As Zillow buys homes, people — not Zestimate — find what it’s worth.
Zestimate — Zillow’s famous estimate of how much a home will sell for — has gotten smarter, the online real estate service says, using neural networks and computer vision to inform its algorithm.
But Zillow does not use the high-tech Zestimate to price the homes it buys itself. It does that the old-fashioned way — with a local real estate brokerage running sales prices of comparable homes, by hand.
“We have the Zestimate, so we are very transparent about what a machine thinks the value is,” said Joshua Swift, senior vice president of acquisitions and operations at Zillow. “That’s not the same thing we use to price the homes.”
The news may come as a bit of validation to real estate agents who have spent years telling homesellers that Zillow’s Zestimate does not always reflect what the market will bear.
“Imagine that,” said Houston broker Chance Brown with a chuckle when he heard that Zillow does not rely on Zestimates to price homes it buys itself. Brown said he wasn’t surprised, because he considered the Zestimate a gimmick to get homeowners and buyers to visit the website.
“People, especially practitioners in my industry, get a little too worked up over it,” Brown said of Zestimates. “They have to remember, Zillow’s only concern is driving traffic to their website, so it can justify itself to advertisers. I don’t put a lot of stock in it.”
But now that Zillow Offers and Opendoor have entered the Houston iBuyer market, making online offers to buy homes directly from sellers, they have created a separate measure of what a home is worth. And it’s backed up by cash.
Determining worth
Homebuyers may find iBuyers’ measures of home value especially important in states such as Texas, where laws make it near impossible for homeowners to learn the prices at which similar homes in their neighborhoods have sold. To do so, a Houston homeowner has to contact a real estate agent who is a member of the Houston Association of Realtors, which has created a private database of home sales prices.
Now that homeowners in Texas and other markets have a new route for understanding what their home is worth, they are requesting offers from iBuyers in droves, even if they’re not yet ready to sell. Since Zillow Offers launched in April of 2018, 100,000 homeowners across the country have requested an offer from the company, far more than the roughly 1,600 homes the company bought in its first year. Opendoor has received more than 400,000 requests since it launched in 2013.
Because Zillow reviews every offer by hand, it has hired hundreds of employees to process the requests; some have been working weekends to keep up with the volume. This April, Zillow announced it was opening a new office with 300 employees dedicated to Zillow Offers, and it expects to add 160 more employees by the end of the year.
In Houston, Zillow works with a local brokerage, The Mark Dimas Team, which helps Zillow collect and review comparable sales. Mark Dimas said the team is working together with Zillow to find ways to make the process more efficient.
IBuyers don’t buy homes in every market, and they do not make offers on every home that requests one (generally, they target newer homes valued within a certain range of the market’s median sales price.) But they still take requests from homes they will not buy, because they can then get a referral fee for connecting the seller to a traditional real estate agent.
“No matter how a homeseller decides to sell their home, Zillow Offers has a service for them,” said Zillow communications manager Jordyn Lee.
In the meantime, Zillow is continuing to improve its Zestimate. In 2006, Zestimates were based only on public records, such as tax appraisals and, in states where real estate prices are public records, deeds . Now, a technique called computer vision allows Zillow to analyze images of homes, their interiors and surroundings. The algorithm recognizes patterns of pixels representing landscaping, a well-kept lawn, hardwood floors or high-end appliances.
Texas limitations
“It’s a big leap forward, because it means the Zestimate can now understand not just a home’s facts and figures, but its quality and curb appeal,” Stan Humphries, the creator of the Zestimate, said in a press release.
But in Texas, where Zestimates don’t have access to home sales prices, Zillow can’t vouch for the accuracy of its algorithm.
“Texas is a nondisclosure state,” said Tara Waggoner, a Houston real estate agent. “So with that, a Realtor in the MLS system is the only way to get a comp.”