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Palo Alto Weekly

Real Estate - April 19, 2013

Real Estate Matters

The good and bad of Zillow

by Wendy McPherson

When Zillow came online a few years ago, it was an instant challenge to real-estate appraisers and professionals and gave a great deal of perceived knowledge to the public. It was much like the medical sites that came online where you could check out the headache and accompanying bloody nose you had last night and search out the fact that you now have an Ebola virus.

People would start out conversations with their real-estate agents: "Well, Zillow says my house is worth XXX." These values are placed on houses by Zillow with the use of algorithms. I believe that is a four-syllable word for formulas.

I also believe these values are based, in part, on the square footage of the house and the square footage of the lot, although many more components go into it. The elephant in the room with Zillow, of course, is that no human being from Zillow has ever been in the house to see if that 325-square-foot kitchen's main feature is dry rot or it has just been remodeled by Ralph Lauren. Or if the house has a serious floor-plan problem such as having to go through one bedroom to get to another bedroom. Or...

Well, you get the picture. The absolute best model for the use of Zillow is a Fresno housing tract built in 1985 by a large nationwide home builder (like Kaufman and Broad) where there is complete consistency in the product and where the financial demographics indicate that most of those 218 Fresno homes may have not varied too much from their original construction. The fact is that Zillow is far more precise where the homes are homogenous as opposed to heterogeneous. Palo Alto and Menlo Park and the close surrounding areas do not meet this homogenous criteria. The houses were not all built at the same time, nor by the same builder and the money engine that is Silicon Valley has afforded homeowners the ability to do just about anything they want to their homes. (Did you know that one homeowner in the hills above Palo Alto has an ice rink?)

This is from Zillow's own website:

"The Zestimate home valuation is Zillow's estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home's value. The Zestimate is calculated from public and user submitted data: your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account. We encourage buyers, sellers and homeowners to supplement Zillow's information by doing other research such as:

* Getting a Comparative Market Analysis (CMA) from a real estate agent

* Getting an appraisal from a professional appraiser

* Visiting the house (whenever possible)."

Zillow has now been around for about seven years and it has become an excellent tool in many ways for both buyers and sellers. They have sophisticated statistical tools, charts, graphs, pictures, helpful links, loan information — it is a virtual smorgasbord of real estate information. Once you log onto Zillow, you can quickly become a real-estate voyeur. What did your neighbor's house really sell for? Did they actually get $3.4 million when you know their roof has been leaking on and off for six years and their garage floods every time there is a heavy rain?

Another thing to do is research your own neighborhood for price information and then compare it to the current Zestimate. As soon as you see a house come on the market, check out their Zestimate and then compare it to what it eventually sells for. A few recent examples in the West Menlo Park area: One house just closed at $2,400,000. The Zestimate on that same house is $2,017,493 (16 percent off). Another house just closed escrow at $2,800,000 and the Zestimate on that house is $2,342,055 (16 percent off). Yet a third has been listed for more than 100 days for $3,695,000 and the Zestimate is $4,147,000.

Regardless of big data manipulation and algorithms, it is still the buyers that make the market. Zillow is a great starting point, then listen to the people who are in day-to-day touch with the buyers.

Wendy McPherson manages about 145 agents for Coldwell Banker in two Menlo Park offices, plus Woodside and Portola Valley. She can be reached at


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