Appraisers... er... Non-profit Group Complains To FTC About Zillow's Electronic Estimates

from the those-poor-gullible-zillow-users dept

The real estate industry doesn't have the greatest track record in responding to attempts to make their industry a bit more transparent. Real estate agents have been trashing the book Freakonomics ever since it put forth some data about how the real estate business really works (and why an agent might not get you the best price for your house). It appears something similar may be at work in an FTC complaint filed against Zillow. Zillow, which launched earlier this year, collects a bunch of data and tries to estimate the value of a home. It's a fun toy, but even they admit very clearly that their estimates are a big guessing game and may not be particularly accurate (though, I've watched how they've valued the various houses for sale in my neighborhood, and it seems to do a pretty good job). Still, a non-profit organization, the National Community Reinvestment Coalition, which recently founded "The Center for Responsible Appraisals & Valuations" (made up of a bunch of appraisers, not surprisingly) has sent in the FTC complaint. The group claims it has nothing to do with their association with appraisers, but has much more to do with their need to protect people from getting in "trouble" via the site. Apparently, they're afraid that a low income person will somehow be tricked into getting a bigger loan than they need, all because of a bad estimate -- yet they don't provide any examples of that actually happening. Others, such as those who use Zillow, tend to think it's much more a publicity stunt by appraisers upset that technology is encroaching on their business. Still, it hardly seems likely that Zillow is going to hurt the business of appraisers (or trick many people into bad loans). Getting an estimate is exactly what it is: an estimate -- and it's hard to see why that should be blocked.


Reader Comments (rss)

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  1.  
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    Stephen, Oct 27th, 2006 @ 5:56am

    Because Appraisers always get it right! Will this group now begin reimbursing people who overpaid?

     

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  2.  
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    disgracerpg, Oct 27th, 2006 @ 5:59am

    No Publicity is Bad publicity, right?

    maybe this will be just what Zillow needs. If more people hear about this they will hear about the site and what it offers, thus checking their own homes value, comparing it to what the thought/know it is and there-in creating a new Property Appraisal frenzy!

     

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  3.  
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    anonymous bum, Oct 27th, 2006 @ 6:14am

    Striesand Effect.

    Yep! Never heard of the site until now.

     

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  4.  
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    Jimbo, Oct 27th, 2006 @ 6:20am

    One thing left out

    Another subject ignored by this article is the fact that real estate agents often put professional contacts above finding clients a deal. For instance, Agent A tries to sell houses Agent B is selling so agent B wil try to sell houses to Agent A. Doesn't sound very malicious, but when you consider that these agents almost exclusively focus on their colleague's homes, you realize that your best interests aren't at heart.

    Another consideration: Ask your real estate agent to show you houses that are Assist-to-Sell or For Sale by Owner. Those sellers are screwing up the intellectual monopoly that real estate agents have, so they will avoid showing clients those homes, not because they aren't a good deal, but because they either won't get a good cut or they don't want to encourage people doing it themselves (or with minimal assistance).

     

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  5.  
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    Ryan, Oct 27th, 2006 @ 6:22am

    how?

    A bigger loan than they need? Umm... I'm not sure how the rest of the world works, but when I bought a house I agreed on a price first, THEN got a loan in the amount I agreed to pay for the house.

    Isn't that how it works?

     

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  6.  
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    discojohnson, Oct 27th, 2006 @ 6:30am

    Re: how?

    no, i bought mine with a wheelbarrel full of benjamins and gave it to whoever had a brick house with white trim. then after canasta and tea i asked for two handfuls of it back because i think i overpaid. they gave me a pair of sneakers and a superman outfit instead.

     

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  7.  
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    Zillow Lover, Oct 27th, 2006 @ 6:32am

    I just bought my first house this last month. Place was for sale by owner but they still offered a percentage to my real estate agent. Albiet a low one for him.
    Not suprisingly, we were the ones who found it online, not him. The asking price was good, but I checked out zillow beforehand. Made an offer based on that estimate and with a little haggling they accepted. Both parties were very happy with the exchange and while I feel tha zillow estimates are usually lower I was still very satisfied with how close they got.

     

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  8.  
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    RE Investor, Oct 27th, 2006 @ 6:43am

    RE Agents = BS

    Real estate agents are among the most overpaid, low value added parts of any real estate deal. They provide a basic service to those who refuse, or can't, do thier own homework. Internet research plus a teir III real estate lawyer can do the "necessary" parts of thier job for about 1/4 of the price. It's ridiculous to think that a person who passes a multiple choice exam should be entitled to 3% of a value of the commercial or residential property. FSBO all the way - or - just become a real estate agent before you buy the property. The minimal time investment (16 clock hours in most states) and BS fees to BS associations (about $1,200.00) will be more than offset by the "commission" you earn, or don't pay, by actiong as the sell/listing agent on your own property.

     

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  9.  
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    Andrew W, Oct 27th, 2006 @ 7:22am

    Appraisers even exist? I mean, I own a condo, my city sends an appraiser for tax purposes obviously. But why would you need a private appraiser? Take five minutes, go online to look at what similar places are selling for (it's free info on even realtors' sites), and your done. If you have a seller's agent and they say your price is too low, listen to them. Boom, you're done. Who needs an appraiser?

     

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  10.  
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    Anonymous Coward, Oct 27th, 2006 @ 7:37am

    Re:

    "Who needs an appraiser?" People refinancing their homes with a mortgage company, most mortgage company's, at least the ones worth working with, will not use web site data for your loan.

     

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  11.  
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    Chris, Oct 27th, 2006 @ 8:09am

    Standard & Poor's credit ratings and Google's rankings are protected under the First Amendment. Zillow's estimates should be similarly protected--they are an opinion.

     

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  12.  
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    jsnbase, Oct 27th, 2006 @ 8:58am

    Re: One thing left out

    You've just described the workings of every industry everywhere.

    Ever.

     

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  13.  
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    Constance Reader, Oct 27th, 2006 @ 9:02am

    ZILLOW

    I took the required courses to get a real estate license this summer and I have to say that I was very disillusioned about the field. I thought the courses would be much more difficult than they were, that the knowledge required would be greater. Nope, not even. If you can sell Mary Kay or Tupperware, you can sell real estate. I'm not sorry I took the courses, though. I'll be in a much better position the next time I buy a home. The first time I was wholly ignorant.

     

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  14.  
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    Peter Crowl, Oct 27th, 2006 @ 10:02am

    I'm a Realtor

    Appraisers go through way way more education and certification than Realtors. You basically have to apprentice for two years with a practicing Appraiser after you've completed the course work - before a lender will accept your work. Appraisers are the voice of reason in a transaction. Without them, overly enthusiastic cash buyers will run prices up beyond sustainable levels. Look at markets like Mohave County AZ so see how that works. Things are coming back to reality - but many owners are in serious trouble because they bought for cash without appraisals.

    FSBO / Help-USell / etc:
    Selling By Owner is a great way to go. In a hot market where things are selling almost as fast as signs go up it makes sense to try that route.

    In a slow market it's not that easy. We call it Help You Stay. In my neighborhood three people went that route since January. None of these homes have sold. If the owners were actually marketing the house - doing mailings, working the internet, holding open houses at least twice a month, networking with people, contacting companies who may have relocating employees and so on and to forth they might have sold. Putting up a sign and sitting back does not sell houses in a normal or worse market.

    I love FSBO sellers. I have a 56 page instruction manual that I give FSBO sellers for free. I'll put an FM Radio Tour at a FSBO sellers home for free. I'll do a Virtual Tour for free.
    Why? Because - the numbers vary by market - waay over 50% of FSBO sellers list with an agent within 45 days of putting their home up for sale, and I want to be that agent.

    To summarize - in a hot market when houses sell the day they hit the market FSBO can work and work well. In a "normal" or slow market - Realtors who work provide a valuable service...heck my company will even move you for free if you buy or sell a house with us!

     

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  15.  
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    Chris, Oct 27th, 2006 @ 10:35am

    real estate agents serve a purpose on the higher e

    granted most real estate agents are idiots, and most don't make much money. BUT at the higher end a good agent who knows the market well can easily negotiate a lower price (> 1.5% off the sales price, covering their commission)

    also, good agents are practically lawyers and bring the full support of the real estate companies legal team to every deal, not to mention the agents and companies carry massive insurance, that you can sue and settle with, if something goes wrong.

    zillow is interesting, but pretty inaccurate. the price paid for a home is more complicated that what some website database can figure out. the local comps don't tell the whole story.

     

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  16.  
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    Dave, Oct 27th, 2006 @ 12:25pm

    Zillow

    Seems to be right on the money for the real prices paid for 4 homes that really sold on my street in the last year.

    I wonder how that would compare with the actual appraisels done by the "professionals".

     

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  17.  
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    chris (profile), Oct 27th, 2006 @ 1:03pm

    appraising is crap and i can prove it

    call a bank and tell them you want to re-finance your house and get it appraised.

    then, put your house up for sale and see what the a buyer's appraisal is.

    there will be at least a 10% if not 25% difference in the appraisal. a re-fi appraisal is always way more than a new mortgage appraisal.

    the other way is of course, to have a house appraised before you buy it, then buy it and tell a different bank you want to re-fi. the results will be close to the same.

     

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  18.  
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    Peter Crowl, Oct 27th, 2006 @ 1:27pm

    Re: appraising is crap and i can prove it

    "there will be at least a 10% if not 25% difference in the appraisal. a re-fi appraisal is always way more than a new mortgage appraisal."

    Fascinating. I don't dispute your experience but I haven't seen it. There is one thing that might make a difference. The Re-Fi appraisal might allow comps at greater distance than the Purchase appraisal.

    Either way, the appraisal must meet guidelines or the loan won't be eligible for sale. For the unaware, mortgages are typically bundled up by the lenders and sold to large holding funds - FNMA etc.. The loans in the package must all meet certain basic guidelines, and appraisal guidelines are at the top of that list.

     

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  19.  
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    Fred H, Oct 27th, 2006 @ 3:46pm

    Re: appraising is crap and i can prove it

    As an Appraiser, I cannot argue that SOME Mortgage Brokers will steer business to Appraisers with either dubious competence or highly flexible ethics, but the vast majority of appraisals from major lenders are now doled out on a rotational basis and no "estimated" or "needed" value is communicated to the Appraiser.

    Thses changes have been made pursuant to directives of the OCC, which has required all lenders who are in any way affiliated with an FDIC-insured depository institution to insulate the Appraiser from their commison-incentivized lenders.

    These institutional changes took effect in early-2005.

     

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  20.  
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    Fred H, Oct 27th, 2006 @ 4:02pm

    Re: ZILLOW

    Constance:

    Be very careful about trusting ZILLOW, or any other Automated Valuation Model (AVM). There certainly are neighborhoods where these programs can produce reasonable (i.e., +/- 5%) results, but they are wildly inaccurate when they try to pretend they can cover anythign but the simplest of neighborhoods.

    AVMs can do a reasonable job in neighborhoods that are fairly new (i.e., under 20 year old housing stock), but not too new (new-build competition can play hell with the quality of the AVMs data, which compromises its accuracy), and with highly homogeneous housing.

    Some of the hallmarks of neighborhoods where AVMs can easily mislead a non-expert user are those in which: a lot of homes have been, or are being, renovated (i.e., new kitchens, new baths, new roofs, new windows, new furnace, etc, etc), but many homes remain "original"; a lot of fraudulent sales (e.g., flips) have been noted; a high proportion of purchases are being financed with FHA financing; and where the housing stock is highly diverse in terms of quality, condition and amenities.

    If you are thinking about buying into a neighborhood where the data seems to be "all over the place", you would be well-advised to hire an experienced local Appraiser to make sense of the data before making any decisions. Hint: we work for a LOT less than 3% of the purchase price ;-)

     

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  21.  
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    Herb the Home Owner, Oct 28th, 2006 @ 2:46pm

    Automated Valuation Models not always right.

    I agree with Fred H. My neighborhood is 50+ years old and though Zillow got it pretty right for my street, it's all over the place for ajoining streets where a rush of improvements has driven prices above the 'norm'.

    I just had a recent re-fi (August) and the appraiser's valuation was 11K higher than Zillows.

    Bottom line, as much as we hate the 'drag' realtors and appraisers seeming contribute to a market, more often than not, their services are a valuable contribution to the process.

    However, that does not mean that the Realestate industry is comprised of all angels. It needs WAY more transparency, accountability and industry endorsed options for allowing home owners to 'sell by owner' if they so choose. These options could include access (for a fee) to the MLS system of the area and changes in the law that allow 'commission sharing' between a home owner and a Seller's Agent (a big no no here in Texas).

    In Texas (and elsewhere), Realtors essentially control entry into the market. That aspect should be changed either by industry pressure or via legislation.

     

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  22.  
    identicon
    Chivas Johnson, Oct 30th, 2006 @ 12:04pm

    Learning Real Estate do's and dont's

    Since 2000 St. Louis, MO. Real Estate Market has trippled and some areas have went up ten times the value example $60,000 Brick Buildings worth $600,000
    I purched nine Investment properties within the last year in prime hotspot areas, not knowing my credit wouldnot allow loans. I'm 22 yrs. old and did not use an agent, but clearly my eyes for real estate are not blind but that lack of knowledge cost me stop me from millions, is there anything i could do ? should i sell? 314-477-9056

     

    reply to this | link to this | view in thread ]

  23.  
    identicon
    Chivas Johnson, Oct 30th, 2006 @ 12:04pm

    Learning Real Estate do's and dont's

    Since 2000 St. Louis, MO. Real Estate Market has trippled and some areas have went up ten times the value example $60,000 Brick Buildings worth $600,000
    I purched nine Investment properties within the last year in prime hotspot areas, not knowing my credit wouldnot allow loans. I'm 22 yrs. old and did not use an agent, but clearly my eyes for real estate are not blind but that lack of knowledge cost me stop me from millions, is there anything i could do ? should i sell? 314-477-9056

     

    reply to this | link to this | view in thread ]


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