Julie Lunn has grown accustomed to watching the value of her Arden Hills house fall, but she was totally shocked when a "Zestimate" on the Zillow.com website showed a sudden $30,000 decline. " I'm not sure how that could even be possible," she said.
What Lunn didn't know is that about three weeks ago, Zillow.com, a national real estate website, changed the formula that it uses to track the "value" of more than 97 million houses throughout the country, causing homeowners to discover unexpected changes in its valuation estimates.
Katie Curnutte, Zillow's senior public relations manager, said that the changes — the third in the company's history — is all part of an effort to expand the coverage of its database of homes and improve accuracy in one of the most erratic and unpredictable housing market in several decades.
Short of dusting off a crystal ball, what happens next in the market is anyone's guess. Even trade groups that represent real estate agents are constantly refining their data gathering and reporting techniques, hoping to do a better job of tracking the market.
The Minneapolis Area Association of Realtors, for example, has expanded the metrics it uses to track the health of the market. Aaron Dickinson, a numbers guy and sales agent for Edina Realty, said that because the market is now influenced by so many unusual factors, including the tax credit and foreclosures, he's paying less attention to sale prices and more attention to other metrics like inventory and price-per-square-foot.
Zillow.com in a press release issued right after it made the changes that it added 25 million new Zestimates, incorporated user-submitted data about improvements and gave greater weight to more recent sales data.
For some, the changes caused values to go up. Others saw dramatic decreases. Overall, Zillow says, most adjustments in valuation were of 10 percent or less, and the overall margin of error for Zestimates dropped from 12 to 8.5 percent, not far off the typical 5 percent margin of error that most home appraisers claim.
Zillow claims that slightly more Zestimates went down than went up and said that there was little variation by region. In Minneapolis-St. Paul, for example, the new margin of error is 8.1 percent.
Since the changes were made, Lunn doesn't feel any more confident that she knows what her house is really worth. She said that based on the sales she sees in the neighborhood, she thinks the Zestimate is still about $100,000 too low.
Curnutte said that because those Zestimates are based on public records and don't include physical inspections of the house, a "Zestimate" is just an estimate — a starting point for people to determine the value of a home. "It's not an appraisal," she said. "The only way to put a price on a home is by selling it."
Lunn understands why. "They're not aware of our addition," she said. "To their credit, it'd be hard to know about some of the upgrades we've done."