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When it comes right down to it real estate housing market reports can be deceiving. This is due in part to the nature of statistics. They can and are often manipulated. It is also often difficult to tell whether apples are being compared to apples or if there’s an entire fruit bowl in play.While broad housing statistics definitely have their place, and are useful tools in determining housing market trends, they are no substitute for consumers looking for local neighborhood home values. Popular real estate sites like Zillow.com also fall into this category. I like the idea behind Zillow and many of its features, but let’s face it, it’s not accurate enough to help a consumer determine a listing or offer price. That is, of course, unless the consumer is willing to be off, in some cases, $50,000 to $100,000. I would love to sell my home for Zillow’s estimated value.
It’s critical that consumers understand which numbers are being used in any given report, and more specifically, how those numbers pertain their specific informational needs. Housing report statistics are compiled by numerous sources and the numbers are then pumped out in various formats through various channels. More often than not the statistics differ from one another. Sometimes significantly.
Take for instance market reports for Orange County Condos. One report might focus on a broad area, including statistics from the entire county. Another might address statistics breaking the counties into North Orange County and South Orange County. While the South Orange County report might be more accurate than an entire county report, it would be of little value for a Rancho Santa Margarita condo owner to give much consideration to reports including the average sales prices of condos in Laguna Beach, Dana Point or San Clemente. Even while these cities are all located within South Orange County, Rancho Santa Margarita is not a beach community and the values will be significantly different.
Some market reports include FSBO sold prices and others don’t. Some include family transfers - which are often considerably lower than typical home sales, and again, others don’t.
Terminology is another factor in market reports that causes considerable confusion. Many consumers (and even a few professionals) equate the term ‘median sales price‘ with ‘average sales price‘. The median is actually the midpoint of housing values where half of the homes sell for less of the median and half of the homes sell for more. Again, this information is useful as a general tool, but it addresses sold homes only. It does not take into consideration listed homes that have not closed. The average sales price is the arithmetic mean of the closed transaction sale prices.
Consider this scenario: A city has 75% condos and 25% single family residences; all homes are located in a similar area; single family homes in this area typically sell for more than the condos. There are 200 homes listed in a two-month period. 150 are single family residences and 50 are condos. If 120 of the 150 single family homes sell, but only 10 of the 50 condos sell the resulting median will be significantly higher than if the sales numbers were reversed. A consumer might deduce that the housing market was stronger than they had originally thought. And that deduction would likely be incorrect.
There is also the question of time frames. A market report may state that the average Rancho Santa Margarita home sold for $595,000 in 2007. But consider this. What if the first three months RSM posted significantly higher sales amounts than $595,00 and the most recent two have posted significantly lower? Using a 2007 average is not likely to help either a buyer or a seller to establish an accurate price and this is where some FSBOs get into trouble. They do the right research, but they may misinterpret the statistics.
When researching home values for either a sale or a purchase consumers should consider obtaining the opinion of at least one experienced local real estate agent. Even if a buyer or seller does not intend to use an agent, the information they can obtain through an agent is valuable. Local agents are familiar with the local market and most will offer a Comparative Market Analysis free of charge or any other obligation. This is by far the easiest and one of the most accurate ways to find home prices in your community.
Above all take media reports with a grain of salt. If they’re not comparing apples to apples, find your information elsewhere.
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11 responses so far ↓
1 Shaun McLane // Jun 20, 2007 at 4:51 am
And yet you have nice market reports in your sidebar ;-).
Nice post. I’m in the camp that thinks, with time, Zillow, and other estimating services, are like wine, and will get better with time. It works by using the numbers it is given. Once its popularity grows, it will hopefully become much more accurate. It’ll be nice to one day be able to say, “Here’s the price I’ve dtermined by doing this CMA, oh, and look - Zillow has the same figure, so it MUST be right.” Although, if and when that day comes, I’m guessing our CMA services will become nearly obsolete.
2 Grammy // Jun 20, 2007 at 5:31 am
Thanks for the article. Your perspective makes sense. Such an expensive area to live!
3 Kelly Kilpatrick // Jun 21, 2007 at 10:01 am
Shaun: I think you’re right that in time Zillow’s accuracy will improve, but I don’t think that there will ever be any non-human solution for accurately determining the human-elements that go into pricing. Local agents know the listings in their market. Two or three properties may appear very similar online. An active, experienced local agent will know which of these properties will be more likely to fit the majority of buyers needs, which is more likely to be a better investment, and which has or hasn’t had significant upgrades. I like Zillow as a tool for consumers, but on the flip side I don’t feel it’s right for consumers to feel mislead when their home sells for $100K less than their Zestimate.
4 jf.sellsius // Jun 22, 2007 at 8:36 pm
Zillow will never be accurate enough to be used independently as a pricing guide. Since it always needs to be checked, it does not solve any problem. It does however provide public data which is useful. Most imoportantly, since it never sees a home and its envirns, it will always omit the unzillowables.
5 Kaye Thomas // Jun 26, 2007 at 9:40 pm
I agree with Joe.. the problem is that it’s really impossible to price anything accurately that you haven’t seen.. Even with better market reports and access to information I don’t think they will ever be reliable..Zillow is a toy and a place to start but not a real resource.
6 Blog entries by ActiveRain Real Estate Network members - Page 2 // Jun 27, 2007 at 5:31 am
7 Morgan // Jul 5, 2007 at 9:22 pm
Kelly,
Great post Kelly. It just goes to show why a good real estate agent is so valuable. Trying crunch the numbers and understand the nuances of neighborhoods and listings is just too tough with out an experienced guide.
8 Jason Ganz // Jul 14, 2007 at 7:40 pm
Great post! I am gonna share it with my own blog readers at jason.landbrokr.com ! Thanks.
9 Bill Lyons // Aug 7, 2007 at 4:39 pm
Great post. Zillow might get there but in the meantime corelogic’s GeoAVM remains the best
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