03-06-18 Another Zillow done me wrong song
We've all seen the results of algorithms go awry through the production of results far from what was expected. Since the proprietors of algorithms have every interest in the world of not showing their math rarely do we get a peak into the how and why of the outlier result. Zillow seems to constantly ride the wave of results that make one scratch their head.
As was the case for a Seattle property most recently sold in June of 2017 for $225k. The algorithms of Zillow's breatheren placed the current value in a narrow range of $268-$318k; an appreciation bump alone that is likely the cause of other overzealous algorithms given that appreciation occurred in much less than a year of ownership.
Zillow took the cake at a valuation of $1.8M for the same property. What's a multiple of 8x among friends right?
Trivia question: where is Zillow's home base?
Turns out the overvaluation was far less proprietary in nature. The recent sale for $225k had been entered into a data feed as $1.77M.
So what we do know about Zillow's algorithm is recent sales data is heavily weighted. Also, that they currently have limited filters in place to verify new data relative to existing data.
In this case it was pretty simple to see there was an issue. However it does point to a much larger issue in their current data verification process that one should be aware of if you are using them as your only data point when evaluating a property.
Don't let Zillow or any of the other paths to valuing a property "do you wrong." The best practice is to follow through on what was done above. Triangulate values from many different sources. Also, if at all possible make one of those sources non-technology based by becoming an expert on your market values or working with an agent or another investor who is.
Have you heard of a Collateral DNA report? This is an in-depth, property level report used by lenders when they aren't local to a property. They can also be helpful to investors who are making valuation decisions on specific properties outside of their market area. If you'd like to take a look at one I'd be happy to show you as well as how to get one for a specific property you are evaluating. Just email me at email@example.com.