On May 27th, 2014 Zillow.com released their Home Value Forecast for 2015.

Three days later on May, 30th, the Arizona Republic reported the news and followed it with a few statements from 2 highly respected real estate analysts who focus solely on the Phoenix Metro Area. Michael Orr, also the Director, Center for Real Estate Theory and Practice at ASU's WP Carey School Of business, flatly said, "Zillow's forecasts are for entertainment purposes." This is from a man who makes a living analyzing data mathematically that comes from every source of data available to analyze our market. He went on to say, "Zillow is not predicting changes in home prices. They are predicting changes in their own Zestimates®."

The second analyst, Tom Ruff of the Information Market, a company that tracks & compiles real estate sales data for Maricopa County, said that the increase Zillow forecasted was "plausible", but that their previous estimates had been "wildly inaccurate."

So that being said, let's look a little closer at the data Zillow reported. If you didn't know it, Zillow has a whole section of their website dedicated to explaining the accuracy and the methodology they use to create Zestimates® and actually reports their margin of error, breaking it down by city.

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In the case of Phoenix, they report their margin of error to be 5.5%. That doesn't sound like a big number, but if you look a little closer it really is significant. Phoenix is the 6th most populous city in the nation & the 13th largest metro area (no kidding- check out Wikipedia). Here, we have homes ranging from $50K or less to homes well into the millions. Zillow's® figure of 5.5% is an average for the entire area.

Today, Maricopa county's median sales price stands at $205,000. If you applied the Zestimate® to this figure, you would see a value as low as $193,725 or as high as $216,275. That's a range of $22,500- kind of a lot of money.

Now, if you were looking at some of the other homes right in the core of the Phoenix/Scottsdale area where I do a lot of work, $500,000 is not uncommon. That creates a range of value as low as $472,500 or as high as $527,500- a range of $55,000.  The bottom line is, if you are selling your home or buying a home, and seriously consider these values when guesstimating your asking price or to make an offer, you're likely to be way off. This will hurt you more than benefit you.

REALTORs® use data derived from comparable sales and factor location (by a busy street or a grocery store loading doc), upgrades & finishes with their comps in a defined area, immediately adjacent the property being evaluated to determining asking prices and offers. Many REALTORs® also know how to think like an appraiser when determining value, which let's face it, will make or break pretty much any sale that's financed. If it doesn't appraise, the deal is most likely not going to work at that price.

If you don't know what kind of work or finishes have gone into a home and even the number of bedrooms, which is not always reported on Zillow or many of the other sites like Trulia, how will a computer know to add or subtract for things like views, where crucial area boundaries are, golf course frontage, additional garages, etc. It won't. So, the accuracy is clearly disputable. I'll go a step further and say with strong confidence that today Zillow overstates the value of my home by a few hundred thousand dollars... outside of the 5.5% it's quoting for our area.

It's really important to know that while the figure you may see could be in the ballpark, you may still be way off.  I know many of us fear the unknown and look to quick answers for comfort, but don’t hold this online info as gospel. The margin of error is too high and the level of impact too great to not go directly to a good source for your data.  Yes, it’s not as quick for a REALTOR® to give you a value for your home, but the benefits of waiting outweigh those of settling with what is a flawed data set. And our (REALTOR®) CMAs are FREE too.

So next time you need to know what your home is worth, ask a REALTOR®. We are usually more than happy to assist you. It's a service I offer to my clients and it is my pleasure to assist you too. All you have to do is ask... Stay cool!

Related Content:

Phoenix/Scottsdale Market Activity by Price Range

Mid-Spring 2014 Phoenix/Scottsdale Market Checkup

How Much Is My Home Worth?