the major points of a complaint filed
in fall 2006 with the Federal Trade Commission
against Zillow by the National Community Reinvestment
Coalition, or NCRC. The coalition, made up of
more than 600 community-based organizations
promoting responsible lending and equal access
to credit, claimed the site intentionally misled
the public and real estate professionals about
the accuracy of its valuations, called "zestimates."
In an audit of the site, NCRC
found that the "zestimates" on the
properties it reviewed came within 10 percent
of the actual appraised value of the properties
less than 30 percent of the time. It also charged
that the site tended to overvalue properties
in predominantly white neighborhoods and undervalue
them in predominantly Hispanic or black neighborhoods.
Zillow spokeswoman Amy Bohutinsky
says Zillow's "zestimates" are designed
as a starting point and that the site says in
many places that it's not an appraisal, but
a free research tool for consumers, and that
it tries to be "really transparent"
about its accuracy. Zillow claims that its median
margin of error is 7.2 percent nationwide, and
that 62 percent of "zestimates" fall
within 10 percent of the actual sale price of
a home, Bohutinsky says. But even Zillow's figures
mean 38 percent don't.
Bohutinsky says that once Zillow learned about the NCRC complaint, it immediately contacted the group and began a "series of positive and productive conversations to help them better understand our business. We feel good that this matter can be resolved in the near future."
David Berenbaum, executive vice president of NCRC, confirmed that he had been contacted by Zillow's attorney and they were working on a resolution.
"We want to make sure consumers
understand the strength and quality of the information
they're looking at, and we want to be sure the
company's 'zestimates' are accurate in low-to-moderate
neighborhoods and more affluent areas,"
Berenbaum says. "We hope we can create
a model that others will emulate."
Good raw data
If the sites have a practical use, it's in the
amount of raw information they give you, Gallinelli
says. The primary benefit is that you can see
the actual selling price and date that houses
in the neighborhood sold, if the house is in
a county where the sales records are updated
online on a regular basis.
Otherwise, ratchet down your expectations, Gallinelli
says. "If you think this is the magic silver
bullet, it's not. There are too many ways the
estimate of value could go astray. If you put
on blinders and think it will spit out the real
market value, you're in trouble."
The bottom line is that online real estate valuation
sites are great as a starting point for research,
but they have limitations and they're not looking
out for your best interests.
"Just because it's posted on a Web site doesn't mean it's accurate," Berenbaum says. "There is no substitute for doing your due diligence."
Pat Curry is a freelance writer based in Georgia.