Zillow’s fall from grace: What it means for family law
Updated: Dec 5, 2021
On Tuesday, November 2, Zillow sent shock waves across the real estate industry when it announced its plans to sunset its massive home buying operation, Zillow Offers, and lay off 25%
of its workforce. This announcement caused its stock to plunge nearly 30% (so far) after reporting a $381 million dollar loss for Q3 of this year.
This is big news for the family law community for two reasons:
Family law professionals and litigants have long relied on Zillow’s Zestimate algorithm to determine the worth of a divorcing couple’s marital property. This valuation has been notoriously inaccurate because the algorithm hasn’t — and can’t — account for all of the factors that impact a home’s value. The demise of Zillow Offers is the smoking gun proving that Zestimates are inaccurate and unreliable.
Zillow confessed this week that it also cannot accurately forecast market fluctuations that occur regularly, which is how it ended up at the cleaners with Zillow Offers.
With all the tech innovation, venture capital, and Silicon Valley blue-blood that make up Zillow, even they cannot determine the value of homes from behind a computer screen. Accurate valuation can only happen by experienced professionals with boots on the ground, who see, smell, hear, and touch a property. Only then can they effectively evaluate the property, compare it to similar properties, and determine a value within the context of real-time market activity that changes overnight. So a home’s value, regardless of the source, stipulated in a court order one month cannot be assumed reliable the next month.
Indeed, Zillow admitted its inability to accurately predict the market as the reason for shutting down Zillow Offers. Zillow CEO Rich Barton said, “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipated,” which is the root cause for dismantling the program that was a significant portion of its operation — and its future.
It’s one thing for a multibillion-dollar company to suffer a balance sheet loss due to its inability to predict and gauge property values. It’s quite another to rely on that same valuation tool for your client’s income and expense calculations. A family whose financial future is at stake, relying on the equity in their home to keep them afloat and propel them into their next chapter, doesn’t have the resources to recover from the margins of error, which can often be up to 30% too low or too high.
Rely on a real estate professional (an appraiser or CDRE™) to set the property’s list price rather than an automated valuation model from consumer real estate sites such as Zillow, Redfin, Opendoor, etc.
Resist the temptation to stipulate a list price in a court order. Property values are fluid and are dictated by the market, not a court. Your clients deserve to move with the market and not remain shackled by a well-intended order that can end up doing more harm than good.
Zillow’s hubris — and subsequent fall from grace — is all the evidence needed to no longer look to such models for the valuation of real property, often a family’s most valuable asset.
Should you or your clients have any questions about this, or anything real estate, please reach out to me anytime — it’s why I’m here!