Although it might mark me as a modern Luddite, I have always believed that machines will not replace humans at certain tasks. While real estate has become more and more dependent upon the computer in the last few years, and the internet especially, the World Wide Web will not replace the Realtor anytime soon.
Yes, I know, there are other professionals who have not been so lucky. Remember the travel agent? (Yes, children, humans actually used to sell airline tickets and hotel reservations… and no, their names were not Expedia or Priceline.) But in the end, there’s not much variability between one plane ticket and another. The airlines set prices and incentives and there you are.
Houses are something much more difficult to value and purchase. And a prime example of such variability showed up last week in the pages of the Wall Street Journal, after that bastion of conservative capitalism conducted an evaluation of Zillow.com, one of the internet services that claims to be able to ascertain the value of anyone’s home.
To summarize: Humans 1, Internet 0.
To test Zillow against the real estate market, the Journal used direct market data from regional multiple lists for 1,000 transactions that had just closed - too early for that data to show up in Zillow’s database. The overall accuracy of Zillow’s estimates in the Journal study had a median price difference of 7.8%, above or below the actual sales price. Zillow itself lists its median ‘margin of error’ at 7.2%. Not bad, you say? Well, remember that on a lowly $200,000 purchase 7% adds up to $14,000. Not only will that pay a Realtor’s commission and more, it can also exhaust the negotiating room that many Sellers build into their asking prices, or that Buyers build into their opening offer. But that’s just the median.
Zillow was more than 25% off target in 11% of the transactions surveyed. And in 34 of the 1,000 transactions, Zillow was more than 50% off. In one spectacular example of computer wizardry, Zillow underestimated the value of a house by more than $2 million. (For the original Journal article, see the Personal Finance section of the paper, Wednesday February 14, 2007.)
While these computerized estimates of value might be great fodder for dinner party chit chat, its clear that you really need a Realtor to come, take a look at the property and its community, look at the most recent comparables in the private multiple list database, and come up with a Comparative Market Analysis (CMA) the ‘old-fashioned’ way. To do otherwise, is simply foolhardy and could easily cost a Buyer or Seller far more money then they could possible save.
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