What's wrong with Zillow.com

Previously I posted a message about a new website, Zillow.com, that allows users to estimate the value of their home. I did warn users that the site was not particularly accurate but it is fun and interesting. After using the site myself and seeing and hearning many references to the site as a means for actually determining the value of something, I would like to explain why this site is not accurate and why it should never be used to determine home values. On a side note: many detractors of real estate agents and practicioners say that sites like this are proof of why we don't need the MLS or Realtors - I would say just the opposite.

So here goes: Zillow and other "do-it-yourself" appraisal websites all work the same way, they get access to public records of home sales from the county recorder offices and then plot those sales records on a map - you put in your address and then, based on your location, they determine the value of your home based on sales of homes near yours. Sounds great, right? Well, what if your home has 1 bathroom and the home next door has 2? the home next door should be worth more, but zillow.com doesn't know how many bathrooms a home has, all they know is the final sales price. As any mildly intelligent person knows, many factors affect the value of a home: style, condition, # of bedrooms, # of bathrooms, age, mechanicals, upgrades, etc. Zillow cannot factor any of these things into their estimate.

Here's an example: There is a house for sale in a suburb of Chicago that Zillow estimates is worth $387,000. It is a ranch home with 3 br / 1 bath and needs lot of work. This value is based on recent sales of 6-7 homes in the immediate area. I have looked up all of the homes that zillow is listing as comps on the MLS. None of these homes is even similar to the subject home, different style, different # of bedrooms and bathrooms, condition, updates - all different. Most are 2 story homes with updates, 4 bedrooms and at least 2 bathrooms. By looking at the actual comps on the MLS, I would estimate the value of the subject home to be much, much lower, closer to $300,000. That's a big difference.