The first thing to understand is what Zillow is not. Zillow is not in real estate. It is not a public service like a library. Zillow is a business website, established to lure eyeballs who want to gaze at homes and, in turn, to sell advertising to real estate professionals.
Understanding Zillow’s Zestimate
Zillow acquires data by amalgamating all the information on housing it can find. Amalgamating is a fancy word for mixing and merging data from various sources into one source.
Many computerized programs exist that attempts to forecast the value of a home. Even real estate agents use computerized programs, but the difference is real estate agents don’t rely on those programs as, say, one might view artificial intelligence.
Just last week, a judge in Illinois dismissed a lawsuit brought by a number of homeowners who claimed that the Zestimate undervalued their homes and cost them money when they tried to sell their house.
MarketWatch’s Andrea Riquier explained: The suit claimed that home buyers read the estimate as an appraisal regardless of whether it was an official appraisal and expected to negotiate accordingly. Zillow, for its part, had stressed that the Illinois statute made clear that calculations formulated in the way that Zestimates are can’t be used as official appraisals.
The judge, in dismissing the suit, agreed. “Zestimates are not false, misleading, or likely to confuse,” the ruling read. “The word ‘Zestimate — an obvious portmanteau of ‘Zillow’ and “estimate’ — itself indicates that Zestimates are merely an estimate of the market value of a property.”
Zillow has consistently tinkered with the algorithm that powers the Zestimate over the years, improving its accuracy, measured by how close the Zestimate is to the eventual sale price of a home, from 14% in 2006 to 5% as of a few months ago.
But a 5% error rate is still a 5% error rate, which leads to problems like lawsuits in Illinois.
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