While homeowners are flocking to this new website to find out how much their house is worth, appraisers and the lending community advise caution. Zillow may not always yield the most reliable results. The buzz on this topic seems to indicate that the most accurate results are being returned for homes located in active urban metro markets weheras the least accurate results are being returned for homes located in less populated areas with less transaction activity.

Although Automated Valuation Models (AVMs) like Zillow.com use complex mathematical algorithms to predict home values, their results are ultimately only as good as the quality and quantity of current market data. As the old computer programmer adage goes, "garbage in = garbage out".

We wanted to take a glance at Zillow's results compared to actual residential appraisals we have performed in the past few months; so, we asked Eben Bryant to look into it. Now, this was no scientific study. We simply took a small sample of 12 appraisals we performed of single-family homes and condos located in the East Bay just to get an inkling of Zillow's accuracy.

Appraised Values vs Zillow Zestimates
Zillow provides a data coverage and accuracy table. They rate the San Francisco-Oakland area as one of their top metro areas and give it a four-star rating for accuracy. They say that an historical test of their database showed that 76% of the time, their Zestimated value was within 10% of the selling price.

Based on our in-house sample, Zillow's results were within 10% of the selling price (or in this case, our appraised value) only 50% of the time. That is, the Zillow estimated values for 6 out of the 12 appraisals we compared were within 10% of our value opinions. Not exactly the 76% accuracy they report; but, actually not too bad. Again, remember too though that this was a very small sampling and not really very scientifically significant.

What is most disturbing is where Zillow results did not come near our estimates of value or in some cases where Zillow had incorrect data for the home itself. In one instance, Zillow reported a house size that was half as large at it really is. Two other home sizes were 15% to 17% off their actual size. Keep in mind that we physically measure every house whereas Zillow relies mostly on assessor data that is not always accurate.

On average, Zillow's reported house sizes differed about 10% either way compared to our measurements and values on average differed within the same range. In one instance though, the difference between our value opinion and Zillow's was about 27 percent most likely due to the 15 percent difference in size they reported. In one-third of the sample (4 out of 12), our value opinions were about 11 to 16 percent higher than Zillow's estimates.

Do Appraisers Fear Zillow?
Valuation Services, LLC is primarily engaged in the appraisal of residential and commercial real estate. Naturally, we don't like to see more competition and some appraisers may feel that Zillow presents a a real threat to our livelihood. The fact of the matter is though that no Automated Valuation Model can replace a hands-on appraisal.

In fact, Jorrit Van der Meulen - VP, Partner Relations for Zillow says, "The Zestimate is not intended to take the place of a professional CMA nor appraisal. It is intended to help consumers become more informed and educated in the process [of home buying or selling]." As more and more counties go live with their assessment data, this type of service was inevitable anyway. It is our jobs as appraisers to be sure that consumers interpret the data correctly. AVMs and mathematical algorithms are not always the best answer. Remember "garbage in = garbage out".

For more information on the reliability of Zillow and to see what Richard Powers, president of the Appraisal Institute has to say, read this article published by the Appraisal Institute:

http://www.appraisalinstitute.org/publications/ano/default_past_issues.asp?volume=7%20&numbr=3/4#2200