Zillow’s Zestimate Uses Only Physical Characteristics

Zestimate
Please open this link and read the highlighted areas of the document to understand that Zillow only uses physical characteristics to value properties and does not take into consideration whatsoever the level of finish or qualities of homes, such as open floor plans, vaulted ceilings, or remodeled kitchen to value homes. If they didn’t utilize the county assessed value into their system their valuations based solely on characteristics like square feet and bedroom count would demonstrate even greater errors.

Physical Attributes Inconsistently Correlate to Value

Price_Spread_Neighborhood
Please click this link to see the excel spreadsheet demonstrating how the physical attributes of homes don’t consistently correlate to value, even when you control for location, style, and size. This is an actual case study from a Metro Denver Neighborhood. Depending on the homogeneity of each neighborhood, such as very similar builder tract homes, or older areas with some original homes but also some scrapes with new custom homes integrated, you can see a 30% to 300% spread in values per square foot.

About Creed

avatar

A little about Creed

For home sellers what I do for you is a bit complex but straightforward: I figure out exactly what buyers in your very neighborhood desire the most and what they’ll pay to attain those desires; and then help you to give that to them when you sell your home.  This makes your home sell for the highest price and in the quickest time frame.  This is true marketing: discovering what the market most desires and offering that to them.

What buyers desire “the most” is not my opinion; it’s based scientifically on what the highest priced homes in your area offered and how much buyers were willing to pay to attain those qualities.  I invented a system (patent pending) which captures the emotional desires of buyers by analyzing key attributes of homes.  I then help you to prepare your home to meet the desires of your buyers better than your competition—you know the neighbors who are trying to sell their home.  You can check out some videos which do a pretty good job of explaining my system: how it helps sellers value and prepare their home; how it helps buyers find their perfect home; and the scientific stuff if you are interested.

In a three day long live text we pitted my home search robot against three very experienced Denver real estate brokers to see which could find homes buyers prefer.  All three days my bot found the homes the buyers preferred.  This is really quite exciting as my algorithm understands the emotional rewards home buyers seek and the qualities of homes which trigger their envisioning their future life at your home.  We know what buyers want and so will you.  Here’s full proof of the experiment.

I believe a really great home does sell itself, but first you have to know what home buyers in your area think is great.  So I define that for you based on actual sale data, help you to prepare your home to better meet buyers’ desires than your competition does, and then give you a big commission discount for your efforts.  When you and I are done your home is the nicest in your neighborhood; buyers will love it; it will sell for a higher price and in less time; and you’ll make more money and pay less commission.  By working together before your home goes on the market we both win.

I invite you to check out my background and I promise you won’t have to tolerate any typical realtor fluff talk.

Here’s my LinkedIn profile.  I own REalMARKABLE.com and REalMARKABLE.org, which I write the articles for.  You really should read the articles at REalMARKABLE.org as they will help you a lot.  QValue is the valuation model that I created.  I am also the Demon Of Marketing, where I consult other brokerages on changes and innovation within the real estate industry (okay, this site is pretty crazy, but effective).  I also write articles on marketing, innovation, and changes in the real estate industry for Inman News (the biggest news company for the real estate industry on the planet).  Here’s Creed’s Facebook page, the Demon’s Facebook page, and of course REalMARKABLE’s Facebook page.  Oh, I actually have a design patent pending on the REalMARKABLE signs—hey your sign is your first impression to buyers and represents your home’s quality up front to them; I think it should just look cool also.  I’ll shut up now as you may be reading all of this on your phone and I don’t want you to die while driving or something.

Thanks for your time, please let me know how I can help.  creed@REalMARKABLE.com

 

Some of the News Sources Covering QValue and our Find More Genius Robot

 

 

Here’s a semi-formal Resume

Creed Smith

Education

Bachelor of Business Administration from Kent State University 1985

Master of Science in Marketing from Colorado State University 1995

 

Technology

Software Patent Pending for an Automated Valuation Model and Home Search Bot with USPTO

Separate Design Patent Pending for the User Interface of the AVM

Relevant links: Home Search Bot QValue Bot was a 2016 Innovation Award Finalist; Automated Valuation Model QValue AVM was a 2015 Innovation Award Finalist; I write Real Estate Industry Articles at Inman News and Demon of Marketing,

 

Real Estate and Related Business

I created and own the tech-based real estate brokerage REalMARKABLE, the technology company QValue, a specific home buyer site Let a Robot, and the marketing company Fierce Marketing.

I’ve been a licensed broker in Colorado since 1987 and have sold about 1,500 homes; here are at least some of them in a bit of a jumbled order and formats.  Along with more standard residential real estate I spent many years specializing in services to the largest finance companies on the planet such as Fannie Mae, Freddie Mac, Wells Fargo, and many others.

I am approved by the state of Colorado Department of Regulatory Agencies, Real Estate Division, to teach “Technology in the Real Industry” course for broker continuing education credits (about page 32 of this list).

Oh, I have another design patent pending for the really cool REalMARKABLE signs.  Here’s some more cool stuff we do at REalMARKABLE for our brokers and clients!

 

Contact

creed@REalMARKABLE.com

 

 

Will Comparative, Income, or Cost Valuations Work?

 

Q) Hello Creed, I’ve read your latest Inman article and I agree with you 1,000% when you say the way to beat Zillow is by valuing properties more efficiently. I also think Qvalue is a good idea, and an even better idea as an affiliate of a property portal. This will also work outside of the USA, where property portals are no better than Ziprealty.com in 1999. With the great success of Zillow and others in mind, I recently retired from the private equity sector and started [removed].com in [removed: outside the US]. We aspire to grow it across Europe and beyond as a de facto NAR/MLS/Zulia. Does this interest you in any way?

A) Hi [removed], retiring from anything sounds delightful :) congratulations.

I like honesty so let me say that QValue is in its infancy—from the world’s perspective; but it’s taken eight years of my life. I’ve had inquiries from US brokers but have pretty much put everybody on hold. I have three levels of potential–well I think: 1) sell out to one of the monsters so they can kill the other monsters, 2) sell regional licensing to larger brokerages, and if that all fails 3) have a pretty decent market advantage for myself locally. These are ordered in level of desirability.

I agree that the QValue system will work pretty much anywhere on the planet with a means of obtaining MLS-like information. Actually building an MLS/zulia from the ground up would cure many of the problems caused by bad—bad MLS data and formatting. From there it can be customized fairly easily to accommodate however subdivisions or neighborhoods are designed outside of the US (assuming differences in real estate plotting and laws). These differences have limited relevance, as the system can be adjusted to location differences; from there I believe much of the developed world thinks of housing in a similar way, with similar goals and desires.

Obviously you should not base your potential for the system on my one article. Much of what I have been doing is seeding concepts in the marketplace right now. First getting the marketplace to acknowledge the probability of massive change, realize even what seems high-tech now can change in a flash, and then incite them to start looking for the means to be the agent of change.

We can talk about this some; I imagine skype if you are in S[removed] right now–maybe you’re hanging out in the US?

 

Q) It’s always good to be honest, it’s the best way to make money!
I am in S[removed] (8 hours later than Colorado) and running out to dinner now.
Just curious, how complex are your valuation formulas? and are you (or
your team) formally trained in statistics or mathematics? The reason I ask
is that we are very well versed in valuing property using the comparative,
income, cost, and trending approaches…but we want to take our valuation to
an even higher algorithmic level which includes the soft qualities you have
written about on QValue website.

Hi [removed] the concepts are mine; the programming has been accomplished by specialists all over the globe.  It starts with GIS mapping experts, one with a PhD in such.  My database guy has 35 years’ experience running stuff for General Electric in Canada.  My data scientist in London received a patent for his work for NASA (US space agency).  I’ve used a few different people on the text analysis.  Most of my folks are in the $75 to $120 an hour range.

My team is internet based: 1 London, 1 in US, 3 in Canada, 3 in India, 1 Armenia, I’m sure I’m forgetting some right now…

The standard appraisal method cannot work with AVMs.  AVMs are blind and the appraisal method requires much subjective intervention.  Comparative is out.  The correlation of all of the standard measures of valuation using physical attributes only give you a base value—pretty much moving everything toward the center or median value for the area.  Additionally each attribute’s correlation to value varies completely by neighborhood—anything related to the appraisal or comparative methods are useless in AVMs.

The cost method is useless, as real estate values are based on existing demand.  A $100,000 to build home may be worth $50,000 or $150,000 based on current demand.  It’s out.

Trending is really not good either.  First you would have to derive your value based on one of the aforementioned methods then project forward.  So already your premise for value is wrong—extrapolating that forward won’t make it any better.

The income method may work for commercial or rental properties, but that would be based on some rent per foot for each using either human interpretation or a generalized average value for an area.  The problem again is that it’s based solely on physical characteristics.  People make decisions emotionally based on anticipated future events then rationalize their decision with facts afterward.  QValue takes both into consideration to determine value.

We use random-forest-regression plus the K-Means algorithm for clustering.  But anybody can do that.  First you must know how to create an array of potential values based on what the market desires the most and what they will pay to meet those desires; that’s the hard part—a blend of proprietary text analysis and regression.  Thus every valuation is custom completed from step one to the end.  There’s not a magic one-size-fits-all design.  The valuation must determine each attribute’s correlation to value, both physical and emotionally driven attributes, and be custom run for every house.

I hope this helps, thanks

How Does QValue™ Calculate the Features and Desirability?

—-Original Message—–

From: [removed]

Sent: Monday, February 16, 2015 7:36 PM

To: creed@qvalue.net

Subject: QValue Contact form submission

From: [removed]

Subject: QValue Contact form submission

 

Comment by the user:

How does q value calculate the features and desirability?

How does lenders, appraisers and realtors use Q Value ? If they do

This e-mail was sent from a contact form on QValue (http://QValue.net)

 

Hi [removed], let me give you as concise an answer as I can, but with enough detail for a solid understanding.

How does q value calculate the features and desirability?

We first form customized polygons (enclosed shapes of any size needed) to pool “like” properties.  It’s probably easiest to visualize a neighborhood.  This controls for “location” and all of the positive or negative effects associated with that.

We’ll then pull 18 months of comps (control for style, size, and lot size).  So we now have a pool of very similar homes.  (And don’t worry about the changes during those 18 months of sale comps; we trend adjust the prices based on the average change in value for that polygon.)

Now we have 18 months of sale data of very similar homes.  Yet you will find that on a price per foot basis anywhere from a 30% spread to a 200% spread (lowest price per foot to highest).  Since we’ve controlled for physical similarity, it’s the from, flow, and level of finish creating these value differences.

But in reality is not just the level of finish, as a $15,000 set of cherry cabinets does not always equate to a $15,000 change in value.  In a $250K house it may correlate to a $20K increase in value; in a $2 million home it may have zero impact.  So it’s not just the upgrades, but the level of emotional impact causing the value ranges.

We use a mathematical algorithm called random-forest-regression on the standard physical parameters, such as square feet size, bedrooms, baths, etc–but more importantly we used key phrases within the MLS text descriptions and inclusions as part of this regression.  Here we discover both what physical features and upgrades or inclusions had the highest correlation (impact) on value.

So the property is valued on the physical features and emotionally related qualities.  The impact of these are completely customized for each location and house, as the impact of each completely varies by those standards.

 

How does lenders, appraisers and realtors use Q Value ? If they do

For a real estate broker QValue is really quite powerful.  It demonstrates what created value based on what the market desired the most, and what they were willing to pay to meet those desires.  So here you can clearly demonstrate to a seller in easy to understand terms what impact a bathroom remodel or new kitchen had on value, or why certain homes were worth more to buyers.  This is fun as you can compare the exact same subject home against a full range of values for the area and see the key terms change.  We show similar terms in green and dissimilar terms in orange.  So what the seller (or buyer) sees as they compare a subject home to higher priced homes many more orange features–meaning these higher priced homes had market desired qualities their home does not.

Wow, for an appraiser or lender this gets pretty profound.  Using the standard appraisal form you see almost nothing of my concept for adjustments.  There’s like one line-item on “quality”, but that mostly refers to structure or build quality.

So you would be asking the appraisal part of the marketplace to really re-examine how they value homes.  I think it’s correct to do that, but there may well be a lot of animosity to change.

Do you read Inman News (inman.com)?  I write articles for them on innovation, marketing, and much of the stuff I am talking about here.  If you do, you can look up some articles by Creed Smith or Demon Of Marketing (it’s a pen name I use to jolt brokers to understand the changes in their environment.

If you don’t get Inman, I can forward a few articles to you if you wish.

Thanks

Creed Smith

creed@QValue.net

800 W 8th Avenue #103

Denver CO 80204

303.906.6915