Let a Pro Tell You What That House Is Worth. Really, You Must.

Brian Doherty | April 18, 2007

Jonathan Lansner in the Orange County Register writes of the state of Arizona's Board of Appraisal's attempt to ban Zillow unless it gets itself an official state appraisers license. Zillow is a website that provides to private citizens a free computer-generated guess about possible home values--a "zestimate," if you will. Which is distinct from an "appraisal," because, well, you need a licensed trained professional for that, as Arizona is trying to insist. Some excerpts from this account of protecting politically connected jobs, er, supporting vital professional licensure:

In some ways, this is a silly regulatory debate over what Arizona defines as a legal appraisal of a property and who can legally do such home valuations. This smells like a regulatory body protecting its own flock........

More importantly, Arizona v. Zillow feels like a shot across the bow to the budding business of arming consumers nationwide with critical information they need to navigate the muddy waters of a housing market.

Zillow is a pioneer in putting computerized home valuation models in the hands of consumers......

Where do these automated home price values come from? High-brow math splices together transactional nuggets – like prices of recent purchases near a home or how similar homes are selling in a region – to arrive at ballpark estimates. Bankers have been using these tools for a decade or more as a backstop for human-made appraisals as well, in some cases to make mortgage loans.

..........

Zestimates are usually seen by industry insiders as rough guesses of a home's value. In fact, Zillow acknowledges an error rate of plus or minus 7.2 percent within its nationwide price database of 51 million homes. In fact, one consumer group has complained to the Federal Trade Commission that Zillow's estimates too frequently mislead the public about real estate values.

But this isn't a fight about whether Zestimates are any good. It's about whether or not you should see them.

...........

If numerous professionals in the business are using automated valuations – from lenders to some appraisers to investors who buy mortgages – the consumer should be able to get a taste of these models, too.

More on this from the Arizona Republic.

Comments

|4.18.07 @ 10:45AM|#

Sooooooo....I'm not allowed to guess how much my house is worth. Are they going to ban self-appraisel?

what about cars, will the insurance industry ban kbb because it allows consumers o make a guess how much their car is worth?

|4.18.07 @ 10:52AM|#

Let's see...I bid $215,000 for the hous and now I need to spend $500 for an appraisal. Guess how much the appraisal will come in at?

The appraisers work for the bank and if the bank needs a number they get it. It's hardly professional.

How many years is appraiser school anyway?

|4.18.07 @ 11:01AM|#

Go to the housing blogs. You will see everyone comment how wrong Zillow is all the time. In bubble areas (e.g. Pheonix, Arizona) that have seen 10-15% price declines this year, Zillow is still reporting houses at 2005 prices. There is some concern that Zillow's inaccurately high pricing is encouraging overextended borrowers to hold out for the money instead of cutting their losses (like they should be doing). If this is true, it will exacerbate the crash because the houses will all end up as REOs.

Is Arizona's decision the right one? I don't know. But Pheonix is getting hammered and a lot of its sellers are still living in denial.

|4.18.07 @ 11:03AM|#

The appraisers work for the bank and if the bank needs a number they get it. It's hardly professional.

Yes, that is how it works now. However, again, on some of the housing forums you do read posts by "old school" appraisers that have refused to play this game. For a while, they were black-balled by banks because they could not "hit the numbers". However, it is starting to sound like some of them are getting business again, because banks are now trying to cover their butts.

All of this is heavily anecdotal and should be salted accordingly.

|4.18.07 @ 11:15AM|#

Some excerpts from this account of protecting politically connected jobs...

This smells like a regulatory body protecting its own flock...

Two examples of the logical fallacy known as "poisoning the well".

Jack|4.18.07 @ 11:32AM|#

HoI, you geto worked up about the journalistic standards of editorial pages frequently, don't you?

|4.18.07 @ 11:36AM|#

I'm hardly "worked up", I'm just pointing out that editorials would be more effective if writers stuck to making arguments about why their position is better instead of assigning ulterior motives to people who disagree.

|4.18.07 @ 12:23PM|#

Zillow is wildly inaccurate. You are a fool if you put any faith in their valuation.
but
Arizona is being ridiculous if they ban it as an unlicensed appraiser.

The appraisers work for the bank and if the bank needs a number they get it. It's hardly professional.

You're not quite right. I think you are confusing brokers and bankers. It is not in a bank's best interest to juice a value. Long term, it is not in a broker's interest either, but many of them are not in the business for the long term.

Allen|4.18.07 @ 12:24PM|#

So we're supposed to use the same profesional appraisers that have been cookin' the numbers for banks churning out the mortgages?

|4.18.07 @ 12:28PM|#

Dear god I hope their valuations are off - or my house has lost 50% of its value in the last year.

Also, I don't think the house next store just sold to 98k (I have the small house on the block, valued around $150k), some I'm thinking some of their numbers might be off a wee bit.

Mike|4.18.07 @ 12:30PM|#

Go to the housing blogs. You will see everyone comment how wrong Zillow is all the time. In bubble areas (e.g. Pheonix, Arizona) that have seen 10-15% price declines this year, Zillow is still reporting houses at 2005 prices

It's completely obvious why Zillow would overestimate values when prices are dropping. The simplest system for estimating home values is a moving average of similar sales. Say, the sale prices of similar houses over the last 2 years. *Obviously* the drop in the estimate is going to lag the drop in actual sales by some amount. That's how estimates based on past sales are *always* going to work.

Wait a few years until the market picks up again and you'll start seeing people bitch about how Zillow is underestimating prices the same way.

|4.18.07 @ 12:39PM|#

And another thing,
Allen,
If you are paying cash for your home, you don't need an appraisal at all. The only purpose for the appraisal is to assure the lender that they are lending at the loan-to-value that they think they are. For you, as the buyer or homeowner, the home is worth whatever you think it is, right?

|4.18.07 @ 12:54PM|#

Protectionism, nothing else. Ignore the control freaks who say otherwise.

Those in the REI complex are losing. The Real Estate profession, like car salesmen, is a dying profession. Tools like the internet, FSBO, shows on DIY, TLC, all help people sell/buy housing, without any so called "experts" (what, a gold jacket?)

Real Estate agents are bloodsucking bastards - they bring absolutely nothing to the table. They intentionally complicate the process, scare clients into buying ("BUY BEFORE YOU ARE PRICED OUT!"), into selling too soon. By their very nature are they not working for your interests. They do not own the assets, only mooching off of the lifelong savings of the home-owner/home-buyer.

|4.18.07 @ 12:56PM|#

Zillow basically just establishes a link between the tax assessment and the purchasing prices for houses since that's all the data they have (unless you enter details, but few people do that so it probably doesn't help much).

It's convenient for finding purchasing prices, since those are often difficult to find from government sources (but getting easier all the time) but it really doesn't tell you anything new, and it's estimates are very wide and move rapidly.

|4.18.07 @ 1:08PM|#

Hey, Finkelstein, you're a dope!
Real estate agents have little to do with appraisers. Appraisals are required by lenders. Do you think that mortgages are going to disappear too?

If you had a clue, you might have brought up AVMs (automated valuation models). Instead of an appraisal, home equity lenders often run an AVM to check if the value is supported or lenders run an AVM to double check value if they question an appraiser's work. AVMs are far more accurate than Zillow, but within the industry they have not taken the place of appraisals because they are still not as accurate.

Sorry to be a bit rude, but I get that way around people making bold uninformed statements about topics on which they appear to quite clueless.

|4.18.07 @ 1:20PM|#

If Zillow is such a fraud, why doesn't the right and honorable attorney general of Arizona proceed with fraud charges?

|4.18.07 @ 1:52PM|#

Highnumber - let me guess. You're a Real Estate Agent? Or a Realtor, as some say?

BTW - Zillow IS an automated valuation model.

Nothing really to offer, other than Finkelstein (maybe a dope, maybe not... I don't know) is right when he says that the Real Estate Profession is dying. Just like Travel Agents. Remember those? They took a percentage of they money that a traveler paid an airline (hotel/cruise line/car rental firm) for a ticket. Once the passengers (the "buyers") realized that the airlines (the "sellers") had to charge more for tickets because they were paying the travel agents (the "Realtors") 10 percent of what the buyer was paying, the buyers decided they would be willing to do a little research on their own, and pocket that 10%. The internet (ie; "information") facilitated that. Just like Zillow, and online databases of houses for sale will eliminate the need for Real Estate Agents (and make housing 6% more affordable for everyone).

Just rambling... nothing to see here... move along.

CB

|4.18.07 @ 1:57PM|#

"Real Estate agents are bloodsucking bastards - they bring absolutely nothing to the table"

They bring a lot to the table. Experience in the local market(an absolute requirement to set a home's price), usually they have a group of contractors (inspectors, mortgage brokers, etc.) who will work to get you into a house once you've decided you want it (try getting out of a contract, with cause, without a real estate agent), knowledge of the contracts and closing procedures.

I don't have the survey but according to it FSBO's usually lose more in time and money then they would pay to an agent for their services.

I don't think it should be outlawed but Zillow does suck- the word need to get out... so the market can fix it ;).

|4.18.07 @ 2:01PM|#

CB,

No. I am not a Realtor®. I do work in the mortgage industry. Realtors® are, for the most part, dipshits, and I agree that state licensing does a lot to shut down their legitimate competition. This post, however, is about appraisers.
Zillow could certainly be called an AVM, but it is not as accurate as the one that I have access to that costs me $20 to use. Like most things in life, the free version is not as good as the one that someone charges for.

And, for the record, I think state licensing of appraisers is BS, too. Certain lenders require that brokers use appraisers from a list of pre-approved ones. There is no reason that the market cannot provide associations and approved lists of professionals without any state licensing being involved.

|4.18.07 @ 2:07PM|#

Cracker's Boy,

Travel agent's essentially did data entry on a proprietary computer network. Dont' get start on "the" MLS. There are over 900.

Real estate agents, market your house(costs much more than you think), help price it, Show your house(try it yourself sometime), negotiate, help closing, etc.

There are certainly services agents provide that can be replaced online but selling and buying houses is not a simple endeavor.

No I'm not a real estate agent- work tangentally to the industry. Aunt and Grand mother were.

|4.18.07 @ 2:11PM|#

Addition...

Most people don't know how to change a light switch and many think they should single handedly
oversee every aspect of the largest financial transaction they'll ever make? Sounds foolish to me.

|4.18.07 @ 2:22PM|#

Got it, Highnumber. I think we agree. In the other hand, StupendousMan...

Ah! Preview! Okay StupendousMan... we can disagree on this one. I, for one, just don't see the value in the Realtor... particularly not at (my most recent experience) 7%.

Anecdotal, but personal. I had my house for sale a while back. FSBO. Bought a sign at Home Depot, put it in the yard, after doing some diligence on what I thought my house was worth and what I thought I could sell it for. A few weeks in, met a "buyer" and we agreed on a mutually acceptable price. The problem was, he was transfering in from another state and his employer required that his purchase of a house (that they were assisting in the purchase of) be handled though a Realtor (insert trademark thingy here). The bitch had the gall to look me in the face and tell me that I would have to pay her 3 1/2% of the cost of the sale of the house (that I marketed, that he found without her help) and that the 3 1/2% was not negotiable. She wanted over $11,000 for driving the fella' out to my house one day (he knew how to get there... he'd found the house himself driving around 2 weeks earlier).

Anyway, the extra $11K boogered the deal. (You see, I priced my house at a "reasonable" amount... and didn't inflate it by the customary 7%).

But I digress. This thread is about appraisals. I just Zillow'd mine and imagine that it is within a coupla' thousand bucks of what I could sell mine for.

CB

MORE Preview!! And yes, selling (or buying) without an agent, I WOULD have an attorney representing me... not a real estate agent... and attorney... as should my buyer/seller.

|4.18.07 @ 2:37PM|#

Zillow values one of my houses at about 400% the actual value and another at 30%.

|4.18.07 @ 2:56PM|#

If I want a realistic guesstimate on what my house is worth, I'll call a local R.E. agent to do a "market valuation" at no charge.

|4.18.07 @ 2:59PM|#

"tell me that I would have to pay her 3 1/2% of the cost of the sale of the house"

As far as I know you have no obligation to pay the buyer's agent anything. The buyer might since they had the relatioinship. But if the buyer didn't sign an exclusivity agreement with the agent they might not owe anything either. Although a drive to the house might constitue her representing the buyer. It's up to the buyer to make the most of their agent.

Mike|4.18.07 @ 3:03PM|#

The bitch had the gall to look me in the face and tell me that I would have to pay her 3 1/2% of the cost of the sale of the house (that I marketed, that he found without her help) and that the 3 1/2% was not negotiable.

My neighbor just sold her house to a friend's sister. My neighbor had just started working with an agent to sell the place, but found her buyer without his help. She said as much to him and he completely agreed, offering (but not demanding) to do the paperwork, etc. for 1% instead of the usual 6% or whatever. Worked out great for everyone.

Any agent that says the 6% or 3.5% or whatever is "non-negotiable" is lying*. They're not going to do anything if you don't pay them, but you don't have to pay them for something they didn't do.

*: modulo state/local laws, etc.

|4.18.07 @ 3:56PM|#

What we need is an E-Trade for the Real Estate market. I agree that Realtors are nice to have, but it's the 6% of selling price that I object to. Why should his/her commission be based on the value of my home? A set fee would be more appropriate. Like $1000 per month of representation or something. (That might take care of the overpricers too).

The Wine Commonsewer|4.18.07 @ 4:37PM|#

Zillow is about a buck fifty low on my house and about a buck fifty high on my rental house.

The appraisers work for the bank and if the bank needs a number they get it. It's hardly professional.

Yes, but it's not always how you think, when I re-fi'd a few years back the appraisal came in at exactly the loan value plus 20% which was about 150 grand less than the market value at the time. As an offended homeowner, I complained about them using an out-of-area appraiser. They asked me why I cared at all since I now had my 5% fixed with zero costs. They had a point.

The Wine Commonsewer|4.18.07 @ 4:38PM|#

A set fee would be more appropriate. Like $1000 per month of representation....

Help You Sell Dot Com

jf.sellsius|4.29.07 @ 2:12AM|#

The Arizona law is overbroad, in the legal sense, meaning it covers innocent behavior (2 guys giving opinions of their neighbors' homes over a few beers). This makes the law unenforceable. It is much ado about nothing. Zillow need only file what's called an action for declaratory judgment to exempt itself from the law. It's a slam dunk win.

Zillow in a nutshell:

Zillow as a tool will either confirm what you already know, be totally off based on what you already know or be a totally stupid thing to rely on (even as ballpark) if you have no idea about a home's value.

|5.1.07 @ 1:51PM|#

Hey NAL, for ethical reasons appraiser's are not allowed to charge a fee that is contingent upon value. Maybe that ethical rule should be applied to broker's and agents.