Friday, April 25, 2008

Zillow rocks, People.

On my recent post about the house on Nagle I was a bit careless in my comments about Zillow. My apologies, Zillow. Because honestly, Zillow is one of the best home valuation tool out there. Don't act like you read this blog but don't spend 20 hours a week logged into Zillow. Seriously, you aren't fooling anybody.

Is Zillow perfect? Nope. Can Zillow really tell you the exact value of YOUR house? Nope. It runs on an algorithm, People -- they are not going to your house and taking measurements and evaluating the quality of your roof. Zillow is not a damn crystal ball either. It cannot tell you what your house will sell for. You know who can tell you what your house will sell for? YOUR BUYER. Ugh. When you build a better algorithm, let me know. Until then, Zillow is the gold standard. It is. I know you want a crystal ball, but don't get mad at Zillow for not giving you one. They are giving you existing data and that has real value.

That said, Zillow posted a helpful response to my post and I figure it deserves some highlighting here. In fairness to my other commenters, I'm republishing all comments on that post (because even though we sometimes disagree, I still love you guys! And divergent opinions are important). Here we go:


Hi, it's David G from Zillow.com,We currently ignore all foreclosure transactions because foreclosures are typically not a measure of market value (in a normal market.) In a normal market, Realtors do the same thing when setting prices. It would typically be stupid for a seller to comp their home against foreclosures. Now, however, there are so many foreclosures in some areas that sellers have to compete. This is no "normal" market; at least in SoCal and elsewhere. Foreclosure inventory is so incredibly high in places like San Diego that foreclosures literally are the market. Pretty scary. Banks don't have the same motivation sellers do to hold out for their price. It's not hard to imagine that some markets are literally in free fall until the foreclosure inventory drops. Our analysts are actually reviewing whether there may be a way to identify and account for this phenomenon but for now, Zestimates ignore foreclosures.


April 24, 2008 6:09:00 PM PDT
Anonymous said...
Hey David G- get used to foreclosures being the measure of the market. Hate to tell you, but the "zillow way" of assessing the market is over!

April 24, 2008 10:21:00 PM PDT
Anonymous said...
Hi David G. As a potential homeowner, I am extremely disappointed that team at Zillow feels that without foreclosures included this is a "NORMAL" market. Based on this simple post, I am concluding that your algorithm is not designed to handle real-estate prices appropriately. In a normal market people making 80K a year cannot afford 500-600-700-1mil homes !!! Foreclosures/REO's are priced (marked-to-market) by the banks !!!!!! Even though bank prices are still high, they (the banks) feel they are pricing these houses appropriately, yet you feel this is not part of a normal market !!!You cannot ignore market data !!! Foreclosures are part of the market !!!! Bad trades are not ignored on the stock exchange, yet you feel you have the right to remove valid data from your algorithms. Guess what, it is going to get worse, stop giving people hope !!!!!!!!Disgusting !!!



April 24, 2008 10:24:00 PM PDT
Emil said...
"Foreclosures/REO's are priced (marked-to-market) by the banks !!!!!! Even though bank prices are still high, they (the banks) feel they are pricing these houses appropriately...:Small distinction: Banks do not price the houses to what they should be worth (factoring out the housing bubble). They price them as high as they can, in a market of buyers willing to pay for that price level. "You cannot ignore market data !!! Foreclosures are part of the market !!!! Bad trades are not ignored on the stock exchange, yet you feel you have the right to remove valid data from your algorithms."On point! :)


April 25, 2008 7:48:00 AM PDT
ProblemWithCaring said...
Stop listening to David after: "Realtors do the same thing when setting prices."Annnnnd???Why would a Realtor WANT to comp a foreclosure when their commission is based on HOW HIGH a piece of property sales. I mean, is Zillow about market value pricing or isn't it? If you don't want to be a flash in the pan, stop using the outdated realtor model and ADAPT.


April 25, 2008 11:57:00 AM PDT
HP12C said...
Thanks David G for pointing out how Zillow is a trailing indicator at best and totally useless. In fact, it's more useless the more dynamically the market is changing in either direction by definition... BRAVO!Well there is one use, for realtors looking for another piece of inaccurate data with which to fool 'clients' into paying more. Is the the goal of Zillow? Your 'normal' market definition is bull$hit. Period. If Zillow were not fraudulent, it would show what it says it shows - what a house will sell for in the marketplace. How on earth can that not include foreclosures? Are market prices set by what realtors say they're worth or what people pay?


April 25, 2008 1:08:00 PM PDT
HP12C said...
Actually, I think it's important to point out that Zillow is more wrong the more a market is changing, but it's MORE wrong on the way down than it is on the way up - because it eliminates foreclosures but not very high (fraud?) sales. How realtor of you, Zillow. You're worse than everyone you're trying not to be because you imply you're not acting in the same manner to deceive and keep info from the marketplace.

14 comments:

phaser21 said...

I think the commentators republished above missed the point. What Zillow is excluding is the recorded value of the transfer to the bank in a foreclosure--not sales of foreclosed homes from banks to third parties. That makes sense because the price of the transfer to the bank is not a "market" price, but is equal to the outstanding balance on the defaulted loan. In fact, including those transfers actually could artificially inflating zestimates, particularly if the owner used 100% financing without a piggyback.

That, or I misinterpreted David G.

HP12C said...

If that's true, I agree, the transfer to the 1st note holder should not be included because it has nothing to do with market price but what the loan was for at some prior time. But that's not what David says. He said Zillow excludes "all foreclosure transactions." Perhaps David can clarify.

And Kate, I love you. Really. Maybe you're free on Saturday and can ditch the husband? But Zillow isn't the best out there, there's nothing good out there. You shouldn't imply that Zillow is somehow more accurate or trustworthy because it's not, especially since as David points out, they're trying to price how a realtor would and not how the market would. THAT'S what makes me so angry...

The real estate market needs REAL
clarity and has been operating under the "realtors are the only ones who have the info so we can manipulate it" platform for way too long. Don't forget the real estate system's significant contribution to the mess we're in now. For zillow to come in and say they're different is infuriating.

kate said...

hp12c:

I love you too. Really I do. But I'm already booked on Saturday night. And, you know, I'm just not that kind of girl.

But about pricing the way "a Realtor would"... it's pretty close to the way "the market would." The market has both sellers and buyers -- and the prices are somewhere in between.

Don't get me wrong, I feel the same thing you guys do when I see a $760/sq.ft. listing (and that would be outrage). But the listings are all over the board right now -- it makes sense that Zillow is to. That's how it goes in transition periods.

Anonymous said...

Zillow can no longer be considered a pricing tool. It is looking more and more foolish with the passing of each week. When foreclosures are the market, then Zillow needs to IMMEDIATELY adapt. They should come out with a press release stating that as of June 1st all zestimates will factor the foreclosure market. Zillow is helping to prolong the agony of this market by giving sellers false hopes. If we're heading for one mortgage in six entering foreclosure in the state of California then Zillow needs to evolve or become extinct. It's a shame they are not seeing this.

HP12C said...

Oh, Kate, if only we were still in highschool...

And I think your assumption that pricing the way "a Realtor would"... it's pretty close to the way "the market would." couldn't be less true. There's too many realtors so there's too many realtors desperate for a listing that will put it up at the price the sellers say, not what the market will clear. On top of that, so many realtors have no clue, price so they have room to come down, are looking at ancient comps, have no clue, are hoping for a miracle buyer (greatest fool), have no clue, etc. etc.

The proof is the number of homes reduced 15% or more. And you can find them in EVERY market... even the westside, where by law housing prices go up 25% every year forever!

Emil said...

phaser21 wrote:

"I think the commentators republished above missed the point. What Zillow is excluding is the recorded value of the transfer to the bank in a foreclosure--not sales of foreclosed homes from banks to third parties"

No. Read again David's post, specifically:

"Foreclosure inventory is so incredibly high in places like San Diego that foreclosures literally are the market. Pretty scary. Banks don't have the same motivation sellers do to hold out for their price. It's not hard to imagine that some markets are literally in free fall until the foreclosure inventory drops".

Seems to imply what our fellow posters were critiquing.

Zillow has an immense wealth of data and plenty of useful features. No question about it. However, the critique is justified if Zillow's intent really is to capture faithfully what is going on in the market. Selectively ignoring certain data of a phenomenon that has become part of the norm (always was!) is data manipulation. It does not take Zillow a trillion man-years working on a complex program to include this data. They choose not to. The justification, the underlying motivation, and usefullness of the resulting data was questioned - and I think that this is justified.

There is no improvement without an open discussion and honest critique. If something is good it still has way to go to become great.

HP12C said...

Banks don't have the same motivation sellers do to hold out for their price. It's not hard to imagine that some markets are literally in free fall until the foreclosure inventory drops

Maybe you're correct, he's not very clear. For him to say foreclosures don't matter and include the idea that sellers somehow control the market price shows what a pathetic realtor-scam Zillow is. They're trying to be more likable in the marketplace by showing things are better than they are. Is that because fewer people would go to their site if it said their houses were worth less?

I hope Zillow stops lying about being a valuable tool and starts acting like it.

Anonymous said...

Hi, it's David G from Zillow again.

Thanks Kate! You rock! Tough room.

In markets where foreclosures are setting the market those sales will obviously influence the price of the few normal sales that are still happening. So, Zestimates do indirectly reflect falling values due to foreclosures but incorporating foreclosure sales directly would give us more data to work with which could improve accuracy. Our model does not however directly account for this phenomenon and so we're working on tweaking our algorithms to identify those markets and tweak Zestimates accordingly. If you want to figure out if a sale is exclude from Zestimate calc's look for an asterisk next to the sale price in the sales history and tax info for the home on Zillow.

Foreclosures certainly don't typically set market prices. Why? Simply because a bank optimizes their sales for cash flow where-as a seller will optimize for cash out. It's a supply and demand issue. The supply of foreclosure properties is normally too small to influence market values. But in your market, supply of REO's have now grown - and demand for homes has fallen - to the point that REO's do make the market.

Zestimates are estimates. They aren't appraisals and they don't make the market.

hp12c said...

David, do you really believe what you write down? Or are you just walking the company line like so many realtors and mortgage brokers?

If there are 500 houses for sale in a market and 10 are foreclosed, are you saying that 2% doesn't matter? Or that it's reflected in the sellers that need to sell lowering their prices?

If you're selling lemonade for 1$ and a stand down the street starts selling it for 25 cents because their lemonade is going bad, does that affect the market or are those prices too low that I just don't want to talk about them? Are the lower lemonade prices reflected in my Zestimate because I lower my lemonade to 45 cents and then close my stand? (or take my house off the market because I'm underwater?)

If I have to sell my house, is it worth closer to the Zestimate that is figured on ancient data and fantasy, or what someone is willing to pay?

The ONLY thing that matters in setting any market is closed sales and those prices are generally set on the margin - where death and divorce and relocation and job loss and promotion and FORECOSURES live. What doesn't matter is WHY they sold at the price they did or who sold it. All the other factors (location, size, etc) get worked out in the SALES PRICES. If they were worth more, the bank would sell them for more!

And despite really liking your site and the ease with which it gives much diverse info, your arguments in support of the Zestimate are telling as to the nature and motivation that permeates your site... traffic and fluff and pushing real estate the old fashioned way, instead of facts.

Having a company goal of keeping Zestimates artificially high (further proven by the jump in zestimate values despite market implosion following your recent algorithm tweak) instead of attempting to have them reflect the true market is deceitful, misleading, irresponsible and probably not the best move for an online venue, because online is where people like more transparency.

And this isn't that tough room, it's an honest room. So if you come in here dispensing BS like the NAR, you're gonna hear it. Now you want my suggestions for what you should change the name "Zestimates" to?

Anonymous said...

hp12c -

It's David again ...

Zillow has no motivation or intent to inflate Zestimates. As I've repeatedly mentioned, our analysts are actively working on the highly unusual phenomenon we see in SoCal where REO sales are setting the market.

In your scenario you are totally ignoring the all-important demand side of the equation but I'll try to answer your question anyway. If 500 homes are on the market and 10 are bank-owned and you are a seller ... pricing your home at the level of the 10 foreclosures would be beyond stupid. That's assuming there are 500 buyers in the market (the all-important demand piece of the equation.) Likewise, if a buyer's justification for a low-ball offer is that 2% of homes are at a discount to your price, the smart thing to do is to tell that buyer to go buy those homes. Again, assuming there are 500 buyers. Now, if there are only 10 buyers in the market in your scenario then you are correct - set your price to compete with the REO's. It all comes down to supply and demand. The reason REO's are setting prices in SoCal is not because that's the way the market works ... it's because supply has exploded, demand has tanked and foreclosures are a larger component of supply than they've probably ever been.

Please tell me where it is that you think that Zestimate values have "jumped despite market implosion." [davig AT z DOTCOM]

hp12c said...

"is not because that's the way the market works"

That's EXACTLY how the market works. When the REO's sell they drag down the market, and if the sellers want to sell, they will adapt. It happens faster when more REO's sell (especially when more REO's sell than non REO's, as is happening now in places.)

And what you're describing as normal is a very rapidly rising (bubble) market, not a descending or even healty market. Your assumption that there's 500 buyers in a market with 500 homes is EXACTLY the problem. In a healthy (non-bubble) market that's never true. And the demand side in a normal market is never as important because the person bringing the money always (in a normal market) has the upper hand.
If you have 2% of foreclosures and 500 houses for sale there's little urgency. Compound that with buyers that can now get educated as to loans on the property, any pain of the sellers, all comp sales and you have a market that is much more realistic and REO'S are a HUGE part of it.


Maybe the problem is Zillow has only been around in joke years and never in reality, perhaps if you went back and made a formula that worked in say 1999, (and put down the Kool Aid) it would be more accurate.


As for the uptick in zestimates, I noticed in December or January and read somewhere - I think it maybe from you - that Zillow had "tweaked" how it worked it's algorithms which seemed to send values up.

hp12c said...

"The reason REO's are setting prices in SoCal is not because that's the way the market works ... it's because supply has exploded, demand has tanked and foreclosures are a larger component of supply than they've probably ever been."

AMEN. (And it's not just SOCAL)

ProblemWithCaring said...

“But about pricing the way "a Realtor would"... it's pretty close to the way "the market would." The market has both sellers and buyers -- and the prices are somewhere in between.”


See, that doesn't make sense with their business model, Kate. Real Estate agents, as middle men, must
hoard
information to find success. Zillow (supposedly) ask Why not help consumers by giving them access to the same kinds of information and tools agents use? Why not equip consumers with information about what is their most important investment — their home ?

Why not indeed? Information should include an analysis that takes into account all relevant market trends, demographics, location, etc. that all factor into the final sales price.

Why when it comes to foreclosures, we should all then be asked to concern ourselves with the needs of one mythical seller in the midst of some hypothetical crisis, and lives in a world of unrelenting demand?? THAT WORLD DOES NOT EXIST (AND when it did exist it was a Ponzi scheme).

There is really no point in going back and forth: Zillow needs to include the foreclosure numbers just like Kate said, just as all the commenters have said and just as David G himself admitted (in his only coherent post about 4 comments back) is what Zillow plans to eventually do.

Anonymous said...

David ZILLOW ...

Stop defending your vested position and start putting
out some truth.

The only numbers buyers are
looking at is the historic last
sale and the lowest foreclosure comp in the neighborhood.

Between the two, they're then deciding how much longer they
will probably need to wait
until considering a purchase.

The longer Zillow props-up prices
with BS, the longer the market
will wait for the truth.

GET WITH IT! Your numbers are
a waste of time!