The UrbanTurf Interview With the CEO of Zillow

• November 16, 2010
• 9 Comments

by Joe Marhamati

For those who don’t know, Zillow is an online real estate database and marketplace that rivals Trulia as one of the biggest real estate websites in the country. Founded in 2005 by Rich Barton and Lloyd Frink, Zillow offers many of the features available at other online real estate brokerages (listings, local real estate data), but it has become famous for creating a proprietary algorithm called the “Zestimate” that provides values for millions of homes around the country.

UrbanTurf recently interviewed Zillow CEO Spencer Rascoff about the website, the DC housing market and the evolving accuracy of its popular Zestimate tool. Rascoff, a former investment banker who co-founded the discount travel website HotWire.com in 1999, took the place of Barton as chief executive officer in September.

1) Can you provide some insight into the methodology that goes into Zestimate, Zillow’s home valuation tool, and why you think it is the most accurate valuation tool available? How does the tool take local market conditions into account?

Our team of economists and analysts developed a proprietary algorithm, the Zestimate, designed to estimate the current value of a home. It starts with data about the physical characteristics – number of bedrooms, baths, square footage, lot size – of all the homes in an area, and then looks at the relationship between these characteristics and the sale prices of homes in that area. We use those relationships to estimate the current value of an individual home. We’ve calculated historic Zestimates on most homes, and in some cases we have more than 10 years’ worth of data. So, not only can you look at any house’s value today, but you can also chart how its value has changed over time.

We also track the accuracy of our Zestimates and publish the results down to the county level. When a home sells, we compare the Zestimate value from the day before the sale to the actual sale price. The results are published here.

The Zestimate is designed as a research tool for home valuation, but ultimately, a home’s sale price is determined by the buyer and seller. By offering valuation information for 72 million homes across the country, coupled with data like recent transactions and neighborhood comparisons, Zillow gives buyers, sellers and owners a starting point to become more knowledgeable about home values.

2) Many UrbanTurf readers are home buyers in urban, dense markets. Do you find that the Zestimate is more or less accurate based on how urban or dense the housing stock is?

Zestimate accuracy is impacted by the frequency and history of nearby sales. Therefore, as long as an urban and dense housing stock is seeing frequent sales, the accuracy is likely to be improved compared to rural housing locales with few sales.

3) Looking at the state of the country’s housing market right now, is there anything you see in Zillow’s data that makes the DC market stand out?

The rate of DC foreclosures and foreclosure re-sales are lower than the national rate. Zillow’s Q3 Real Estate Market reports, which were released last week, showed that, across the United States, 20.1 percent of transactions in September were foreclosure re-sales. In the DC metropolitan statistical area, 16.6 percent of sales were foreclosure re-sales. Additionally, the rate of homes foreclosed upon has been trending upward nationally, whereas the DC Metro has been trending downward since it peaked in September 2008.

4) The web and mobile have changed the buying and selling of real estate a lot over the last 10 years, but the real estate industry is still considered a laggard in terms of technology adoption. What areas of the industry would you still like to see changed and/or improved by technology?

Technology is changing the way industries work, and real estate is no exception. The biggest trend we see is that real estate consumers are much more wired these days. The Zillow Mobile App has been downloaded more than 2.5 million times, and on weekends when home shoppers are out and about, 20 percent of Zillow’s total traffic comes from mobile.

What that means for the industry is that it’s more important than ever to respond quickly to consumers. Home shoppers have the ability to email real estate agents while standing in front of a house they like, and if they don’t get a quick response, they’re moving on to the next one.

5) There has been a lot of chatter over the years about the accuracy of Zestimate. Can you give us an update on the tool’s accuracy as it stands now?

We continually test Zestimates against actual sale prices to calculate our exact accuracy down to the ZIP code level. Nationwide, our median margin of error when compared against actual sales is 11.1 percent. This accuracy varies by area, and in DC, the margin of error is 9 percent. Not bad – but since our preliminary data comes from public records, when homeowners revise that data to reflect current home facts, we recalculate the Zestimate based on those revised facts. As we get more listings and updated home facts, our algorithm gets smarter and this accuracy increases over time. Again, however, a Zestimate is a starting point in determining the value of a home; it’s not an appraisal.

This article originally published at http://dc.urbanturf.com/articles/blog/the_urbanturf_interview_with_the_ceo_of_zillow/2667

9 Comments

1. Spencer Rascoff said at 11:25 am on Tuesday November 16, 2010:

   Thank you for the interview, and your interest in Zillow!

1. Benson said at 11:30 am on Tuesday November 16, 2010:

   I think many people look at the Zestimate and immediately equate it to an appraisal, which it is not. I am glad Ruscoff clears that up in this interview.

1. w said at 12:02 pm on Tuesday November 16, 2010:

   but since our preliminary data comes from public records, when homeowners revise that data to reflect current home facts, we recalculate the Zestimate based on those revised facts

   DC has terrible public records oversight, half-assed data collection and a poor track record for accurate data used in assessments.  Sorry, but I have no incentive to correct what I suspect is under-reported square footage, prior improvements or poorly conducted drive-by assessments that will increase my property tax bill.  I don’t lie to them, but if they can’t bother to do any due dilligence, I’m not going to correct them on their work.

   Any potential homebuyer knows the published numbers are meaningless.  I can live with a lowball “Zestimate”—that’s why the Zillow numbers are largely perceived as capricious and out of touch with reality.

1. pazzysmom said at 11:32 am on Wednesday November 17, 2010:

   I agree with w.  So why even have zillow.com?  In the case of our house they have always (i.e., the past 5 yrs) over-valued it considerably, market peak or not.  In our case, our house is valued at $375,500 (laughable) on zillow.com, at $333,121 at eppraisal.com (which others have said is a more reliable estimate), my tax appraisal for 2011 is at $306,000, but a recent actual appraisal of our house for a refi this past summer resulted in $200,000.  What gives??

1. Alan Gross said at 12:32 pm on Wednesday November 17, 2010:

   I tell everyone to only use it as a basic guide. The difference in Zillow and eAppraisals values can sometimes be unbelievable. There’s no way an electronic service can accurately value a property. I was talking with a real estate agent recently about refinancing her home. She gave me the Zillow value. I told her to do her CMA. It would be more accurate.

1. Jesse Kaye - HomeTryst.com said at 6:07 pm on Wednesday November 17, 2010:

   Zestimate has been relatively accurate in the past for an all encompassing automated valuation tool.  We’ve been studying them for a while and think that there’s a more accurate way to evaluate the data as a valuation tool with the right algorithm but at the end of the day its really about the end consumer.  Right now there are about 14 factors that my team has come up with that we believe will influence the value of a property and taken into account should help the system predict outcomes of actively listed properties.  There was a great article out on another site that accurately portrayed the zestimate against public record data on a nearly precise ratio.  After several months of testing I think we’ll be more accurate though.  Who knows….its going to be about 45 to 60 days until we release our next round of code onto HomeTryst.com (currently undergoing massive revisions).

1. E H said at 10:37 am on Saturday November 20, 2010:

   Zillow estimates that a blighted, abandoned house that no one has lived in since the late ‘90s three doors down from me is worth $420k.  Laughable.

1. Pat Kennedy said at 11:56 am on Saturday November 20, 2010:

   You really can’t talk about DC and the DC Metro area in the same answer!  And ou also can’t look across a zip code in many parts of town without pulling out particular neighborhoods.  My block in an affluent neighborhood in 20011 (Crestwood) has Zestimates of many houses that are about $250,000 off because they base the calculations on homes selling in Petworth.  They might be able to do it accurately for suburban neighborhoods across the metro area, but they aren’t quite ready for the big city just yet.

1. BARRY HINZE said at 10:11 am on Thursday August 11, 2011:

   YOU CAN GO RIGHT TO IT!

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