Below, I posted a blog about an article that Fortune magazine published in its 2/7/07 issue on zillow.com, the internet site that purports to provide an estimate of the market value of a home. Following is an email which I sent to the author of that article:
“Your article on Zillow.com completely ignores the fact that you simply can not estimate a property’s market value given the limited public information available, such as the age of the home, location, number of bedrooms or bathrooms, or square footage. Many factors such as whether it has been remodeled, the desirability of the floor plan, proximity to schools, street appeal, etc. have a huge impact on market value. Only an experienced real estate agent or appraiser, taking all factors into consideration, can provide a property owner with an accurate estimate of a property’s value. I have seen many instances where Zillow.com’s valuations are 50% or more inaccurate, with many of their valuations appearing to be almost random.”
Today, I received an email response from Jeffrey O’Brien of Fortune magazine, the author of the article on Zillow.com, that read as follows:
“Actually, I think you’re ignoring the third section of the article, where I discuss this. I agree that the knowledge in the mind of an agent is the best approximation on the true value of any home (which is why I bothered to follow around brett barry and experience his knowledge first-hand). But what if there were a central warehouse for all the information that exists in the mind of every homeowner, every buyer, every seller, every realtor? Only then would you have a perfect market for real estate. It sounds far-feteched – until you think of wikipedia. Who ever thought you could have an authoritative encyclopedia compiled not by so-called experts, but by the masses? Whether or not zillow can pull this off is immaterial to me. But it is coming, some day, and smart realtors are thinking about how their business will change because of it. Anyway, that’s what I think.Thanks for reading – and writing.”
The following was my response to Mr. O’Brien:
“The problem is that consumers (buyers and sellers of real estate) are using zillow.com, thinking that it is an authoritative source of information, and it is not!!! These people are making investment decisions based on faulty assumptions and information, somewhat based on publicity and articles such as yours. The focus of your article should have been on how zillow.com is perpetrating a fraud on the users of its service instead of on how wonderful it would be if the real estate markets were transparent and efficient like the stock markets. Real estate is not a fungible commodity, and can not be valued like a stock, which is traded on a daily basis, with its market value determined through an efficient marketplace.
Because an individual property has its own unique characteristics which significantly affect its value, and is infrequently traded in the market, the real estate market will never be what you envision as including a central warehouse for all the information that exists in the mind of every buyer, seller, or realtor, and articles such as yours just continue to feed the publics misconception as to the accuracy of zillow.com.
Although in the body of your article, you do address the problem with the accuracy of zillow.com’s valuation estimates, and the fact that an informed real estate agent is well worth his commission, the headline of your article “What’s your house really worth? . . . How Zillow is turning online voyeurism into a real estate revolution”, infers that zillow.com is a valuable and accurate tool for consumers to use (unfortunately, many people only read the headlines of articles such as yours).
The conclusion to your article is that wouldn’t it be wonderful if the real estate market were a completely efficient marketplace with perfect information, and that zillow.com was leading the way to such a marketplace, however the conclusion should have been that zillow.com is providing wildly inaccurate information to consumers, and that due to the basic nature of the residential real estate market, that such an efficient marketplace can not occur because of all the variables involved in pricing a home.”