Arizona Appraisers vs. Zillow

In my research with Chad Syverson on real estate agents, which is also discussed in Freakonomics, we argue that the current system doesn’t do a great job of aligning the interests of the agent and the homeowner. Consequently, you may not want to believe what your real estate agent tells you.

So how else are you going to figure out the value of your home? One sensible idea is to have an appraiser come and value your home before you put it on the market. Just about nobody does this, which seems strange. The following story might give you a hint as to why so few people put their trust in appraisers.

I bought my current house from someone I knew at the University of Chicago. We agreed in principle that I would buy his house before we ever talked price. We were friends. We needed some reasonable way to figure out the value of the home. We decided to bring in three appraisers, explain to them we wanted to know the true market value of the home, and take the median of their estimates as the sale price. We were surprised to find that most of the appraisers simply wouldn’t give us an appraisal. Apparently, it wasn’t their job to tell us the value of the home, it was their job to determine whether the price that a buyer and seller agreed upon was a reasonable price. I had a hard time understanding this distinction, but they wouldn’t even come out to the house.

We finally managed to get one appraiser to show up. He seemed very nervous about the task at hand. He repeatedly asked whether the buyer or the seller was paying for the appraisal. When we said we were each paying half, his anxiety increased further. Even as he looked at the home, he was making excuses about how he could not come up with a fair market value. We were so unnerved by his demeanor (and also were having so much trouble rounding up three appraisers to come out to the house) that we scrapped the whole plan and just settled on a price the old fashioned way.

Maybe I’m missing something, but it seems like appraisers have made themselves little more than a necessary and costly evil in the current home-selling routine. How did this come to pass? If an appraiser could really tell you what to list your home at before you put it on the market, just about everyone would want their services. There is no reason at all that a real estate agent should be better at knowing the value of a home than an appraiser — if they were, then the banks should ask real estate agents to say whether a price is fair! Yet, real estate agents are far more influential in determining listing prices.

Especially as the real estate market transforms with fewer homes sold via full-service real estate agents, there will be a growing unfilled niche for people who can value homes, whether that turns out to be appraisers or someone else. If I were an appraiser, I’d be trying to make sure it was me who filled that niche. is one player trying to play that role. Using publicly available data, they have a quantitative model that tries to predict the value of a home. Appraisers, however, are not taking kindly to this. Recently, for instance, the Arizona Board of Appraisal tried to ban Zillow from giving their price estimates in the state. Maybe Arizona appraisers should just try to provide a service better than Zillow instead. (Of course, it is hard to match Zillow’s price — it is free.) In defense of the Arizona Board, one of their arguments is that Zillow’s estimates are inaccurate and misleading. I certainly hope that they are right on this count, because when I Zillow my own house, the value it computes is only about 60 percent of what I think it is worth, and much less than what I paid!

Maybe I should have had those three appraisers come out after all.

(Hat tip to Dan Dawson.)

John S.

Having bought and sold a few homes in my time, in a couple of different U.S. states, I get the impression that many of the required fees come down to institutionalized graft. Or, to be charitable, a lot of people collect a "rent" on the sale of a house and they must all be paid off ... excuse me, paid a fee ... every time a house changes hands. So for instance you get a termite inspection. Does that mean the structure is free of termites? If you subsequently find that it has termites, is the termite inspector liable? No to both questions, of course! That's not the purpose of the termite inspection. Likewise, the purpose of the appraisal is not to appraise the value of the house. Nor does the title search ensure that there are no liens on the property!


davidg, one big problem with Zestimates is that you use only a part of the information on a home, and then use sq footage as a strong indicator. I am in California, where the public records are quite good, yet you are swayed by a number of factors. It seems that you lack two important things: information on quality of the home (building quality, maintenance state, modern vs. old style, etc) and information on remodeling and the like. Public records in CA show original build date; even if someone rips the house down to 3 walls (much cheaper in terms of fees) and rebuilds, it still shows the original date. So, you can see houses that are truly new but listed as 1950 and others that are dilapidated and listed as 1970; Zillow will tend to favor the 1970 one as far as I can tell. Until you can get information on condition, quality, style (which can affect market value), and details like view, it seems you have a real problem. I do not know what solution there is, since public agencies are unlikely to address that for you.



Yes ThisManMustBeStopped, Mark Cuban's house appraisal is public as is everyone elses. But the comps that the district used to produce that valuation is not public.

Remember, making an appraisal is about finding comparables to the house that needs appraising. The district has the list, much of it compiled by bank loan records and/or MLS records.

It is the comps that is valuable. And these comps are already compiled by a public entity using private data. The comps should be publicly published. If this happened, appraisers would be out of business and most real estate agents wouldn't have much to do.

Now you could say, "why bother...we know what Mark Cuban's house is worth because in Texas professional statisticians have gone of the comps and published the data on the web".

True, but the district appraisers don't have the time to individually go over the comps of every house in the district and really do the job carefully. Instead they take the mean sq. footage price average over the comps, run a regression line through it and the appraisal of the house is just based on what the line shows for that sq. footage.

It can be shown to be wildly of for the taget house. For instance, as with any regression line, if the target is near one of the tail ends of the regression line the more likely the projection is wrong.

I've won 5 of 9 appraisal protests that way.

But if I want to move, Zillow should be able to display the comps of any house in Texas that I want to buy. Flag them with those cute little flags would be good.

Now that's data!



I suspect that the reticence from the appraisers has less to do with determining the price for you to buy the house and more with being held accountable by a bank for valuing the house as he or she did. Yes, appraisals have been rolled up into the closing costs of buying a home but a bank makes its decision, among other things, on loan to value and that's where the appraiser comes in. (Except, of course, for the ridiculous no doc/stated income/125% of value loans and we all know how THEY are working out.)

I live in Central California and right now appraisals are being done on dry erase boards; the maket here is dropping that quickly.

(BTW: I am not an appraiser or RE agent but do invest in RE.)


I just had my home appraised in an attempt to convert my land contract into a mortgage and get a little cash back to complete some remodeling. The appraisor ended that possibility by appraising it for the exact same price I paid for it one year ago despite numerous upgrades by me since the closing. His reasoning was that since not many homes in the area of that size had sold, there weren't enough comparables. That makes his job real easy.

Interestingly, my insurance company set a value nearly double on the house alone for replacement cost. I bought the house on two lots with a mobile home on the 2nd lot for $35,000 last year. It is 700 square feet. The 1989 mobile was over 900 square feet and in decent condition. I added a new high efficiency furnace to the house, the mobile had a new furnace in 2004, I added all new carpet and floor tile, and I repainted the rooms. Two homes, two village lots, 300 feet from Lake Michigan with access to beaches, public parks and marinas for a total of $35,000 that would, according to the insurance company, cost $58,000 just to rebuild the home if it caught fire, forget the mobile home and the lots! I think the appraisor took an easy out myself. You can get a car for what both my houses cost and they are NOT in bad shape. Real estate agents have similar homes listed in the $65,000 range without a mobile home added in.

Go figure!



I think you are missing the point of what appraisers really do. When a house is being sold and a buyer has tentatively agreed to buy, the appraiser is assuring the lender that the value is acceptable given current comparable sales. That is, an appraiser does not decide the market (going up or down), but rather tries to give a justification to back the price established. He/She uses other houses in the area that have similar characteristics, but allows for some adjustment room (if the prices are going up). He/She is also supposed to look for warning signs (poorly maintained, problems, etc). A bank just wants to know that if they repossessed, they would have a chance of getting much of their money back.
I also note that Zillow and others use information from the last appraisal of record (actual size, attributes, aging quality, etc).


The problem with Zillow is that they only use publicly available data. Their basic formula is to look at other homes in your area, figure out the price per square foot, apply that to your home, and then make adjustments based on other public data, like what percentage of the lot is filled with house, the size of the lot, the house's age, if it is on a cul-de-sac, etc.

However, they have no way of accounting for the condition of the house (how old is the roof, when was the last time the stove was replaced, and so on), or on the "curb appeal", or the general flow and layout of the house.

They also don't account for areas where there are different housing tracts near each other. For example, where my parents house is, there are two tracts, built at almost the same time, but one was done with high quality everything, and the other was done with average quality. Needless to say, the high quality houses bring up the average price per square foot, which artificially inflates the average ones.

Now, as for the appraisers, I don't know why they won't pre-appraise the house, but I'll have to ask my mom, because she's studying to be one right now!



Ah, the condition of the house is the realm of the home inspector!

Terry Lee

I have found Zillow's estimates to be a bit low also. My concern is the $500,000 home Zillow has sitting in my driveway.


As a real estate broker AND a mortgage broker, I get to see quite a few homes and quite a few appraisals. Some appraisers are better than others, but most appraisals I review are of little worth other than to satisfy a lender requirement.

For purchase transactions, appraisers already know the sales price. All but one of the purchase appraisals I have seen came in at the purchase price. On refinance transactions, the appraisers ask for my estimated value, and 90%+ of the appraisals come in at that value. Am I that good? Hardly.

Active real estate agents have access to more data, and have been inside more homes than appriasers. This makes a significant difference when figuring out which comps to use. While appraisers can calculate values based on square footage, number of rooms, etc., agents can also factor in home layout, level of trim, and location.

Zillow is interesting, but of little use currently. I recently showed someone how I ficticiously edited my own home's details to be a 0 bedroom/7 bathroom home built in 1900, and watched the value increase from $900k to over $2,000,000 (yes, a $2M public restroom!).

The only way to be confident in your homes value is to put it on the market and expose it to as many able buyers as possible. Short of that, asking a few different agents with experience in the desired neighborhood is the next best thing in my biased opinion. Just make sure that they are to provide a "broker's opinion" rather than a listing presentation (which might skew their numbers upwards in hope of getting the business).



Dr. Levitt, you are under the understandable illusion that real estate appraisals are a scientific endeavor. It is not. It is an ART. Pure and simple. Why? Because to be science, there would have to be data involved. In Texas, the appraisal districts who are responsible for valuing your property for year-end property tax purposes don't even have a right to the selling prices of houses each year. That data is owned and proprietary to the Real Estate Listing Service.

On the flip side, if you want to protest your appraisal, you also don't have the right to comparable sales data owned by the listing service. It's a catch-22 involving your money and it sucks.

Licensed appraisers are a joke here too. They seem to merely use a bell-curve random number generator to produce an appraisal amount that is within 10% of the proposed sale price 95% of the time. Presto….the lending bank has it's appraisal and all is happy.

If you want a private appraisal as you did, most go to a real estate agent for an informal appraisal. Not to a licensed appraiser, because they don't have access to the data! Since real estate agents are ignorant of statistical methods, they look at comparable houses to yours, hem and haw a little, add a little here, take off a little there and poof…produce a number for you.

Not even heaven can help you if your house is out of the ordinary and has few or no comparables.



"Maybe I'm missing something, but it seems like appraisers have made themselves little more than a necessary and costly evil in the current home-selling routine. How did this come to pass?"

It began with a combination of government regulation and subsequent interpretation of those regulations by lenders in attempting to comply with them. This is why a third party for "appraising" the value of a property is even involved in the first place.

Next, throw in occasional yet costly litigation, and where appraisers are concerned, you end up with a very risk averse bunch who are basically there to sign off as a witness to the value of the negotiated transaction.

Then, to echo egretman's comments (#8), the lack of independent sources of the data for establishing the value of a house by comparing it to other recently sold houses in the same area. The dominating (if not outright monopoly) ownership of that data by a national real estate organization insures that appraised values are not truly independent.

As for the complaint that Zillow is inaccurate, what's really to say that the "officially" appraised value is anywhere close to its market sale value, anyway? And what about the appraised values done by the government for the purpose of levying property taxes (and where the incentives for the homeowner are to have the home's value underappraised!) Would anyone really sell their house for it's property tax assessed value? (Outside Detroit, that is....)



Why didn't you ask three real estate agents to do a competitive market analysis?

I wouldn't do this because I would feel uncomfortable asking someone for this information with no intention of engaging the services of an agent.


I'm an appraiser. I agree that appraisers need to introduce their services to the community widely. Many people who need that niche, but it seems like the job only done mainly for the purpose of financing. Appraisers will have no problem appraising the market value of basic properties such as houses for the purpose of selling or for review. I'll be quite easy to do the job for someone with the specific skill required (namely appraising). As for, it's a great idea, but they'll need some dedicated appraisers backing their system if they want to provide a good estimate.


The only way to put an accurate value on a house is to sell it in the open market. When an appraiser is called in after a sale has been agreed, what he has to do is to work out if the agreed price is genuinely an open market price or has been distorted in some way. But without an agreed price to start with, he has nothing to go on.


In Japan, appraisers give us a price.
There is also a land cost map of Japan.
(Sorry, Japanese only)

Since the price of houses is heavily depend upon the cost of land, this gives us a good index.



I took an appraisal class in business school and I'm not sure I can really explain what is going on here exactly. At least academically, it seems that appraisers should have been willing to provide you with a value. I agree with all the comments left that the only way to come up with a value is to let the market decide, but ideally, that's basically what appraisers are supposed to do. They are supposed to do their homework and identify comparable recent sales. For example, if you are selling a plain vanilla 3 br, 1.5 ba house - and they can identify 4 other recents sales of plain vanilla 3 br 1.5 ba houses in your area, your sale price should be pretty much the same. If the comps differ, adjustments are made due to all the differences by adjusting the comps to be more similar to the property in question. If your house has a one car garage, but you're looking at a comp that had a 2 car garage (or a one car garage) an adjustment is made to adjust the actual sale price of that home in such a way that the new value is supposed to represent the price it would have been if it had a one car garage.

It is quite possible that I just don't have enough actual experience in dealing with appraisers, but I will follow up with my professor and ask him why the appraisers contacted did not want to value this property.



i have doubts of most of #13's comments. there are good reasons for those fees. even though an appraisal is not totally independent, it is a third party to give reasonable assurance of Fairness in the trading price given the commodity's location and condition. inspection plays the same role. i think there will be a lot more cheating if those third parties are eliminated. Lenders will not allow this to happen.


It's funny that most talk of Zillow as estimating too low, when our current home was sold to us a good $20,000 below what Zillow estimated, and no other homes around us have sold for much more or less than we bought ours for.


As a real estate professional and educator, I'm shocked both by your story and by some of the comments here.

The fact that you couldn't get a qualified appraiser to value a house tells me that you were scraping the bottom of the barrel. In Texas, and I suspect elsewhere, there are several grades of appraiser licenses. As an appraiser gains more experience and education, he / she qualifies for a higher grade of license, and to appraise more valuable and different types of properties. This means that a first-year appraiser won't be valuing an office building until he's valued a lot of houses. It's possible you were dealing with appraisers who were only used to doing the "easy" appraisals described by the other commenters, and were uneasy actually trying to solve an appraisal problem.

In response to egretman's comment, Not even heaven can help you if your house is out of the ordinary and has few or no comparables, there's no need to rely on supernatural forces. Just go with the cost approach to value. These "easy" appraisals will often focus on the market comparison approach to determining value, because single-family houses have numerous comparable sales to compare. However, unique properties can be valued quite accurately by (1) estimating the value of the land, (2) adding the estimated cost of construction as new, and (3) subtracting depreciation that has occurred to the property. This is not only allowed by USPAP, it is recommended for properties in this sort of situation.

As to drplokta's assertion that without an agreed price to start with, he has nothing to go on, the notion that an appraisal can only be conducted after a sales price has been agreed to is ludicrous. I have been involved in numerous commercial real estate transactions where properties were appraised before we went to market. The appraiser's job is to determine fair market value: the most likely selling price given a reasonable buyer and seller, no undue pressure on either party, reasonable exposure to the market, and an arms-length transaction. Nothing in that definition presupposes that a price has been agreed to in advance.

I have dealt with many competent and professional appraisers over the years - I'm sorry your experience was so disappointing!