Zillow's rewrite of real-estate history upsets some homeowners

Company says calculation changes increase accuracy ... past, present and future

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According to Zillow, the estimated value of Louis Gray's home recently jumped more than $40,000 overnight, a startling development that offered Gray at least the appearance of relief from a year of sharp declines, but also shook his confidence in the real estate tracking site.

After all, nothing happened to Gray's home or the real estate market; Zillow just started using new math.  

And while not everyone is happy with the results, Zillow says the public should be pleased with these "improvements" it has made to its secret formula for estimating real estate values because those estimates are now more accurate, both today and historically. Zillow chief economist Stan Humphries says in a blog post: "For the three-month period ending March 31, 2011, our national median error was 8.5 percent.  The median error of our previous algorithm over the same time period was 12.7 percent, meaning that the new Zestimates are 33 percent more accurate than the older ones."

Accurate is defined as being within 10 percent of a real-world sale price.

So why do Gray and others seem less than grateful? Well, since buying his home a year ago, Gray has been using Zillow to track not only its value - which had shown declines in eight consecutive Zestimates - but the values of homes in his surrounding area. He writes on his blog:

Two weeks ago, the company recalibrated its systems, and has pretty much thrown all previous years' data out the window, replacing it with new histories. So if you were using the site to get a good picture of your neighborhood, they're hoping you'll ignore what you already know and start fresh. ...

It's likely they know what they are doing, and with more data, they were losing confidence in both their current and historical values. But it sure didn't seem like the company was unsure about its competence before the move, and I'm not sure they're confident about their current data any more.

Gray is not alone. The changes were noticeable enough in Fayetteville, Ark., to have the newspaper there asking if they would threaten that area's reputation for fostering home value appreciation.

There were unhappy campers on a Zillow chat board:

"Just checked my home's zestimate and the value dropped $25,000 overnight.  Not only that, but the zestimate history changed so even the old valuations were lower.  This seems like a bug.  I have seen big swings from day to day but I have never seen the history change."

Writes another:

"If they are using new methods to calculate values that they think are better, that's great!  But don't manipulate the historical value that people looked at and helped them in conjunction with an appraisal to come up with a value to buy or sell."

And another:

"I understand they changed the algorithm but I think it is disingenuous to retroactively change the "zestimate history" which should be exactly what it says, the history of the zestimate.  I will no longer be using zillow to estimate the value of my house, even for fun."

So why did Zillow decide to rewrite its historical data? Humphries explains in another post:

We've noticed questions in Zillow Advice about why we've redone the Zestimate history. In short, it was important to do because we want changes in Zestimate values over time to reflect changes in the market, not changes in how Zillow computes its algorithm. Our new algorithm doesn't just improve current accuracy, it improves historical accuracy, giving consumers a better idea of what a home was worth over time.

Zillow says on its site that the Zestimates it provides are not equivalent to an appraisal, but the site's popularity has ensuredthose calculationst a place at many a real-estate negotiating table. In other words, people take these things seriously.  

Back in 2006, when I was moving and Zillow was an emerging startup, I distinctly recall the worry of learning that Zillow's estimate of the value of my house was considerably less than a professional appraisal and recent neighborhood transactions would indicate. Not that I'm contemplating another move, but my own home's Zestimate has dropped 3 percent in the past 30 days and I can't tell you whether that reflects the changes in Zillow's math or the local market.

But I'm pretty sure a potential buyer wouldn't care.

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Copyright © 2011 IDG Communications, Inc.

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