Thank you bfurnace for the photo.

Arizona regulators have taken a shot across Zillow’s bow. You can read more about the story on Fox11az.com.

The regulators in Phoenix Arizona are saying that Zillow is providing what they consider an appraisal with out an appropriate license. The Arizona Board of Appraisals has issued two cease-and-desist letters to Zillow. Zillow has often been accused of having a faulty evaluation algorithm that is misleading real estate consumers.

This is a cool app taking you on a roller coast ride of US house appreciation over the last 117 years. 

Real Estate Roller Coaster

Enjoy the ride!

If you have not already noticed, Zillow was on the cover of Fortune Magazine. Lately, Zillow seems to be the worlds most effective PR machine. There is also a very different article in the Wall Street Journal today that sites Zillow’s inaccuracies. I recently had a run in with an inaccurate Zillow Zestimate that I thought would be fun to share.

Above are two Zestimates I performed using Zillow on February 13, 2007. The two properties are right next door to one another. 4347 Harbord was sold in April of 2004 for $1,152,000. 4355 Harbord was on the Market and recently expired going unsold. I have physically seen the inside of both properties.

First, I can tell you that the Zestimate on 4355 Harbord is inaccurate because there are approximately 172 livable square feet that are not accounted for in the public records and thus they are not accounted for on Zillow’s site. The real square footage of the property is approximately 1,900 square feet. This has long been one of Zillows major problems that they will have to fix in order to make their Zestimates more accurate. Much of the public records in the Bay Area are incorrect. Zillow’s Zestimates rely on this data. While I was visiting the property I also read the disclosures. The house was pretty clean, but don’t ask Zillow about disclosures. Their Zestimates do not take property inspection reports and seller disclosures in to account. The moral of this story is that if you put garbage in to an equation you get inaccurate garbage out. Zillow has attempted to ameliorate this issue, by allowing users to alter their home’s data on their site. Would you trust a seller to accurately post their data? If you do then my 10,000 square foot home just went up for sale!

Second, if the square footage of these two homes is now almost identical, how can there be a $600,000+ difference in the Zestimates. My guess is that Zillow is weighting the more recent sales data of 4347 Harbord that sold for $1,152,000 in 2004. It is important to note that Zillow’s Zestimate is a complicated algorithm. An equation that is not public knowledge might I add. No bank would accept the validity of an appraisal if they could not follow the logic behind the report. Yet, Zillow is feeding the public data that is faulty all the while leaving their evaluation methods shrouded in mystery.

Third, Zillow is claiming that they can address a home like a stock. Check out the thirty day change above. How could one home go up by $110,201 in the last 30 days while the other one goes down by $30,782. For heaven sakes the two properties are right next door to one another. When we value stocks in real time like on Etrade, it is based on actual sales that are occurring every second constantly altering the value of the stock. Since most homes are not even sold from one year to another trying to evaluate price change every thirty days is crazy. Although viewing houses like stocks may be intriguing it is just not accurate. I will be the first to tell you your house is not an ATM and it is not a stock.

I am bringing this to your attention, because I viewed 4355 Harbord. I viewed the property disclosures. Their was nothing dramatic about the disclosures (another important piece of the value equation that Zillow knows nothing about). The property was listed at $930,000 and has now expired going unsold. If you are a seller you may want to visit Zillow’s site before listing your home and while you are at it check out my previous article, Zillow - How Inacurate Data Could Harm Your Homes Value.

My personal opinion is that if a company puts an exact price on a home that is so exact as to be quoted to the dollar (ie. the Zestimate on 4355 Harbord of $811,255) then they are influencing the market to believe that the stated price is the exact price. Even if they post a range of values below. If a company estimates a 30 day trend, they make themselves look like an exert who has been tracking value over time. Even if their original estimate is completely inaccurate. Don’t get me wrong, Zillow is interesting and it is good for estimating general price data. I recently used Zillow’s heat maps to help a client who was moving out of the area and needed a general sense of neighborhood pricing in a city out side of California. It is good at generalities, just don’t rely on it for specifics.

I have often said that 70-80% of home buyers search the web before viewing a home. Thus if you are a seller there is a good chance that the buyer of your home will view the on-line marketing materials before they write an offer on your home. That fact alone should make you jump on the internet and see how and where your home is advertised.

Currently, real estate agents have the ability to track on-line marketing data. We can see how many people viewed our online advertising and we can see where the traffic is coming from. This data is invaluable for sellers to take action on managing a listing. It has become so valuable, that viewing and discussing this data has become common place with my sellers.

In order to better serve my clients, I track the many new real estate search services, (ie. Craigslist, Google Base, Trulia, Oodle, Propsmart, Movoto, Vast, Edgeio, ect…) that are trying to capture the large number of buyer’s eyes that are searching the web. So, this begs the question, what is the best place to post a listing and who has the largest market share for internet real estate searching? In other words, where should your agent be posting your home to get the largest viewer ship possible? Because of the large number of new search tools available, my first assumption was that I would see a fragmenting of market share and that it was important for listing agents to post to all of these services in order to best serve their clients. Although, I still believe that maximum visibility is best and that it is a must to post to all of the real estate search sites, the reality is that there is a clear market share leader in Bay Area real estate listing searches. It is not one of the flashy contenders you might expect.

So, where do a majority of buyers search the web? Above is a graph of marketing data from a 2007 listing that I have sold. Over 2000 people viewed the marketing which proves that the internet is an important place to advertise your home. Where else do over 2000 buyers get and interactive experience with your property? I know for a fact that the buyer of this home first encountered the listing on-line. Thus, it should be interesting to sellers where the majority of their internet advertising is being viewed.

The winner is… Google Base Craigslist! It was amazing to see that 90% of the on-line viewing occurred on Craigslist. That means that the rest of the 7+ companies that the marketing was posted to are fighting over 10% of the remaining viewings. That is approximately 200 or so viewings on the above property. This shows that Craislist has a commanding presence in the Bay Area! This is truly interesting considering Craigslist is the least hi-tech of the above mentioned search sites. It is more like a interactive newspaper classified ad then a slick hi-tech searching device.

I must note that the above data does take into account many but not all of the major stake holders in real estate listing search. There are many other avenues for marketing a property properly for sale (ie. MLS, open houses, the newspaper, realtor.com, private brokerage sites such as redoakrealty.com, individual agent web sites like katieandmark.com, ect…). I will also note that each property in the Bay Area tends to be different from the one next door. So, I approach each of my listings as an exclusive marketing opportunity that needs to be calculated, unique, and individualized.

I often find myself telling clients that the Bay Area is full of individualized real estate micro-climates. With buyers I am always hoping for bloated inventory and
inefficiencies in different local markets that can be used to minimize their cost and maximize future property values. With sellers I am always looking for periods of slim inventory and positive market conditions to maximize their sales price and current value. Some of my clients are selling in one area and buying in another which makes their predicament all the more complicated.

There have been many times I have read articles and looked at data that makes our markets seem similar and flat. The reality is that the Bay Area is an amalgamation of complex micro-climates and that the job of a Realtor is easier said then done. Altos Research shows this trend in their real-time median price data graphs shown above. This is a great visual representation of how 6 different Bay Area cities median price data can look. It is also a great representation of what a Realtor must navigate in order to serve their client’s best interests. These 6 cities are only several miles apart in terms of geographic location, but they are worlds apart in terms of market micro-climates.

It is evident that the media is behind the investment curve. I studied this latent effect in a college business course, when I reviewed a study that looked at all of the top tier money magazines (for example Money, Forbes, BusinessWeek, ect…). The study assumed that an individual bought in to all of the magazines combined hot stock picks. The study found that following this strategy would net you a worse than -200% return. Yuck! The interesting conclusion we came to was that by the time the information had been printed in the magazine, it was common knowledge. That the information contained in the article was useless, because it was common to everyone, and the market had already adjusted for the news.

So how does this relate to real estate? Every day we are bombarded with news information about our local real estate markets. For the past 8 months I was bombarded with information about how the real estate markets were slowing down. Being that I am a constant practitioner of selling real estate (through transacting I constantly have my finger on the markets pulse), I can say that by the time the media started talking about a slowdown, it had already happened. Behind the curve once again. This is important, because many times when I first meet with real estate buyers and sellers, I find they are relying or are influenced by what the media has to say. A generally bad decision unless you want to be behind the curve.

Above is a graph from a company called Altos Research. Altos Research provides real time real estate data to customers (Stay tuned, I am currently writing a posting that will use Altos Research’s data to show how individualized neighborhood real estate markets are very different from each other). On their home page they show the above graph, which I thought is an excellent illustration of the news media being behind the real estate slowdown curve.

How do you estimate the market? How do you get your market news? Let us know what interesting uncommon information you rely on.

being that it is the gift giving season, I have been searching for unique real estate and property oriented gifts. This one comes from an Italian design company called Wet Studio. They have taken common household bath fixtures and made them in to a unique illuminating experience.

Zillow recently announced that they will be listing homes for sale on their web site.

On October 26, 2006 Zillow came under fire by the National Community Reinvestment Coalition (NCRC). NCRC publicly filed a consumer protection complaint with the Federal Trade Commission. They are alleging the, “Internet financial services and real estate provider Zillow.com is misleading consumers, real estate professionals and financial service providers in on-line home valuations. ” You can view the NCRC’s complaint on their web site (www.ncrc.org). It was a bit comical that this filing stirred so much attention and controversy. Real estate agents have long known that Zillows estimates (which they call, “Zestimates”) are often inaccurate and should not be used to asses the value of a property.

On December 7, 2006 Zillow announced an upgrade to their site. This upgrade includes a posting feature that allows for individuals and agents to post real estate listings on the site. As Business 2.0’s blog indicates Zillow is, “stepping squarely onto Trulia’s turf.” Trulia along with Craigslist, Google Base, Vast, PropSmart, Edgeio, Oodle and others are all currently fighting for being the predominant internet search tool for real estate listings.
As a Realtor who worked in advertising prior to becoming an agent, I find that a seller looking to put their home on the market should have their agent submit their property to many of these real estate search tools. I usually live by the expression, “the more exposure your property gets the better.” Yet, in terms of Zillow’s new listing search tool, I think posters should proceed with caution. Zillow is now marrying listings with its inaccurate estimate data. This inaccurate data may have a negative impact on a sellers listing.

Real estate agents need to keep on top of new advertising avenues for their clients. It is our responsibility to generate the maximum positive exposure for the listings we promote. I currently utilize many of the new services for advertising a listing online. I track the traffic that comes from each service and I use this data to better serve my clients.