Using Technology to Predict Real Estate Values

Technology can be a curse and a blessing. It’s hard to imagine a time when we didn’t have a smartphone at our fingertips to manage our personal affairs while conducting business, keeping up with friends and family and more.

In recent years, the real estate industry has started using technology in new and innovative ways, including using it to predict real estate values. AI, or artificial intelligence, uses computers, algorithms, and more to mimic the decision-making and problem-solving abilities of a human. Just ask Zillow, the online real estate marketplace company that started using AI as part of their Zillow Offers program.

News broke recently that Zillow is actually backing out of this space entirely, eliminating roughly 25% of their workforce. And that left many people wondering why when all signs pointed to an overwhelming success on a recent earnings call. However, in drilling down deeper, Zillow blamed the program’s lack of success on purchasing homes for prices that exceeded what they believed they could turn around and sell them for.

If you’ve been on Zillow’s website, you have probably seen the term “Zestimate” alongside a listing. This estimate of the home’s value is what the company used to make offers to potential sellers. But how did they arrive at these numbers? According to technology experts, the Zestimate is based on a compilation of data that includes information from tax and property records, details submitted by homeowners, photos of the home, and more. Other online real estate companies like Redfin have similar estimates with their listings using the same data.

While the Zillow Offers program itself was functioning as intended, the use of technology to offer an automatic offer to potential sellers is what got them into trouble. In an ever-changing industry like real estate, where valuations fluctuate daily, weekly, and so forth, using AI to predict pricing has proven to be a costly mistake for Zillow. The company states that while they have purchased 27,000 homes between April 2018 and September 2021, they have only sold approximately 17,000.

Zillow spokesperson Viet Shelton adds, “The challenge we faced in Zillow Offers was the ability to accurately forecast the future price of inventory three to six months out, in a market where there were larger and more rapid changes in home values than ever before.”

It makes you wonder, as well, how the pandemic played a part in the demise of Zillow Offers. After all, it created an unprecedented supply and demand imbalance that drove home prices up wildly. While AI can certainly process a large amount of data and information more quickly than any human could, it can never account for the expertise of a true real estate professional who knows the market and area well.

I strongly encourage both buyers and sellers to do their due diligence and find a reputable real estate agent or broker who they trust. This is especially true in our current market, which remains hotter than ever. They can help answer your questions, locate less visible listings, move the process along with their relationships, and make the process stress-free, something AI could simply never do.

Melody Smith & Associates is a longtime leading broker associate in South Orange County, known for super service, and is in the top 1% of 1% of agents in the country.

Please contact us for all of your real estate needs. 949-401-7033