Remember the hubbub a few weeks ago when NAR revised some of its home-sales data? It’s happening again — but this time it’s Zillow on the receiving end.
And people are not happy about the changes.
Quoth the Wall Street Journal story:
On June 14th, Bill Trumbo, a 68-year-old retired financial analyst in Phoenix, Ariz., logged onto his bank’s online personal financial management account and found that his house in Phoenix had lost nearly $100,000 in value overnight.
Let’s be real. His house didn’t lose “nearly $100,000 in value.” The “Zestimate” for his house did, and that only has a tenuous connection to reality. (All right, maybe that was a bit harsh. But using Zillow’s estimate as the actual value of your home is like using a Oujia Board to name your child.)
So what happened?
Zillow changed its formula for creating those “Zestimates.” Oh-oh.
Good: Now it gives more weight to recent sales. Bad: It still relies on user-submitted data about improvements. Silly: People still think those figures represent reality.
Bill Trumbo (from the Journal story) saw one of his homes’ Zestimates drop $92,100, while another rose by $67,600. As a result, Trumbo believed his personal net worth dropped, and “[h]e dashed off letters to Zillow’s CEO, as well as to the CEO of his bank, Wells Fargo, explaining that Zillow’s change had caused him to lose $40,000 in paper net worth.”
How would someone respond to such a letter? (“This vague estimating tool says I’m not worth as much!”) Perhaps by explaining that no serious financial institution would rely on a “Zestimate” for anything other than… well, not at all, actually.
Reality kicks in around paragraph 10 of the story, which quotes Appraisal Institute spokesman Bill Garber, who explains that Zestimates are just a kind of automated value model:
AVMs have limitations, the biggest being the lack of inspection and oversight of any improvements. Complex markets render them nearly useless. They’re basically an aggregation of public records data, and public records are riddled with errors.”
And my favorite line of his, which sums it all up: “Garbage in, garbage out.”