The Reality of Trulia and Zillow’s Rent vs. Buy Math

Zillow and Trulia are trusted sites for real estate listings, but they also offer rental listings and tools to help you understand the cost of home ownership. But does the math they offer add up? One analysis says no.

Real estate writer Stephen Fitch took a look at a report from Trulia and Zillow discussing the rent vs. buy question in popular markets, and found some results that were not a surprise and others that didn’t quite make sense.

Seeing cities with incredibly high real estate costs like New York, San Francisco, and Boston on a list of places where renting is financially a better decision for most people was not a big surprise. However, when Fort Worth, Texas showed up, he started looking for answers.

Fort Worth is not an exorbitantly expensive real estate market. If you saw a list of ten cities where renting makes more sense featuring New York, San Francisco, Seattle, and Fort Worth, it is obvious that one doesn’t belong, so Fitch looked deeper at the math for why Fort Worth was suggested as a rent city.

Trulia’s list said buying in Fort Worth costs 30 times the monthly rent, but just a few weeks earlier rival site Zillow (now owner of Trulia), said that Fort Worth was one of the best bargain cities to buy real estate with a buy cost only 10 times higher than typical rent.

So which is it? Is Fort Worth a city to rent for life, or buy a home and plant roots? In reality, the answer is a combination of the two.

Trulia looked at average rents and average prices for home listings in 50 major cities and simply divided to find a rent to buy ratio. While this is an easy method and one that can be defended, it leaves in outliers in the data.

Zillow took a different approach. They realized that no two homes are exactly equal, and took rental listing and divided by their Zestimate (Zillow estimated real estate value) to come up with an average. Of course, this method only works if the Zestimates are correct, and there is a lot of disagreement on the accuracy of Zillow’s tools.

The results, at least in Forth Worth, were dramatically different. A factor of 20 times annual rent different.

That just shows that the math doesn’t always add up, and it is important to look at the method used for financial and statistical presentations, in real estate and beyond.

Read the entire article at Forbes.

Leave a Reply

Your email address will not be published. Required fields are marked *