Are you using Zillow to comp your properties? STOP doing it! For those of you that have been a follower of mine for awhile, you already know how I feel about Zestimates. I have spoken often about the misuse of Zillow for property valuation and comping in my courses, coaching and pretty much to anyone who is willing to listen.

Why am I so fanatical about NOT using Zillow and their Zestimate feature to comp properties? Well, the reason is quite simple…the value of a Zestimate is just flat WRONG.

You see Zillow uses an algorithm, among other things that compiles data from tax records, public record etc. to come up with its Zestimate. What Zillow is incapable of doing is to bring the “human” element into property valuation. Comping is both art AND science.

Let me give you an example: If you had a house on the ocean that was 5,000 square feet, and one across the street that is also 5,000 square feet is NOT on the ocean but has an ocean view, (still nice but not near as nice as being on the ocean with an unobstructed view) could you use these two as matching comps? The answer is NO.

In order to properly value the property on the ocean you will need to use other properties that have recently sold that are ON the ocean. The property across the street, no matter how similar it is to the one on the ocean, will be far too different.

This is the art piece that I am talking about. Zillow will take all of the recent sold properties in an immediate area and aggregate those to come up with a value, or Zestimate. This includes the house across the street from the ocean in my example.

By doing this Zillow brings the value of the property on the ocean down significantly. Where this has become a problem is when the general public uses Zillow’s Zestimate as the gospel truth when it comes to what the property is worth.

Even worse than the general public doing this is when investors get lazy and do this. Don’t get me wrong Zillow is a great source of information, but it is just a lousy source of info for property value. At best it ought to be used as a starting point, before digging deeper using the MLS to really read the tea leaves and know what the property is worth.

The reason I am harping on this today is because of a LA Times article that was written earlier this month. In the article Zillow’s CEO Spencer Rascoff states that nationwide Zestimates have a “median error rate” of about 8%!

Are you kidding me, so on a $100k house that means that their error rate on a median basis is $8k. That’s a HUGE difference. I knew it was bad but had no idea it was that bad!

But it gets worse. Further down in the article it talks about how large these valuation errors are in different parts of the country. For instance in Manhattan the median valuation error is 19.9%! In Somerset County, MD the error is 42%! In San Francisco it is as high at 11.6%.

Again, how can anyone even remotely be a successful real estate investor if they use Zillow to value their properties?? I hope you are reading that as a rhetorical question. It cannot be done! Do not try.

The best way I know how to accurately comp a property is to use the MLS. This is the BEST way to dive in and really be able to see the nuances that a Zestimate cannot determine. By doing it this way, you will have a HUGE step up on your competition, and it can either save you a ton of money by not making a mistake or make you a ton of money by spying a winner that everyone else sees as a loser.

If you are interested in reading more of the LA Times story you can do so here. Until next time go find a deal, comp it right and make a pile of money! Here’s to your success.