Updated below with Zillow comment.
The battle between online real estate companies and which does a better job of calculating home-value estimates heated up on Thursday when Seattle-based Redfin released results of a study saying that it was best in class.
The independent study, commissioned by Redfin, found that the Redfin Estimate outperformed similar features offered by cross-town rival Zillow, with its Zestimate, as well as Homes.com. Zillow responded by calling the study methodology flawed, saying it offers additional information in its estimates that Redfin does not.
The social science and market research firm SSRS evaluated more than 5,000 home sales in the study and found 64 percent sold within 3 percent of the price predicted by Redfin. That figure bested a 29 percent rate for Zillow and 16 percent for Homes.com.
The median error rate of the home-value estimate was 2.06 percent for Redfin, 5.95 percent for Zillow and 10.26 percent for Homes.com, Redfin reported.
Adam Wiener, Redfin’s chief growth officer in charge of data science, defended the fact that the study was fueled by Redfin and invited other companies to conduct their own.
“We really don’t think of it as a shot at Zillow, we really just wanted to get the facts out about which estimates are most accurate,” Wiener told GeekWire. “It’s why we included Homes.com in the study and we would have included anyone else that had a publicly available home-value estimate for consumers.”
Wiener did say that “a little friendly competition” with 10-year-old Zillow is only going to benefit the consumer.
“If Zillow makes their own breakthrough and perhaps increases the accuracy of the Zestimate, we’ll just do our best to recapture the top spot,” Wiener said. “A little healthy competition here is good for the consumer and really will push the state of the art and the industry forward.”
Wiener called SSRS a trusted trusted provider of analytics and research for a large number of industries and said they drove the analysis.
“They wouldn’t put their names on it if the study weren’t unbiased,” Wiener said. “We would welcome other folks to run their studies, whether it’s Zillow or any other home-value estimate provider — as long as the study is apples to apples … you pick the same basket and compare the accuracy of the estimates on the same date to the sale price. We would invite other folks to run their own study, and I feel confident that they would find the same result.”
Update: Zillow Group responded Thursday to Redfin’s findings, with comment from Chief Analytics Officer Stan Humphries:
“The biggest difference between Zillow’s Zestimate and the Redfin estimate is that Redfin takes into account list price. Since the list price influences the ultimate sale price, it’s not surprising that Redfin’s able to get very close to the ultimate sale price for listed homes. But that isn’t as helpful to home buyers, sellers and homeowners as an independent estimate of a home’s value based on independent data.
“Once a home is listed, a consumer already has the list price. The Zestimate is an additional piece of information — a second opinion. Redfin doesn’t offer that to consumers.
“Zillow has a Zestimate on more than 100 million homes. Redfin has 65 million, mostly in major metropolitan areas, which are easier to estimate the value for. This means the consumer is left without important information quite often when using Redfin as a resource. Comparing their accuracy rate to ours is apples-to-oranges. (But even if you do, the Zestimate has a higher overall accuracy rate).
“The methodology for the SSRS study is flawed. The accuracy metric in the Redfin study is only computed on the valuation after the home has been listed. A rigorous analysis would observe valuations on homes before they are listed for sale, compare those valuations to final sale prices, and compute the percentage of properties for which a valuation was available, as well as the accuracy rate.
Home-value estimates are a source of much controversy in the real estate industry as home owners argue that the estimates don’t accurately convey the value of their properties. Agents also have to contend with sometimes false expectations from buyers and sellers based on estimates that may miss the mark.
Wiener said the findings of the study demonstrate that the Redfin Estimate is “dramatically more accurate” than what consumers have ever had access to.
“Just imagine if you were using Google Maps to plan a route from Seattle to Bellevue, and Google Maps told you it was going to take 20 minutes to get there and it took 40 — that wouldn’t be very useful,” Wiener said. “But if it told you it was going to take 20 minutes to get there and it took 22 minutes, you’d think, ‘Oh, this is a pretty good tool for finding how long it’s going to take me to get somewhere.’ So, while home-value estimates have been around for a long time, the accuracy of the Redfin Estimate really is novel for consumers.”
Redfin launched its Estimate tool in December 2015 to go after Zillow’s Zestimate, which had been dominating the space since 2006. Last June, Zillow announced that it had upgraded the Zestimate to improve its national media error rate to 6 percent from 8 percent.
Redfin stresses that its estimate calculation is unique because it “evaluates billions of data points using proprietary machine-learning software running on next-generation cloud technology.” Furthermore, the company says that being a broker gives it access to the Multiple Listing Services used by real estate agents to describe properties in more extensive detail.
“The estimate that has the highest quality data is generally going to win,” Wiener said. “Essentially we have unlimited computing power to make sure that we try to calculate the most accurate estimate.”
The Redfin Estimate is available for more than 65 million homes in major U.S. metropolitan areas. Zillow estimates the value of more than 100 million homes, covering areas beyond those major metros. Homes.com does not publish its estimate coverage.
Wiener does concede that home-value estimates are not perfect.
“The biggest hurdle that home-value estimates are still facing is that they can’t see inside the home,” Wiener said. “They don’t know if you’ve upgraded your kitchen, they don’t know if you have a particularly great design aesthetic and you’ve really made your place look awesome. That is going to show up in the home price when you go to sell it, and so there are certainly cases where the estimate has gotten it wrong, and the best place to get the most accurate home value is from a local experienced real estate agent.”
Not surprisingly, because it’s a brokerage, too, Wiener says that’s what makes Redfin the “ultimate solution” — using its online estimate and then an in-person assessment when it’s time to sell.
“That 1-2 punch for people who want to know what their home is worth is the best combination, we think, in the industry,” Wiener said.
And users can expect Redfin to tout the results when folks come looking for a figure on a property.
“This is one of the most important questions that a homeowner or a home buyer is looking to answer,” Wiener said. “So we’re certainly going to be letting our users of Redfin.com that we have the most accurate estimate.”
Here’s more on how Redfin described the study methodology:
Each Sunday through Thursday between Oct. 19 and Nov. 30, 2016, for the 194 census-defined U.S. metropolitan areas where Redfin has listing and estimate data, Redfin sent SSRS a file including all residential homes that had a new sale pending. From this file, SSRS randomly selected 500 to 1,000 homes each day, until by Nov. 30 a total of 24,789 pending sales were under evaluation. The homes in this sample spanned 7,531 postal codes and 189 census-defined metropolitan areas, and included single-family homes, townhouses, co-ops and condominiums. Within 36 hours of being notified about the pending sale of a home, SSRS noted the home-value estimates from Redfin, Zillow and Homes.com. When the home sold and its sale price was published, SSRS then compared the estimated values with the actual sales price. 6,338 had closed by November 30. 5,661, or 89 percent of the closed sales, had home-value estimates from both Zillow and Redfin. 5,074, or 80 percent, had home-value estimates from both Homes.com and Redfin.