Today, when you think of using the internet to buy a home, you think of Zillow. What began as a simple web portal for perusing homes has grown into a colossus that increasingly functions not just as the mirror of the housing market but as its maker. The Zestimate, Zillow’s automated home value, appears next to every listing like magic. It started as a mere feature for browsing nosy homeowners and would-be buyers, but has grown into something much more: the market it claims only to describe is the market it is creating.
The Zestimate’s Allure
It’s easy to see why the Zestimate is such a tantalising prospect. In an opaque market where prices can swing madly from one neighbourhood to the next, the Zestimate gives you something: a simple, swift, easy, ‘objective’ answer to the question ‘what is this home worth?’ You don’t have to pay a professional appraiser to figure it out. You don’t have to call a dozen real estate agents to find out what they’d put your house on the market for. You only have to input some coordinates, and there it is. It’s the starting point for the calculations of many owners, and seems to be a level-playing field in the anything-goes world of property.
Armed with this database, whose size and depth grow with every new sale, and supplemented with other bits of data, Zillow’s algorithm spits out these estimates at a remarkable pace and frequency. To homeowners, the Zestimate can be a boon or a bane, depending on what the number says about the value of their home. To buyers, it’s a guidepost, a way to know if the listing price is a fair reflection of the market area. And as the Zestimate has become more popular, it’s also taken on more power, sometimes setting the market rather than simply observing it.
The Market Maker
What happens when a tool designed to reflect existing market values begins to help set them? That question lies at the root of Zillow’s growing sway. As buyers and sellers have grown more accustomed to Zestimates, the numbers have begun to put a quiet yet powerful crunch on the market. Many homeowners list their homes at or around the Zestimate because they have treated it like an informal appraisal. Many buyers leverage the Zestimate as a bargaining chip, by asking for price adjustments to get closer to Zillow’s estimate.
Agents have told me that it’s not at all unusual for a client to use the Zestimate as a reason to justify a particular asking price, even over the heads of brokers who have years of local market experience. In this way, Zillow’s algorithm – supposedly there to help – has become part of the game, affecting seller expectations and buyer impressions. In this sense, the Zestimate functions as perhaps the most successful self-fulfilling prophecy of all time: people’s expectations of what it ‘predicts’ have helped to make it a correct prediction.
The Algorithmic Influence
As the Zestimate grows in weight, it poses inescapable questions about algorithms in our lives. On the one hand, Zillow’s numbers provide an unprecedented sense of openness and accessibility. Its data-driven comping approach makes property values available to the average buyer in a way that was never possible before, democratising information and allowing anyone with an internet connection to get a rough handle on what a place is worth, without having to go through a gatekeeper. On the other hand, the Zestimate is only an estimate. An estimate based on an algorithm – a ‘secret sauce’ – that can never hope to capture the number of variables that underlie any home’s value. For all its sophistication, no program can account for the vagaries of the local market, unique features of a home, or the elusive quality of its ‘feel’.
Also, the Zestimate has the power to reinforce market trends, either inflating markets in hot areas and dragging down ones in colder areas. And as the Zestimate becomes the ‘truth’ that more buyers and sellers consult, the market might homogenise, with prices concentrating around the Zestimate rather than reflecting the real differences in the supply and demand.
The New Normal
Still, the Zestimate is a tool, and – just like all instruments we use to understand the world – it’s burgeoning influence as a benchmark of the real estate market is also a reminder of how, as opaque as they seem at first, algorithms can quickly become the active agents in the very systems they were initially created to measure. As Zillow keeps updating its models and expanding its reach, the Zestimate will likely become only more central to the purchase process. Buyers and sellers would do well to keep in mind that this estimate – however useful – isn’t the last word on the value of the home.
