What went wrong at Zillow

In 2019, Seattle-based Zillow launched its iBuyer business, called Zillow Offers, to purchase homes directly from owners, make repairs and put them back on the market.

Zillow was so confident in its pricing algorithm that it said its Zestimates would serve as the initial offer price on eligible homes. That didn’t last.

The company announced last year that it was exiting the iBuying business. In a quarterly earnings call, CEO Rich Barton said Zillow was unable to correctly forecast future home prices amid volatility in the pandemic-driven housing frenzy.

Indeed, an unexpected desire for new housing by work-from-home Americans, combined with ultralow mortgage rates, drove U.S. housing prices to new highs.

Rick Sharga, an executive with RealtyTrac, says Zillow’s business model was flawed, noting on his company’s site that house-flipping investors often pay too much and underestimate the time and cost to ready a home to sell.

“Zillow Offers appears to have made both mistakes and done so at a large enough scale to result in hundreds of millions of dollars of losses,” Sharga writes.

Sign up for Credit Sesame and see everything your credit score can do for you, find the best interest rates, and save more money at every step of the way.

Get Started—100% Free

The best ways to determine a home’s value

One lesson stands out from the Zillow fiasco: Property values can change fast. Do your homework on fair market value.

Find a qualified real estate agent

Your real estate agent must know your neighborhood. Good realtors analyze recent similar property sales to recommend a list price, says Corey Burr of TTR Sotheby's International Realty in Washington, D.C.

“I don’t know any seasoned agents who depend on the Zestimate for a pricing recommendation,” Burr tells MoneyWise.

“But because the marketplace is so familiar with Zestimates, it often would be discussed relative to what buyers’ expectations of a property might be.”

Get an appraisal

While not legally required, your real estate agent will likely suggest you get an appraisal and include an appraisal contingency in your offer.

Plus, lenders require an appraisal when you take out a mortgage — and sometimes for a refinance — to ensure the house or condo is worth the amount you want to borrow from them.

An appraiser examines the home and studies market trends, along with other factors such as location and whether the house is in a flood zone.

In a rapidly appreciating market, it’s not unusual for an appraisal to come in below the price a buyer is willing to pay. In those cases, some appraisers are willing to accept additional information about the local market and revise their valuation, Burr says. But if they’re not, the buyer and seller may have to renegotiate the price.

Look beyond computer-based valuations

It’s tempting to accept the prices spit out by private real estate websites — Zillow is one of many — but remember that those figures are simply estimates. Zillow even says buyers and sellers should supplement Zestimates with their own research.

With your realtor or on your own, compare a home with similar properties. Be sure to consider less obvious factors such as school zones. Two similar houses in the same area can have wildly different values if only one is zoned to a top-rated public school.

And as another point of reference, check the Federal Housing Finance Agency’s house price calculator, which projects home appreciation values for many areas.

Compare car insurance and save up to $500 a year

If you haven't compared car insurance recently, you're probably paying too much for your policy. Getting quotes from multiple insurers used to be time-consuming, but today's technology makes it easy.

Using a free site like Pretected is easy and could help you save up to $500 a year on car insurance. In mintues, their "smart matching" system will provide tailor-made quotes from insurers that can meet all of your coverage needs - and your budget.

Stay protected on the road and find more affordable car insurance in minutes with Pretected.

What to Read Next

Disclaimer

The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.