Zillow aims to provide instant valuation of homes

According to economist Steven D. Levitt writing in Wired Magazine: “A big part of a real estate agent’s job is to persuade the homeowner to sell for less than he would like while at the same time letting potential buyers know that a house can be bought for less than its listing price.”

Such are the wonderful worlds of economics and real estate and I would strongly recommend Levitt’s book (co-authored with Stephen J. Dubner), “Freakonomics” which was published last year (check out the book’s Web site).

Part of the answer to redressing the information asymmetry in real estate starts with knowing what the correct price of a property is in the first place. A new means to this answer is a Web site, Zillow.com.

Zillow claims it can provide “free, instant valuations and data for 60,000,000+ Homes … and you don’t have to enter any personal information and no one will contact you.”

After you enter the address of a house, Zillow applies an algorithm that uses what its statisticians call ‘a proprietary algorithm’ – big words for ‘secret formula.’ The result is what Zillow whimsically calls a “Zestimate.” They say that they currently calculate a Zestimate for more than 40 million homes.

If you try this for your home you may well find that the Zestimate is too low in which case you can use the “My Zestimator” tool to modify the parameters of your home, specify additional features that might add value, and select which “comps” are relevant to your property.

When you enter an address Zillow shows the property on a map with a satellite or aircraft survey photograph underlay (as far as I can tell at high resolutions this underlay photograph is often wrong).

Zillow claims that its Zestimates are “within 10% of the selling price of the home.”

It will be interesting to see how well respected Zillow’s Zestimates become and whether the company can build a business based on curing a well-known area of information asymmetry.