In a world where homebuyers are seeking out instant home valuations and frequently obtaining them on non-brokerage websites — the most popular of which is Zillow’s Zestimate — Seattle-based brokerage Redfin is claiming to have devised the most accurate automated valuation model (AVM) the industry has ever seen.
The high-tech brokerage has added home value estimates to property pages on its website that can cover more than 40 million listed and unlisted homes in 35 major metro areas. It cast the “Redfin Estimate” as an important way for the company to maintain a competitive website as it targets Zestimate users.
A growing movement
The brokerage’s rollout of home value estimates reflects a growing movement in the industry to embrace automated valuations rather than shun them — a shift that has been fueled by the National Association of Realtors (NAR) and could theoretically help brokerages better compete with listing portals online.
Brokerages that wish to feature home value estimates on their websites have two options: they can either license third-party AVMs to produce the valuations, or they can develop their own AVMs. Redfin has taken the second approach, which may be considerably more expensive than the first.
Redfin’s estimates also reveal the sensitive approach brokerages may take to presenting automated valuations. The brokerage will not show estimates on listings whose agents have indicated they don’t want them there.
Sample redfin.com listing page with Redfin Estimate, which highlights the discrepancy between Redfin’s valuation and the home’s price.
Redfin CEO Glenn Kelman said all homebuyers beginning to search for properties online have two primary questions: “Can I see all the homes for sale?” and “What should I pay for this place?”
“If brokers aren’t answering that [second] question we’re really just not fulfilling our obligations to consumers,” he said.
New proprietary estimates on active listings
One notable aspect of Redfin’s estimates is that, by default, they appear on active listings, not just property pages for off-market homes.
That’s an approach long taken by Zillow with its home value estimates (Zestimates), but not by virtually all other listing portals and brokerage websites, which are much more likely to show estimates, if any at all, on property pages for off-market homes.
Redfin.com was actually one of the few real estate websites to previously show value estimates on listing pages — but those estimates, which included Zestimates, came from third-party providers: Zillow and Eppraisal.com.
The brokerage’s new proprietary estimates appear much more prominently on property pages, feature relevant comparable properties used to generate valuations, are purportedly more accurate than other estimates and highlight discrepancies between Redfin’s valuation and the home’s price.
Giving listings agents a choice
Zillow’s practice of showing estimates on listing pages has frustrated agents for years because of its tendency to sometimes cause disagreements between agents, buyers and sellers over home values, which agents say are often inaccurately represented by Zestimates.
In recognition of this, Redfin will not show estimates on listings if listing agents have indicated that they don’t want estimates to appear on their listings.
“Redfin, unlike others who put out home value estimates on the Web, allows the listing agent to suppress the estimate,” Kelman said. “We have been really careful about whether it’s our place as a broker to participate in this conversation.”
He added that many MLSs have added a listing field where agents can indicate that they don’t want their estimates to appear on brokerage website listing pages. About 17 percent of active listings in markets covered by Redfin’s estimates have been marked not to show estimates, Kelman said.
Accuracy claims
Redfin says that its AVM is generally more accurate than all others primarily for two reasons. It uses a level of cloud-based computing power that would have been “cost-prohibitive” even a year or two ago, and it processes MLS data that often isn’t available to automated valuation models (AVMs) used by non-brokerages.
He cited NAR’s recent decision to require MLSs to make it easier for brokerages to use AVMs to produce estimates for customers as the reason why Redfin, after waiting for more than 10 years, has finally introduced its own home value estimates.
“… NAR has opened a treasure trove of data that we can use to understand homes in more detail than anyone else has before,” he said. “The reason we waited so long is because we wanted to invest that much in accuracy.”
That data could include the size of a property’s garage, whether its located on a busy or quiet street, whether it has water views or whether it has a finished basement, he said.
The brokerage says the median error rate for its estimates of homes that are on the market is 1.96 percent, what it claims is the lowest published median error rate in the industry. Redfin pegged its median error rate for off-market homes at 6.23 percent.
Comparing the median error rate of the Redfin Estimate to the median error rate of the Zestimate is tricky.
Zestimate puts its national median error rate for off and on-market properties combined at 7.9 percent. (It doesn’t break down median error rates by on and off-market properties.)
The Zestimate’s national median error rate is based on estimates for 100 million properties, according to Stan Humphries, Zillow’s chief analytics officer.
That’s 60 million more properties than the pool covered by Redfin’s estimates. Many of those 60 million properties are outside major metro areas. And those are homes that are often the most difficult to value, he said.
Side-by-side comparison of Redfin Estimate ($1.06 million) and Zestimate ($1.63 million) for a Seattle property owned by Zillow CEO Spencer Rascoff.
This raises the possibility that the Zestimate’s national median error rate might be closer to the Redfin Esimate’s median error rate if the Zestimate’s rate only covered the 40 million properties covered by Redfin’s estimates, Humphries said.
Zillow would question the potential claim that its AVM doesn’t take into account lots of the data processed by Redfin’s AVM. Zestimates typically are based on public property sale and tax records (also used by Redfin’s estimates), MLS data and user-generated content. (Zillow says users have improved or corrected property details on property pages for about 60 million homes on zillow.com, resulting in more accurate Zestimates.)
Even still, the Zestimate may not always have access to the same breadth of MLS data in markets where MLSs may not be feeding listings directly to Zillow or may not be feeding the same depth and range of listing data, including sold listing data, that they may make available to brokerages for the use of AVMs.
MLS guideline changes can offer advantages to brokerages
Redfin’s estimates show that a change NAR made to its MLS guidelines can have the effect that many had hoped for: enabling brokerages to serve up automated valuations whose accuracy might equal or even surpass the level of automated valuations provided by non-brokerages.
The rule requires MLSs to provide comprehensive data feeds that brokerages can plug into AVMs to generate valuations for clients and customers.
Redfin built its own proprietary AVM to take advantage of the rule change, but many brokerages wishing to display home value estimates based on comprehensive MLS data may find it more cost-effective to license AVM software from third-party providers, such as CoreLogic and Collateral Analytics.
Redfin’s home value estimates are available in the following 35 metro areas:
- Atlanta, Georgia
- Austin, Texas
- Baltimore, Maryland
- Bend, Oregon
- Boston, Massachusetts
- Boulder, Colorado
- The Bronx, New York
- Charlotte, North Carolina
- Chicago, Illinois
- Denver, Colorado
- Greensboro, North Carolina
- Hampton Roads, Virginia
- Houston, Texas
- Hudson Valley, New York
- Inland Empire, California
- Las Vegas, Nevada
- Long Island, New York
- Los Angeles, California
- Miami, Florida
- Orange County, California
- Philadelphia, Pennsylvania
- Phoenix, Arizona
- Portland, Oregon
- Queens, New York
- Raleigh, North Carolina
- Reno, Nevada
- Sacramento, California
- San Antonio, Texas
- San Diego, California
- San Francisco, California
- San Jose, California
- Seattle, Washington
- Staten Island, New York
- Washington, D.C.
- Winston-Salem, North Carolina
