Is the Zillow Zestimate Simply Inaccurate or Deliberately Fake?

Mortgage rates continue their rise, ending the week at a 20-year high of 7.16% for a standard 30-year fixed-rate mortgage. As covered in previous weeks, the real estate press continues to report the false and artificially lower rates that eventually meet the real rate, so watch for the inevitable reporting of this fact over the next few weeks.Show more

Am I guessing? No, here is the data that PROVES IT.

More importantly, is this affecting the values of real estate?

Nationally, with all the drama of the stock market, inflation, gas prices, and mortgage rates, the market seems on the same pace its been on over the past few months, not as hot as the last 2 COVID years but similar to the pre-COVID period. 

Look at the national inventory chart below. In order for a housing crash or crisis, there have to be more sellers than buyers to drive prices down, and that is still not happening. As you can see, inventory, while higher than last year's all-time low, is less than all previous years on record, including 2020 during the COVID pandemic.

Similar conditions exist in our Los Angeles market. While sales are down, the dollar sold per square foot of house has continued to rise, showing the strong market for housing.

But advertisers need something to get readers and to sell the advertising, what do to?

Well, Zillow has done a 180-degree turn and no longer is predicting record increases of 17.8% it did in February but now has reduced it to a 1.4% increase for the year nationally. And since that news does not generate enough interest, it will detail which counties it expects to go down so the seller can get their fix of anxiety and solve it by looking at Zillow's online tool. How comforting, a tool that already is off by 90% for the year. 

There is a saying in technology, that if you are not the customer, you are the product. That means that when companies give a "free" service, they are usually selling your information to someone else to pay for it. Google started as the best search engine, but over time has morphed into an online shopping mall for both products and advertising to their actual customers. Similarly, when Zillow started, it was the premier source of national real estate data, and they published their findings in a ground-breaking book. Over time, however, selling leads to real estate agents became profitable, necessitating happy homeowners willing to talk to the real estate agents that Zillow sells the data. How do you do that? I am not saying that Zillow is PURPOSELY inflating the value of their estimates, but ... you can judge for yourself.

One thing I noticed is that Zillow adjusts its estimate when a property is listed, or the listing status changes, or the price changes. I find that interesting because if you had an analytic valuation of a property, it would not be affected by the seller's requested price, that's the value of an estimate. And this is a new practice that started as Zillow moved from selling leads only based on buyers to selling leads to agents of homeowners looking to sell and as Zillow looks to become a real estate agency itself.

Look at this recent example I experienced. A friend asked me to analyze their property and suggest a price. As is my practice, I checked all the automated value models, including Zillow's. This was in late August, about 45 days ago, and at that time Zillow estimated the property as $2,044,600. Yet, once the property was listed, they raised their estimate to $2.4 million, $2,296,400, or an increase of 17.3%.

Less than 30 days later, when the listing price was cut to $2,295,000 Zillow reduced their estimate to $2,296,400. Again, the only change in the data is that the seller agreed that they have overpriced it.

So, at the same time, Zillow slashes its estimate for housing values over the next year down from 17.8% to 1.4% they raise the value of this house by almost the same amount. how can that be? The answer is that the Zillow estimate, which used to attempt to be an estimate of the value of the property, has become the price that generates the most advertising for Zillow. Yet another reason to seek input from a professional real estate agent that knows the actual data and has a responsibility to tell you the truth.

All that said, I don't have a crystal ball, so, what to do?

If you are looking to buy a home and live there for a while, real estate has always been a great long-term builder of wealth and there is nothing to suggest that is changing if you can afford the home.

If you want to move or downsize, it's still a great market to sell, but a bit more challenging than in the last few years.

Finally, if you can find a property that will give you cash flow, this is a great time to get solid cash flow and enjoy the tax benefits of real estate.

How can I help you? Call, text, or email me.