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Posts Tagged ‘Zillow’

Zillow Offers As A Proxy For ‘Big Data’ Shows The Lack Of Qualitative Analysis

November 7, 2021 | 8:24 pm |

Yes, big data usually infers ‘quantitative’ analysis, as in “relying on numbers.” The Zestimate legacy of profound inaccuracy finally reached a devastating conclusion with the collapse of Zillow Offers this week and the loss of hundreds of millions in shareholder equity. Zillow never figured out the qualitative part that enables the actual precision in the pricing of a home sale.

There is a lot of talk right now about how other iBuyers are continuing to buy and sell properties so the space is still viable – business as usual. But step back for a moment and think about this:

  • The iBuyer market is currently overcrowded, even with the loss of Zillow Offers.
  • The iBuyer bold-faced name is OpenDoor who was the unicorn of Softbank who famously backed WeWork without any apparent due diligence.
  • The iBuyer segment is characterized by its razor-thin margins and billions of investment required.
  • It was created and run in a rising market, most of it a boom, and was recently turned off during the recent downturn.
  • It is wholly dependent on housing markets with homogenous housing stock and will always need high volume just to survive.

I feel pretty confident there will be further fallout over time, but the iBuyer space will settle into a small segment of the overall transaction universe. It has been wildly overhyped (at real estate brokers and real estate appraiser’s expense) as investors, burdened with high volumes of capital, desperate for upside in housing in this fintech boom.

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This Just In: The ‘A’ in ‘Zillow’ Stands for ‘Accuracy’

November 7, 2021 | 8:21 pm | Explainer |

The news came quickly and brutally (especially if you were a ZG investor):

@mortgage_yack #zillow #PINKHolidayRemix #realestate #utahrealestate ♬ original sound – Jack


I jumped on the bandwagon with this:

And this was a perfect post:

Now let’s digest this in the context of price accuracy:

While Zillow’s CEO Rich Barton essentially said early on that he didn’t want their iBuying efforts (Zillow Offers) to be seen as gaming the Zestimate like that dumb viral Tik Tok video inferred a month ago.

@seangotcher

#housing

♬ San Tropez – Illect Recordings


Yet it would seem unlikely that Zillow Offers used something completely separate and conceptually very different from their ‘Zestimate’ because it would be quite expensive and extremely difficult to keep a radical new valuation concept a complete secret. All we know at this point is whatever valuation methodology they used was a complete fail. And to go a step further their Zestimate valuation methodology has long been a complete failure in the accuracy department. But it hasn’t been a complete failure in the consumer credibility department at all. In fact, it’s been quite successful – after all, Zillow weened control of the U.S. consumer away from the real estate brokerage industry who had enjoyed 100 years of gatekeeper status.

This is why the real estate brokerage industry pays Zillow substantial fees to be featured on a search page in their “Pro” offering, using the source data provided to Zillow by them. Its quite diabolical.

So if we consider the Zestimate to be a proxy for the Zillow Offers valuation tool that failed, it gets worse….

The national median accuracy rate of the Zestimate is 2%.

Because they are using “median” and that term is largely ignored by consumers in the phrase “median accuracy rate” that 2% sounds pretty darn accurate. Yet there is no fine print here. The phrase literally means that 50% of the time the Zestimate is within 2% of actual value and 50% of the time it’s not.

And it gets worse…

The median accuracy rate is only within about 2% if the property being Zestimated is currently listed for sale. But if the property is not currently listed for sale, the median accuracy weakens to 7%.

For the Zestimate to move from 7% to 2%, they are reliant on the broker expertise involved to price the property and get it on the market.

Said another way, in order to get the median accuracy rate from 7% to 2%, they need the brokerage community to price the property to get that touted accuracy rate.

To summarize this point:

The brokerage industry gives all their data to Zillow because Zillow marketed to and won the consumer.

The brokerage industry pays Zillow to market them on the Zillow platform because they gave Zillow all their data.

Zillow became a brokerage firm and therefore a direct competitor to the brokerage industry, something they promised early on would never happen.

Zillow uses the brokerage industry to inaccurately price properties, placing them in an adversarial position with the consumer who wants to sell their home.

Yeah, I get it.

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Zillow Gets Pillowed

February 9, 2021 | 11:07 am | TV, Videos |

I met Rich Barton, Zillow CEO, at an Inman/Curbed party held during an Inman conference in Manhattan a long time ago, the evening before Zillow’s launch. I asked Rich, a very nice and fascinating person, what he did for a living, not realizing he was the co-founder of Expedia. Ugh. He also said they were launching their latest effort the following morning – a web site called “Zillow,” and he added “as in rhymes with pillow” to the description. Little did I know real estate would never be the same after that.

So this weekend’s SNL skit on Zillow was particularly delicious with all the “pillow talk.” Even Rich got a kick out of it.


Your LOL UPDATE for February 10, 2021

Ted Alexandro Said SNL Stole His Joke, So He Asked for a Million Dollars [VICE]

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My Forbes Column: Keeping Housing Market Results From The Public Is Never Justified: An Expansive View

June 28, 2020 | 5:00 pm | Explainer |

This piece was taken from my new Forbes column. I’m testing the platform to spread the word and you can help me by going here and then clicking “follow.”


Keeping Housing Market Results From The Public Is Never Justified: An Expansive View

Transparency is always the right strategy

When the Covid-19 crisis began halfway through March, the Manhattan housing market was placed on “pause,” as were many housing markets around the country. New York State “Shelter in Place” rules prevented the in-person showing of a property by a real estate broker. That was the beginning of the problem this crisis posed for the industry that lives and dies on sales and rental transactions. Then a startup agent trade group (NYRAC), made up of some of the most productive agents in the market and includes many of my long-time industry friends, pushed to hide the days on market metric from the public for what turned out to be a self-serving reason. I love what they stand for, but this was a strategic error that I could not support.

While I have been a real estate appraiser and market analyst for 35 years, I dipped my toe into real estate as a sales agent in Chicagoland for six months in the mid-1980s.

Lesson learned

From my experience there it was clear to me that the accuracy of the information our office possessed was critical to all parties for the market to function. I still have my old monthly MLS books and remember logging on to the MLS from one ancient (even then) terminal in the office – talk about delayed market information!

Days on market during Covid-19

The days on market (DOM) metric is significant to sellers because they don’t want their home to be perceived as overpriced if it sits unsold too long. DOM can be measured in several ways, but the one I see used the most is the average number of days between the last price change, if any, and the contract date (or today’s date if it has not sold.) When a potential home buyer looks at a listing on a public-facing web site, they look at DOM as one way to determine whether the listing price is reasonable. The longer a listing sits on the market as compared to other listings, the more likely it is over-priced. Sellers look at DOM too and become concerned when their listing sits too long relative to the competition, typically blaming the agent for not marketing the property enough. However, the asking price is usually set by the seller who is slow to recalibrate their asking price if the market is weakening. I’ve found it takes one to two years for a typical seller to capitulate on price in a downturn and not feel like they left money on the table.

Hiding DOM as a marketing strategy

When the government ordered lockdown hit New York City, and real estate agents were not allowed to provide in-person showings, market activity immediately stalled. NYRAC pressured various platforms to hide DOM information from listings. They still wanted users to be able to drill down and uncover the details, but at first glance, the DOM information was to be hidden.

Streeteasy (owned by Zillow), the de-facto Manhattan multiple listing system in the eyes of the consumer, and the Real Estate Board of New York (REBNY), the leading real estate trade group with their own platform known as RLS, initially balked at the manipulation but eventually caved to NYRAC pressure. NYRAC made a strategic error that further damaged the long-term credibility of the real estate brokerage industry with the consumer. Not all brokers agreed with this strategy either, but this group placed enough pressure on these platforms to make the change happen.

Only sellers matter?

The incentive to “partially” hide DOM comes down to this:

1) Give the sellers a “break” after two years of softening price trends.

2) Address the sellers’ concerns about extended marketing times during the pandemic.

3) But the primary reason is that real estate brokers didn’t want to lose their listings if the sellers removed them from the market and returned to the market later with a new agent.

Why this effort was wrong

NYRAC and several real estate agents said to the effect, “the buyer or seller can still look at the listing history to know how long a listing has been on the market. That data was never removed.”

I always respond with “Then why hide it in the first place?” To brokers in favor of this temporary rule who wonder why I appear to be obsessing about a nuance I say, it is never appropriate to manipulate data, made even worse by the primary motivation behind this action.

Ignoring the buyers

This “solution” ignores the buyer’s position in a sales transaction and yet last time I checked, buyers are on the other side of every sale. Any effort to partially or fully hide DOM results or any other market metric conveys the wrong message and smacks of the old “information gatekeeper” mentality, no matter the state of the market.

Recently, the official word came down that all days between the shutdown and the reopening will count as “one day” for the DOM calculation presented to the public.

Going forward I have the following questions:

  • Are we to anticipate a suspension of DOM anytime there is an unexpected external event that impacts the housing market (9/11, The Lehman Brothers bankruptcy, Super Storm Sandy)?

  • Who makes the call to do this? A trade group, a regulatory body, a for-profit platform?

-Do we think that buyers and sellers of real estate are unaware of the 90+ day COVID-19 market shut down? Will a new listing added today as the market opens with 1 DOM will sell differently than an identical property with a 91 DOM listing that sat through the 90+ day COVID-19 lockdown?

The market doesn’t care what the brokerage community thinks (or what I think). The act of intentionally hiding or partially hiding data from the consumer is never justified in any scenario.

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Homes with Blue Bathrooms Sell for More?

June 1, 2017 | 9:40 am |


[Geithner Bathroom, Westchester MLS]

Remember former Treasury Secretary Tim Geithner’s blue bathroom that didn’t help him get his price back in 2009?

Today I received a press release from Zillow that shared the results of their research with the headline: Homes with Blue Bathrooms Sell for $5,400 More than Expected.

Like the Zestimate’s results that are presented to the nearest dollar, this type of presentation infers a market precision that does not exist. Labeled as “disrupters,” I think Zillow’s concept of “aggressively marketing an accuracy that is non-existent” is one of the biggest challenges facing real estate appraisers and brokers and in turn, the consumers. Numbers can be magic, especially when presented in an econ-sounding way. The consumer absorbs the results as gospel without challenge.

I’m sure the numbers are accurate with the data they have but Zillow’s application of the results are misleading. Yes their data says blue bathrooms sell for $5,400 more but that doesn’t mean your blue bathroom will get you $5,400 more than your neighbor with the exact same house across the street that doesn’t have a blue bathroom.

As that commercial on tv says: if it’s on the internet, then it must be true.

 

 

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[Infographic] NAR gets into the Urbanization Conversation

September 1, 2015 | 10:12 am | | Infographics |

The National Association of Realtors, who is generally viewed as emphasizing suburban single family housing markets, may be plotting a new course. NAR will be sharing more releases on the topic of urbanization in the coming months. They look to be taking the same path as Realtor.com, the online entity who licenses their name from the NAR mothership. Realtor.com has cleaned up their act and has been much more focused on city life after their recent purchase by News Corp (through Realtor.com’s parent company Move), trying to become relevant again by emulating Zillow and Trulia. And of course, the consumer wins.

It’s a good thing too since urbanization is one of the most important housing trends (affordability aside) facing the housing market going forward.

Here’s an interesting infographic released by NAR today:

NARurbanismInfographic

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Bloomberg View Column: The Myth of Real Estate Stigma

August 31, 2014 | 4:52 pm | | Charts |

BVlogo I gave some thought to what the long term impact of a nationally-covered local tumultuous event on a local housing market might be…

The Aug. 9th shooting death of unarmed black teenager Michael Brown by a white police officer has roiled Ferguson, Missouri, thrusting it into the national spotlight. But what happens to the town of 21,000 outside of St. Louis after the turmoil ends — more specifically, what happens to property values?

Read my latest Bloomberg View column
The Myth of Real Estate Stigma. Please join the conversation over at Bloomberg View.


My Bloomberg View Column Directory

My Bloomberg View RSS feed.

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My First Post on Bloomberg View: Homebuying Gets a Housecleaning

July 28, 2014 | 9:28 pm | | Charts |

BVlogo

I was recently approached by Bloomberg View, the editorial arm of Bloomberg LP, to provide commentary on the housing market. I seem to be in good company.

Although their well oiled machine began to append my additional title “Bloomberg Contributor” earlier in the month when being sourced, it wasn’t an oversight on their part. I didn’t submit my first post until last week. It took me a few weeks to get my groove on as I was in the midst of a 2Q14 market report release gauntlet.

Last Wednesday evening I wrote my first post about Lawrence Yun’s attendance at the Zillow Housing Forum and how NAR had become just one of the crowd, and the symbolism of it all. I got the idea when I was sent the Zillow e-vite to attend the conference and I noticed that Yun was to speak.

Excited, I submitted my first post on Thursday morning, unfortunately just before the Zillow-Trulia bombshell deal jumped into the headlines. So I needed to add this new twist – which thankfully made my original point even stronger. I re-wrote my first post and it was placed online last Friday.

Here is the first column of hopefully many to come: Homebuying Gets a Housecleaning


My Bloomberg View RSS feed.

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Zillow is Forecasting Future Property Values

May 14, 2014 | 10:42 am |

zillow-logo

“I may be cool, but you can’t change the future” –Beavis & Butthead.

Zillow has recently re-announced it is forecasting the value of each property out over the next year. It’s not a new tool for them, at least conceptually since the “What is a Zestimate Forecast?” page was last updated on October 3, 2012.

In a world with Big Data, it’s clearly inevitable to see an expansion of the capabilities of services from firms like Zillow and Trulia as their data set grows. Zillow’s Zestimate was a key web site feature at their launch (no listings!), but the company lit the real estate housing market industry on fire, establishing Zillow as a powerful brand that was here to stay, even if the Zestimate tool was problematic.

The challenges facing the Zillow Forecast tool

The Zestimates are still dependent on the quality of public record
Many markets (ie NYC), have quality-challenged public record. But as time passes, Zillow’s data set gets bigger and their logarithms get better and I have not doubt that the reliability will continue to improve.

If the Zestimate is wrong, the forecast will be wrong
Take a look at this chart on the highest price closed sale in Manhattan:

15cpwzestimatechart

This is perhaps Manhattan’s most famous “trophy” sale of the past several years, 15 Central Park West. The property sold for $88M but the Zestimate at the time of sale indicated the value was $72M. However today the value is $11.9M and the forecast estimated an 8.6% increase next year to $12.9M.

15cpwlandingpage

The Zestimate Forecast projects the current Zestimate out over the next year using a bunch of indicators

Zillow uses:
-mortgage interest rate (local, but not much different than national)
-property tax rate(local)
-construction costs(local)
-number of vacant homes(assumed local)
-percentage of loans that are subprime(assumed local)
-percentage of delinquent loans (assumed local)
-supply of homes for sale (local)
-change in household income (somewhat local, huge lag time)
-population growth (somewhat local, huge lag time)
-unemployment rate (somewhat local, lag time)

I feel that most of these indicators, when considered as a group, are important to consider won’t capture the nuance of next year’s view because they either lag or aren’t granular enough to be a key influence on value trends over a short period. I would think Zillow would add search patterns and other “Internety” things to leverage their proprietary data to help with accuracy. I’d also consider “new inventory”, not just total inventory (supply) to help catch the nuances of a tight time frame of forecasting.

The key national factor driving nearly all housing markets now – credit – is really hard to quantify.

Still, forecasts are the future (sorry) and kudos to Zillow for taking the first step, even though the results, like the early days of the Zestimate, are probably not very accurate.

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With Mortgage Lending Historically Tight, Renters Suffer Just As Much

April 15, 2014 | 4:19 pm | |

nytrentafford4-14

There was a good article in the New York Times yesterday: In Many Cities, Rent Is Rising Out of Reach of Middle Class

Many have complained about the Federal Government’s (and our society’s) overselling of homeownership over the past decade and how the decline in homeownership will eventually lead to an emphasis on rentals in the US. Of course, like many housing market ideas, good and bad, they tend to be presented in a vacuum, without real context.

I believe much of this discourse is in reaction to tight credit combined with a weak economy rather than some sort of fundamental cultural and economic shift. During the bubble we got the opposite discourse – that there was a fundamental cultural and economic shift towards homeownership.

Currently there is a much smaller subset of Americans that have access to financing. According to the Federal Reserve Senior Loan Officer Survey, lending has actually tightened in 2014 over 2013 (related to QM). Many homeowners are unable to sell because they can no longer buy and many renters no longer qualify for financing so the idea of of homeownership as a goal fades.

Case in point has been the recent public discourse on the issue of home affordability, whether it be sales or rentals. Zillow presented an analysis for the New York Times that illustrates how much rents have risen in the past 13 years (since 2000) in cities across the US.

Here’s the scenario:

The economy is weak – we are seeing tepid growth in employment, stagnant incomes and historically tight residential mortgage lending.

  • Approximately 38% of homeowners can’t buy their next home so they won’t list their home for sale.
  • Buyers without credit issues won’t list their homes until they can find something to buy.
  • The lack of supply presses prices higher because those who have access to credit have little inventory to choose from, driving up prices.
  • Renters looking to buy can’t find a home they want to purchase so they are kept in the rental market.
  • Renters looking to buy don’t qualify for a mortgage so they stay in the rental market.

The organic flow out of the rental market into the sales market is slowed and a log jam is created of too many renters and not enough buyers.

Rising rents against stagnant incomes creates an affordability crisis. The sales and rental markets are connected. They are not mutually exclusive.

Rising rents are a product of tight credit, which is a residual byproduct of the financial crisis. Fix the economy and credit eases, then lending normalizes (no, not circa ’06) and the pressure on rental housing is eased.

ASIDE I’m not entirely confident with the reliability of the historical rental data being presented to the New York Times by Zillow – but I still agree that affordability is being pressured:
– Zillow was launched circa 2006 and rents are not public record so the early data has to be super thin.
– The comparison was made between a first quarter (low) and a third quarter (high) in a highly seasonal market.
– I am not sure if “New York” means Manhattan or New York City. If it is Manhattan, then our median rent figure in 1Q 2000 was $2,600 in nominal terms, and $4,276 in real terms. In nominal (unadjusted for inflation) terms, rents have risen 23.1% through 3Q 2013 while real median rent has fallen 27.3%. The Zillow median rent as share of median income nearly doubled, rising from 23.7% to 39.5%. Either incomes have collapsed in NYC or the 2000 rental figure being punched into their model is flawed, ie way low, no?

Other inights on any of this would be appreciated.

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Zillow Acquires StreetEasy, Goes Vertical, Literally

August 19, 2013 | 10:41 am | |

I was reading my twitter feed and it just jumped out at me: Zillow announced their acquisition of StreetEasy for $50M in cash. I also heard it simultaneously on the show Bloomberg Surveillance. Their CEO Spencer Rascoff will be on the show tomorrow morning to talk about the acquisition.

While there will be lots of prognosticating about Zillow‘s entrance into the NYC housing market through a heavily used resource like StreetEasy (Zillow was here already, just not taken very seriously).

I think there’s a bigger story for Zillow. If Zillow leverages the StreetEasy data presentation model, Zillow will be shaking up the housing market real estate information space across the US.

Think highrise urban housing markets – I call them “vertical” markets (not to be confused with “vertical” in marketing parlance).

• All national data aggregators and brokerage companies haven’t yet figured out vertical housing markets yet in terms of their presentation of information.
• MLS systems remain firmly single family orientated and have yet to present data in highrise markets in a visually logical way – ie co-ops and condos. Symbolic of the general primitiveness of MLS systems in handling multi-unit housing, one MLS system in the NYC metro area still tags “co-ops” as “condos.”

Kudos to Streeteasy for shaking up the market from day one. When they launched, StreetEasy became the housing data resource of choice for most in NYC. I met most of the team a while back and I was impressed with how a small group of people could really shake things up in a huge market. While presenting clean data in a very dirty data environment continues to be a challenge, I think their greatest contribution to the housing market has been how they displayed their information – in a way that consumers screamed for.

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Talking Case Shiller on Bloomberg TV’s ‘Street Smart” with Betty Liu/Adam Johnson

May 29, 2013 | 11:57 am | | Public |

Yesterday’s release of the Case Shiller Index prompted a flurry of coverage given the 20-cities’ highest YoY increase in 7-years. I did a three way split interview from a remote location in CT (see studio set up below). I was a guest along with Vincent Reinhart, chief US economist at Morgan Stanley and Stan Humphries, chief economist at Zillow Inc. Betty Liu and Adam Johnson kept the conversation going.

I especially liked Stan’s modification of the Case Shiller Index results which excluded foreclosures and his research on low and negative equity (my explanation for low inventory right now). The drop in foreclosure activity over the past year caused significant skew to the mix. According to Stan the index would show roughly a 5% increase YoY rather than an 10.9% increase. A huge difference and yet another reason why this index does more harm than good to our understanding of the housing market.

Vincent’s observation that seasonality is considered in Case Shiller is basically wrong – not technically wrong because the data is seasonally adjusted. However the methodology of a repeat sales index washes out seasonality. If you look at the Case Shiller chart, there hasn’t been “seasons” in housing since 1987. That’s simply not true. The Case Shiller Index does not reflect annual housing cycles.

Since Case Shiller Index lags the signing of contracts by 5-7 months, expect to see much higher YoY results this summer.

How the sausage is made

Bloomberg TV is always great to work with – they arranged for me to use a remote studio in CT through a third party. Here is what the studio looks like. Amazingly primitive but it works!

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