The wrong way to reinvent the wheel
At any point in time there is someone trying to revolutionize the real estate industry by doing something so
radically different that it would change the way things are done forever. Some (not me) will argue that one of these attempts would be Redfin’s approach to real estate with their reduced fees and service. Others will mention FSBO list for a flat fee sites as a new way to go. Although I may not agree that these models represent the direction that the real estate industry is heading towards (as much as the national media wants it to), I have to admit that their approach is in fact radically different to the “standard”, if you will.
Recently, the big buzz in the real estate revolution talk has revolved around Zillow and their Zestimate’s effect on the real estate industry. Before I make my main point I want to say that I like Zillow and their overall ease of use and creative real estate concepts (i.e. Make me Move). In my opinion, any automatic valuation model (AVM) utilized as a substitute for a human edited comparative market analysis (CMA) is definitely the wrong way to reinvent the wheel. Allow me to explain. An AVM tool, like Zestimate,
utilizes public and private sales data to automatically come up with a value for a particular property. I believe that any tool that is not humanly edited, in most cases will yield an unrealistic value. Just yesterday, I was looking through a comparative market analysis for a particular home in Houston and if you simply took the average selling price/SF and multiplied it by the square footage you got a value of $145,000. If you looked closely at the data (human edit) you would notice that homes of a smaller square footage sold for a price/SF
significantly higher than their larger counterparts. Upon this closer look, the value of the home was truly $131,000. That is a significant difference!! Out of curiosity, I checked the Zestimate for the property
and as expected, it was pretty close to the $145,000 number. As comfortable as the idea of punching in an address and getting an instantaneous value can be, I don’t think that it is the correct way to
determine a property’s value.
The numbers never lie. Zestimates just can’t “read” the numbers right.
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September 27th, 2007 at 6:07 am
Great post! I have a difficult time explaining to people the difference in various values associated with their home. As an inspector, I like to provide the tax value information for their insurance quote, but people assume that this has something to do with market value, which needs the human element to determine other factors, such as the neighborhood. Looking at Redfin, what do you think of Realtors forgoing commissions to work for a salary? Dr. Demming’s model for total quality management would suggest that Redfin is better suited for growth, than traditional Realtor compensation.
September 27th, 2007 at 6:08 am
Great post! I have a difficult time explaining to people the difference in various values associated with their home. As an inspector, I like to provide the tax value information for their insurance quote, but people assume that this has something to do with market value, which needs the human element to determine other factors, such as the neighborhood. Looking at Redfin, what do you think of Realtors forgoing commissions to work for a salary? Dr. Demming’s model for total quality management would suggest that Redfin is better suited for growth, than traditional Realtor compensation.