Zillow seems to think that the typical house on the east side of Packard Street is worth about $100,000 more than the typical house on the west side of Packard Street. Its automated valuation algorithms are a "black box," not subject to audit or independent confirmation.

Zillow

Who are the people in my neighborhood?

What's this house worth? More importantly, what are some other comparable houses nearby worth, so I can make sure that I have a fair estimate and some alternatives to look at if this one doesn't work out? That's the essence of any appraisal process; the appraiser, whether it's a human or a computer program, looks to find points of comparison that are nearby in many ways to see what your property should be worth.

On the national level, Zillow tries with some success to answer this question. The interesting parts of it are how it fails, and what that means for your neighborhood.

What is Zillow?

Zillow is a company based in Seattle that has an online real estate database. It scoops up records of property sales, real estate listings, foreclosure information and tax details and homogenizes them nationwide to provide what looks like a comprehensive, easy to navigate, and objective assessment of housing values.

News coverage of Zillow comes from multiple angles, both from the technology world and from the real estate world. The TechCrunch coverage of Zillow focuses on its various rounds of funding and its competitors, including Trulia. Real estate professionals have honed in on the flaws in the system's automated valuation model, which comes up with a number for what your house is worth without a person ever seeing it. The weblog Realty Infusion's analysis of the situation is a good overview.

Zillow and your neighborhood

Any time you delegate a complex pricing decision to a machine, you are at the mercy of whatever weird input got sent to that machine that it didn't expect.

Zillow works from public records of tax and assessment data, data which you can get piecemeal from other sources like the City of Ann Arbor assessment office. Every so often a real estate transaction will be on the books for $1 "plus other valuable consideration," hiding the true transaction value from those who would scoop it up for reuse.

Similarly, systems like Zillow use published real estate listings to help shape an estimate of the entire market. The term "unzillowable", noted by Joseph Ferrara, accounts for all of the intangibles that are not captured and cannot be captured by any listing. His list of unzillowable factors include hard to pin down details like the quality of the neighbors, the noise of traffic, the smell of the surroundings and the presence (or absence) of barking dogs day and night.

There can be other more insidious problems with any system built on automated data models. Data entry errors can cause a home next to you to show up at a wrongly low price, when your street is mixed up with another street across town. The neighbor's house supposedly sits on a lot that's 10 acres, even though you're in the middle of town. Garbage in, garbage out - yet, since the system is so convenient and not obviously so wrong, it gets used as a zero cost first appraisal by lenders.

The practice of making sweeping generalizations about the quality of a property without ever seeing it is know as "redlining." A 2008 Washington Post piece describes a practice of redlining by zip code, with entire swaths of area subject to more stringent lending requirements rather than parcel by parcel assessments.

Historically, the practice of redlining has destroyed neighborhoods that have been on the wrong side of the line and thus have been starved of investment. The Wikipedia page on redlining has a decent bibliography; I didn't track down a good reference specifically on redlining in Detroit.

Making your neighborhood more of a place and less of a commodity

The Zillow system, and by extension the entire residential real estate market of the housing bubble, is predicated on the notion that houses are commodities and that incremental slices of home value can be packaged and resold on the public market, without consideration for any of the underlying intricacies of the real world.

Neighborhoods that avoid the commodity trap have a sense of place that draws people in who want to live somewhere particular, and not just somewhere anonymous that happens to meet abstract database criteria. They host garage sales, fix up their parks, block off the streets for block parties and do other bits of civic improvement which go beyond what is ordinary. When push comes to shove, they are capable of mobilizing a pew full of people with visibly unhappy faces to sit through a four hour City Council meeting to press their cause.

Nothing can easily stop the sorts of challenges that every neighborhood around town faces - the lost jobs that cause people to move out but not move in, the sudden death in the family that leaves a perfectly good house in foreclosure or the turmoil in the residential real estate market. What can happen in neighborhoods is organized efforts to cultivate the "unzillowable", and build up the qualities that do not have numbers that make people want to live where you live.

Edward Vielmetti writes the Our Neighborhoods column for AnnArbor.com. Contact edwardvielmetti@annarbor.com.