hahaha!! Fantastic post. Where in the world is David G?

OK, OK …

The first one’s a trick question. The sale is a foreclosure. Foreclosures are distressed sales at a discount to market value. Zestimates are an estimate of market value (not foreclosure value.)

Now as for the 2nd one, you might want to click that link again … that Zestimate is $624K. It has been since Monday. But, in your defense, Julie, it did increase recently and that sale was again a foreclosure, so I’d typically expect this Zestimate to be higher. Mostly though, I wonder how you get 3 full bed rooms in a thousand squares.

So, by my count, Zestimates far from failed this test. The 3rd sale was actually a deed of trust and so, while not a totally normal transaction, you’d expect it to be the one closest to the home’s market value.

How does Zillow handle foreclosures? First; don’t expect Zestimates to approximate foreclosure values; they should typically be higher. We exclude historic foreclosure sales when calculating a home’s Zestimate because it wasn’t a true reflection of the home’s value at the time. And lastly, we don’t include recent foreclosures in the algorithm that calculates the Zestimate – just like a Realtor will typically exclude foreclosures from their comps list.

That all said, remember that Zestimates aren’t intended to be the final word in home values. Now, go find some REALLY challenging Zestimate values for me to explain.

Haahaa… Thanks David.
You know, I considered giving you guys a 15% error cushion and allowing you to pass on these “questions”… but that wouldn’t be very interesting, would it?
So, Zillow excludes foreclosure data, huh? Interesting…. but, another question I have then, is what about foreclosures affecting prices? We all know the rise in foreclosures is helping speed up the price decline rate. Does Zillow just assume the influence of foreclosures will just be reflected in other sold stats (non-foreclosures) and, therefore, taken into account in the zestimates? Guess so… which makes sense.
Ok… on to new properties! Always a pleasure, David G.

What happens if foreclosures become so common that they actually start to make the market? That’s a frightening question and just a year ago, it was an impossible scenario but now, I’m not so sure. It’s the stuff that sleepless nights are made of. When foreclosures make the market, it could literally put home values in free fall until the foreclosure inventory is exhausted. Just look at what happened in Detroit. And San Diego may actually be headed in this direction – see the discussion I had with Kris Berg on this post: http://tinyurl.com/36krs3. If foreclosures do start to make the market, Zestimates will react but will most likely fall more slowly than the market drops. Kris and I discuss this issue in some detail. For an owner living in such a market, though, Zestimate accuracy is the least of your problems.

David G,

Thanks for the further information. A lot of reputable sources (including trusty Redfin) are telling people to price their homes ahead of the market (i.e. lower than what sold just yesterday)? Sounds like Zillow is appraising homes as if they were to be sold at the same time as the recent stats. Given the current state of the market, wouldn’t it be a good idea to price “ahead” of the current stats with an assumption of accelerated decline?

Also, for those wanting to check out the site David lists above, copy and paste without the period.

Oh, and by the way, enough talk about San Diego. We have a condo down there which I regard as a gigantic wart on our financial face right now.

I’ve found that Zestimates tend to be at least $100k over the value of homes in the inland empire right now…most are around $200k above what someone would pay. Some of the estimates make me fall off my chair in laughter. When four out of five homes sold in an area are foreclosures and the other 20 homes for sale have been on the market for over 6 months, it’s time to start counting the foreclosures as sales…because they are the only sales that are happening.

Hey Buttermonkey,

Question for you… do you think it’s possible to accurately appraise a home with a fancy algorithm? In other words, do you think Zillow’s math (or data) is just plain wrong or are they trying to name the impossible?

Julie, whatever they are doing, it ain’t working for the IE. You know the saying that things are only worth what people are willing to pay? Well, I can tell you that NOBODY is willing to pay what Zillow says things are worth in the IE.

Take this listing, for example, http://www.redfin.com/stingray/do/printable-listing?listing-id=393600

This house has been on the market for way over a year for $495,000. Zillow has it valued, at the present, at $485,000. Now, don’t you think that if that house was worth that much that someone would have bought it by now?

That house is worth $350,000. It’ll be worth less and less as we march through 2008.

How about this house. It’s in the same neighborhood because this is the neighborhood I’ve been staking out.

http://www.redfin.com/stingray/do/printable-listing?listing-id=1461899

Zillow has it valued at $730,000. HAHAHAHAHAHAHAHAHHA!!! Not a chance! That thing has been on the market since AT LEAST last november for $579,000. Nobody will touch it. I’ve looked at it and I’d bet that someone would buy it for $450K.

I could go on and on with examples, but I’m sure you get the point already.

Like I already said, when the majority of your sales are the foreclosures, you’ve got to come to the realization that those are the houses that are priced properly.

Buttermonkey,

Good stats/examples. The first one doesn’t bother me as much because Zillow is pretty close to what they’re asking (which some properties are still selling around asking prices, believe it or not… when priced right). The second one seems way off. It must be the lot size or something.

Have you looked into buying a foreclosure? I’d be interested to hear your experience/perception regarding auction homes.