Wednesday, November 25, 2015

Zany Zillow

The Zillow Zaniness continues.  I have posted twice before on Zillow and their infamous Zestimates.
I have found another Zestimate that defies gravity that I would like to share with you.

The upper line in the chart below is the Zestimate of the subject home as a function of time from about the beginning of 2007 to the present. The lower lines are the prices for homes in the same zip code and the town.  The two latter lines seem to be very closely correlated with each other and are moving in a rational manner.  The green dot with the "S" is placed at the date and value of the last sale of the property in 2010.
Property A, version 1

Below I have listed the sale transactions on this home since 1999:
Date                                  Sale Price
8/10/1999                          $650,000            
4/1/2005                         $1,350,000
9/24/10                              $500,000

Unfortunately, the Zestimate chart does not go back to 2005, but from the best I can figure the Zestimate must have been considerably higher than the actual sale price.  Then, in September, 2010, the home sold for $500,000, yet the Zestimate at the time of the sale was $2,500,000, a full 500% of the sale price.  If that wasn't enough, then by May, 2015, the Zestimate for this home had gone up to $4,000,000.  a full 800% above the price it sold for some 4 1/2 years earlier.  Now, you might think that this home was renovated, or there was an addition or something.  That is not the case.  The home remains the same, except the city removed a tree at the street in front of the home in May, 2015. So, what happened to the Zestimate?  It now has dropped in six months from $4,000,000 to $2,945,000, a full $1,055,000. or about 26.5%. 

Can you give some explanation for this fluctuation in the Zestimate? I can't.

****************update 1/21/16***********************
The Zestimate on the above home has continued to slide. As of today it is $2,657,800. So, we now have the Zestimate dropping by almost another $300,000 in two months.  Total drop of $1,342,200 or a full 1/3 of its value in about eight months.

In another attempt to get a handle on the algorithm that Zillow utilizes to come up with their Zestimates I took my home and made some minor changes to the Home Facts.  I changed the flooring material from hardwood and carpet to hardwood, carpet, and tile. I changed the exterior from stucco to stucco and wood.  The result was a decrease of nearly $200,000 in the Zestimate.  I restored the Home Facts to the original values and the Zestimate dropped another $5,000.  More Zaniness.

******************additional material added 1/21/16****************
I have found another home with Zany Zestimates. Please consider this home.  Here is the Zestimate Chart.

And here is a chart of the activity on this home:

Date                 Zestimate         Listed Price
7/14/14            3,200,000          2,995,000
11/25/14          3,300,000          removed from market
5/1/15              3,500,000          unchanged (off market)
6/1/15              3,100,000          unchanged (off market)
9/14/15            3,200,000          2,850.000
11/1/14            3,200,000          2,850,000
12/8/15            3,500,000          2,895,000
1/20/16            3,730,900          2,895,000
1/21/16            3,746,500          2,895,000
1/24/16            3,759,900          2,895,000
2/7/16              3,837,500          2,895,000
2/14/16            3,895,000          2,895,000

Here we really have the Zestimate gone wild.  We have an unbelievable divergence between the Zestimate and the Listed Price.  Since the Zestimate started above the Listed Price, the Listed Price has dropped, AND the Zestimate has increased substantially.  Does anyone really think the Zestimate has any relationship to the market value of this home?

As of 2/14/16 the Zestimate has risen by $695,000 since 9/14/15.  That is a whopping 22% in exactly 5 months. But even more weird is that now the Zestimate is exactly $1,000,000 ABOVE the Listed Price. That's 34.5% above the asking price. Yeh! Without even looking at this home I am going to guess that it will sell for about $2,637,000.  Let's see what happens.

***************additional material added 6/17/2016***************************

This chart below labeled Property A, version 2 is for the same property as the one labeled Property A, version 1 (the first chart above).  You will note that the only sale is for the same amount, but what zillow has done here is revisionist history.  In the chart above the property peaked at about $4M, but this one now reads less than $3.5M. Note also that the Zestimate in the period from about 2010 to about mid 2012 was hovering just above $2M while the chart above was near or above the $3M level.  I know it is an expensive home, but a 33% drop is a bit much of revisionist history.
What could be in their minds?  This must be a random number generator hoax or something.

Property A, version 2

update as of 11/4/2016

We have an update on this home. Please note in the chart below (same property) that the revisionist history of the Zestimate continues.

Notice that about December, 2015, in the upper chart the Zestimate is clearly below $3M, and in the second chart the value is clearly below $3M !

last modified 11/4/16

Monday, November 9, 2015

The Zillow Bump

For readers of this blog, my fascination with the audacity of Zillow is not new.  If you will recall, I wrote in September, 2014, that Zestimates from Zillow are Worthless by showing that there is no rhyme or reason to the numbers that they publish as the "market value" to a home. I posted many updates to that post.  I have now observed a variation on this that further supports this hypothesis.

My first example is a home that had a Zestimate of $1,700,000.  Then, on March 4, 2015, this home was listed for sale for $3,780,000.   You can see from the chart below what has happened to the Zestimate for this home primarily based upon the home being placed on the market:

Five months later, in August, 2015, the Zestimate had zoomed to $3,358,700.  This is almost a 100% rise in the Zestimate.  Subsequently, on September 11, 2015, the listing for the home was shown as a pending sale, On October 28, 2015 the home closed at $3,300,000. As of November 9, 2015,  only two weeks later the Zestimate dropped by $385,600  to $2,973,100.  What could possibly be the explanation of this bump? My hypothesis was that it would be too obvious if Zillow increased the Zestimate to match slightly less than the listing price on an immediate basis, but rather gradually increase the Zestimate, so that by the time of the sale a number of months later the Zestimate would rise enough in the interim to more closely correlate to the sale price.

However, here is another example that seems to demonstrate that they have no shame. This home had a Zestimate of $1,358,500 on October 9, 2015.  Then, on November 4, 2015, this home was listed for sale for $2,495,000.   You can see from the chart below what has happened to the Zestimate for this home solely based upon the home being placed on the market:
As of November 11, 2015, the Zestimate for the home was $1,914,300, an increase of $555,800 over 30 days previously.  That is an increase approaching 50% in one month.

Zillow prides itself on the fact that the statistical correlation between the Zestimate and a home's sale price is high.  Could it be that Zillow is "cooking the books," so to speak, by trying make the Zestimates "catch up" to the expected sales price by BUMPING them up when the home gets listed for sale?

As a corollary, consider this: realtors pride themselves in pointing out that listing prices are strongly statistically correlated to sales price.  I believe this to be true.  Realtors like to have realistic prices on homes going up for sale and strive to get the owner to select a price approximately 5% to 10% above the projected sales price.  That is good for them because it means that they have a better chance of actually selling a more realistically priced home.

So, if the correlation between listing price and sale price is stronger than the Zestimate price and sale price, then Zillow is correct to dramatically alter the Zestimate by moving it much closer to the broker listed price upon listing.  But, the other corollary is that this is an open admission by Zillow that the Zestimate published by them prior to listing are truly worthless!

If the powers that be at Zillow would like to try to refute this conclusion I would be more than happy to publish it here (so long as they remain factual).

**************update as of 11/30/15 with additions afterwards*******************

Here is a spreadsheet for these two properties above with data to make them current.  The theory of the interpretation of the Zestimate algorithm function changes seems to be gaining strength. I think what remains is to find out the weighting factor for increases and decreases on the spread of the Zestimate from the listing price.

                                Property #1                                    Property #2

Date                                    Total change                                     Total change
                    Zestimate        in  Zestimate            Zestimate         in  Zestimate

3/4/15          1,700,000     (Listed $3.78M)                                                 
8/1/15          3,358,700        +$1,658,700                                                    
9/11/15        3,358,700   (Listing Removed)                                               
10/9/15                                                              1,358,500  
10/28/15      3,358,700       (Sold $3.3M)                    
11/4/15                                                              1,358,500     (Listed $2.495M)
11/9/15        2,973,100           -$385,600           1,914,300          +$555,800
11/17/15                                                            1,917,400          +$558,100
11/18/15                                                            1,922,400          +$563,100
11/24/15      2,895,800           -$462,900           1,926,200          +$566,999 
11/26/15      2,880,799           -$478,000           1,925,700          +$566,400
11/27/15      2,857,900           -$500,800           1,928,500          +$569,200
11/30/15      2,846,200           -$512,500           1,931,200          +$571,900       
12/2/15        2,842,200           -$516,500           1,931,100          +$571,800
12/3/15        2,842,000           -$516,500           1,931,100      (List Reduce to $2.395M)
12/4/15        2,838,400           -$520,100           1,931,800           +$572,500
12/7/15        2,834,700           -$523,800           1,926,700           +$567,400
12/11/15      2,821,600           -$536,900           1,924,000           +$564,700
12/14/15      2,819,800           -$538,700           1,925,800           +$566,500
12/18/15      2,816,500           -$542,000           1,927,200           +$567,900
12/24/15      2,810,600           -$548,400           1,929,200           +$569,900
12/28/15      2,805,400           -$553,600           1,930,200           +$570,900
12/30/15      2,805,300           -$553,700           1,931,900           +$572,600
1/2/16          2,805,100           -$553,900           1,934,500           +$575,200
1/4/16          2,804,100           -$554,900           1,937,100           +$577,800
1/6/16          2,805,800           -$553,200           1,940,800           +$581,500
1/8/16          2,810,500           -$548,500           1,944,400           +$585,100
1/9/16          2,815,900           -$543,100           1,946,600           +$587,300
1/10/16        2,814,600           -$544,400           1,949,400           +$590,100
1/11/16        2,813,200           -$545,900           1,949,900           +$590,600
1/12/16        2,812,100           -$547,000           1,950,700           +$591,400
1/13/16        2,809,400           -$549,700           1,950,900           +$591,600
1/14/16        2,809,000           -$550,100           1,951,600           +$592,300
1/15/16        2,815,000           -$544,100           1,948,700           +$589,400
1/16/16        2,820.800           -$538,300           1,948,900           +$589.600
1/17/16        2,826,500           -$532,600           1,949,400           +$590,100
1/19/16        2,837,400           -$521,700           1,949,900           +$590,600
1/21/16        2,846,700           -$512,400           1,952,200           +$592,900
1/22/16        2,849,900           -$509,200           1,952,300           +$593,000
1/23/16        2,853,400           -$505,700           1,951,800           +$592,500
1/24/16        2,857,100           -$502,000           1,951,800           +$592,500
1/26/16        2,861,500           -$497,600           1,952,400           +$593,100
1/27/16        2,866,100           -$493,000           1,951,200       (List Reduce to $2.249M)
1/29/16        2,865,300           -$493,800           1,950,200           +$592,100 (sale pending)
1/31/16        2,869,200           -$489,900           1,951,000           +$592,900
2/2/16          2,876,100           -$483,000           1,948,900           +$590,800
2/7/16          2,894,700           -$464,400           1,945,100           +$587,000
2/8/16          2,895,300           -$463,800           1,944,800           +$586,700
2/14/16        2,917,500           -$441,600           1,944,700           +$586,600
2/16/16        2,926,000           -$433,100           1,942,200           +$584,100
3/3/16          2,972,800           -$386,300           1,921,400           +$563,300 (sold at $2.225M)

On Property #2 the Zestimate increased to within $564,800 (22.6%) of the listing price, but since the listing price was subsequently reduced the Zestimate of 1,952,400 was within $442,600 (18.5%) of the reduced listing price ($2.395M). Then, the listing price was reduced again ($2.249M) so that the Zestimate is within $297.8M of this new price, so the Zestimate is within 13.2% of the listed price. Finally, the house is listed as pending sold. Once we have the actual sale price we can compute the accuracy of the pre listing Zestimate and the final Zestimate at the time of sale with the sale price.  What is the target that Zillow is aiming for?
Now the results are in. The house sold for $2,225,000 based upon going into contract on 1/27/16.
On that date the Zestimate was 1,951,200. The Zestimate at the time of contract was 12.3% below the sale price.  The Zestimate was $1,358,100 on the day the house went up for sale. So the unadulterated Zestimate was 39% below the presumed "market price". Wow!
We see that for Property #1 above the Zestimate increased to within $420,000 (11.1%) of the Listing price on or around 9/11/15. After the listing was removed for this home (it had gone into contract) the Zestimate has dropped to a low of $554,900 (16.4%).  While the Zestimate of $3,358,700 at the time of the listing removal was within $58,700 (1.7%) of its actual sale price, it is clear that the bumping algorithm worked well in this instance with the objective of Zillow being achieved in getting the sale price close to the Zestimate at the time of the sale.  But it is also clear that the Zestimate prior to the one that did not have the benefit of a professional estimating the listing price was worthless. It was a full 48.5 % below the actual sale price.  And what do we make of the new Zestimate low on 1/4/16 of $2,804,100 which is 16.5% below the actual sale price which was only about two months prior to this date?  This makes no sense. And now again between 1/4/16 and 2/14/16 the Zestimate has increased by $113,400.  That is an increase of 4% in just over 40 days.  And by 3/7/16 it had risen from 1/4/16 the Zestimate had increased by $168,700. That's 6% in two months!                                                                                            

******************update as of 1/2/16*********************************

I have now found some additional examples of the Zillow Bump that should add more fuel to the fire.
First, let me put up the data for consideration.  This is the asking pricing information for this home
It was listed at $995,000 in late June 2015.  In December, after the fourth price drop it was listed at $795,000

Now, let's look at the Zestimate. I do not have complete information on the history here.  It shows that sometime around the time the house was listed, the Zestimate was around $960,000.  There is no record of a Zestimate price for this home shown before that date.  However, this is a subdivision and the other 40 homes in this subdivision all have Zestimates between $580,000 to $708,000. This home does not stand out, so it would be fair to assume that before the listing for sale the Zestimate was around $644,000.  Interestingly, Zestimates for other homes in this subdivision have increased in value consistently about 5.4% during this period of time, in contrast with this home where the Zestimate has diminished in value by about 15.1%, making the variance a whopping 20.5%.

Now, to make this Zillow entry even more bizarre is the fact that the house appears to be listed twice, but only one of them is listed for sale.  So, we have a duplication of the same data, once for the home that is listed, and once for the very same home that is not listed.  The listed home Zestimate is $720,800 and the identical home not listed has a Zestimate of $646,100, about a few hundred dollars off the median for the other 40 homes in the subdivision.  I think this is as conclusive as it is going to get evidencing the true slight of hand being used by Zillow to fudge the Zestimates of listed homes just before they sell to bring them closer to the anticipated sale price to improve their "claim" of Zestimate accuracy. Also, note that as of 1/2/16 the current Zestimate is $65,000 (8.2%) below the current asking price, which appears to be Zillow's best guess at where the sale price will be at this time.  Very interesting, indeed!

Below I am tracking the information on changes to Zestimates for the two variants of this one home:

Property #3
                                 Zestimate           Zestimate            Asking       Listed Zestimate %
Date                       Listed Home     Unlisted Home         Price        Below Asking Price
1/2/16                       $730,000           $644,800            $795,000             8.2%
1/7/16                       $728,100           $644,700            $795,000             8.4%
1/8/16                       $727,100           $644,400            $795,000             8.5%
1/9/16                       $726,600           $644,400            $795,000             8.6%
1/10/16                     $726,700           $644,900            $795,000             8.6%
1/11/16                     $726,100           $644,900            $795,000             8.7%
1/12/16                     $725,400           $644,800            $795,000             8.8%
1/13/16                     $724,900           $645,200            $795,000             8.8%        
1/14/16                     $724,600           $645,300            $795,000             8.9%
1/15/16                     $723,900           $644,700            $795,000             8.9%
1/16/16                     $723,600           $644,800            $795,000             9.0%
1/17/16                     $723,600           $644,700            $795,000             9.0%
1/19/16                     $722,500           $645,300            $795,000             9.1%
1/21/16                     $721,800           $645,000            $795,000             9.2%
1/22/16                     $721,500           $645,100            $795,000             9.3%
1/23/16                     $721,200           $645,300            $795,000             9.3%
1/24/16                     $720,900           $645,000            $795,000             9.3%
1/26/16                     $720,800           $645,100            $795,000             9.3%
1/27/16                     $720,400           $645,500            $795,000             9.4%(sale pending)
1/29/16                     $719,900           $646,200            $795,000             9.5%
1/31/16                     $718,700           $647,400            $795,000             9.6%
2/2/16                       $717,900           $647,000            $795,000             9.7%
2/7/16                       $716,800           $645,900            $795,000             9.8%
2/8/16                       $716,200           $645,300            $795,000             9.9%
2/14/16                     $716,700           $652,200            $795,000             9.8%
2/16/16                        ------               $653,900            $750,000             4.4% (sale recorded)

Currently, there is only one home listed above (Property #2) that is currently for sale (pending) and it has a Zestimate that is 13.6% below the listing price.   Right now I am approximating that the home will sell for approximately 8.9% below the listing price, so that would bring the Zestimates to be about 4.7% below the asking price. Recall that the Zestimate for property #1 above ultimately sold for 1.4% below the sale price.

Property #3 is a bit more difficult to analyze because Zillow had two distinct listings for the same home. I think the only fair way to do this is to look at the two algorithms that they used.
In the first case the Zestimate was was essentially $646,100 before the house was listed, and it sold for $750,000.  This means that the Zestimate was really understating the market price by 13.6%.  But, the artificial Zestimate created after the house was listed was $720,400 at the time that the house became a pending sale. This is an understatement of $29,600 for the market price that it was eventually sold for, or just 3.9% below, meaning that they fudged the accuracy of the Zestimate with this technique by a full 9.7%. Astounding!

 So, it looks like their cooking the data books technique is working quite well for them, pity the poor person that relies on their claims of accuracy.  It may be that the Zestimate target for listed homes is variable by region, or possibly even by price or some other metric that we don't know about.

A final note on Property #3 now that the property has sold at $750,000 please note that the Zestimate is currently $653,900, a full 12.8% below the current market price.  You would think that they might adjust the Zestimate with the new data point.  We will continue to follow this bizarre behavior of this algorithm a bit further.

last modified 3/7/2016