What the Zillow Debacle Should Teach Us About Online Pricing

The algorithm that Zillow uses to determine Zestimates (Zillow’s home value assessment tool) has gotten a lot of bad press lately, and rightfully so.

The algorithm, which relies on public data to assess home values is highly flawed and because Zillow can’t see, first hand, the condition of the home, age of appliances and mechanicals, location, etc. their algorithm is rarely accurate and almost always inflated.

And this is why Zillow has run into trouble…

In 2019, Zillow launched their IBuyer program called Zillow Offers that buys homes directly from sellers, rehabs them, and then sells them. Zillow used its algorithm to determine initial offers to sellers but because of the inaccuracy in its algorithm and Zillow’s tendency to inflate prices, the program quickly began losing money - lots of money. Zillow was paying too much for homes and not able to sell them for profit. Their algorithm failed and Zillow had to halt their IBuyer program after only two years.

What can we learn from Zillow’s inaccurate algorithm?

Pricing a home is a complicated process that cannot be automated. While Zillow can be a tool in determining a home’s value, it should not be the only one. Having an experienced real estate agent who knows the neighborhood, stays up to date on market trends, and actually walks through your home with you is your best bet at getting an accurate evaluation of your home.

Not sure where to start in determining the fair market value of your home? Call an agent and ask for a Comparative Market Analysis (CMA) to be done. Most should do this free of charge.

Have questions? Reach out anytime!