4 replies to this topic

[Steve Heard]

I am often asked how accurate Zillow's Zestimates are, or I find people relying on them, arguing with me about the value of the home they own or the one they want to buy.

 

Here's a little article which I hope helps clear the air. (from the front page)  

 

A few years ago I wanted to sell my car, and to avoid the hassle of having strangers coming to my home to see it, I went to a dealer.

 

The dealer offered me $3300.  When I told him that Kelly Blue Book put the value at closer to $5000, he asked me why I hadn't sold it to them.  I replied that Kelly Blue Book doesn't buy cars, and he said, 'I do, and to me it's worth $3300!'

 

I often use that example when people tell me what a home is worth according to Zillow 'Zestimates'.  Zillow doesn't buy homes. 

 

Millions of hopeful home buyers and curious home owners visit Zillow each month, seeking home values and information. Zillow is rich with community information, market data, maps and more, but please don't rely on it to tell you what your home is worth. 

 

Their 'Zestimates', by their own admission, are terribly inaccurate in many cases. These inaccuracies can cost you money. Big money.

 

The difference between what their Zestimates said properties were worth and what they actually sold for can be vastly different.

 

Take a look at the chart above. In Sacramento County for example, they rate themselves 2 out of 4 stars for accuracy.  They state that they were within 5% of actual sales price on only 14.9% of homes, and their average margin of error is 15.4%.

 

That means that if they show your home's value to be $500,000, they could be off high or low at 15%.

 

There are too many market and property variations that Zillow can't see or calculate, and it's just not a reliable source for property values.

 

This is why when want to take out a loan, whether it be a purchase or a refinance, lenders require you to pay for a professional appraisal costing $400 to $500, and it is why before a bank lists a foreclosed property or accepts a short-sale offer they hire a real estate broker to give them a market value based on sales, condition and other market information.

  

Consider this example: I recently received a call from a homeowner who, along with her husband, had purchased a large home on a golf course, with a pool and spa, and had upgraded their counters, appliances and had an expensive custom paint job. 

 

The attorney's on both sides agreed to use Zillow's Zestimate as $488,000, and with them owing just under $400K,  Mr. owner was going to buy out Mrs. for $45,000. 

 

I looked up the comparable sales for the area and found that the most recent sale on their street was at $480,000, but it was a smaller home, had no pool and was not on the golf course.  All of these variables could put the value between $560K to $600K.  Even then, that's quite a difference.

 

I told her I'd need to see the property in person to get a better picture, but unless they were going to sell it and let the consumers decide its value, the best thing to do would be to get it professionally appraised.     

 

Zillow touts itself as a 'real estate marketplace' and that it is 'transforming the way consumers make home-related decisions and connect with professionals'. 

 

To me, it's a website offering consumers another opinion and some community information, and in each market there are agents who pay to get their contact information listed, so they get buyer and seller leads, but it should not be anyone's 'go to' site for home values. 

 

So, if you are considering selling your home, you should be checking Zillow to see what consumers are seeing but do get a professional opinion from either from a Realtor or an appraiser before you list, and remember that ultimately, it is the consumer that determines the value.  

 

Zillow doesn't buy homes. 

 

Curious about what your home is worth?  Give me your home's size, age, condition, location and amenities and compare to zillow.  www.zillow.com

[Rich_T]

Selling your car to a dealer is like selling a possession at a pawn shop.  It's a huge price you will pay for the convenience.  Fortunately, you have options.

 

I will agree that Zillow's role is to be one of many sources of information for those who are contemplating selling or buying a house.  It's true that Zillow does not sell or buy homes; people do, and different people will settle on different prices.  Thank God we are not trying to sell our houses to "house dealers" (auto analogy). 

 

I think that Zillow helps people determine a plausible limit for what they are willing to ask or spend, in part by letting you see recent "comps".  Obviously, you have to look at all the factors associated with a particular house.  But Zillow seems to be a pretty good guide for where the market is moving.  It also is a convenient way to discover houses that are for sale, anywhere in the nation, using various input criteria.  Then, once you've narrowed your search, you can call in the big guns, i.e. real estate agents - or you can try to go it alone.

 

My hunch is that real estate agents will tend to tell sellers that their homes are worth less than what Zillow states.  After all, the agent is ultimately interested in selling the house, and not necessarily in squeezing out the last $10,000 or $20,000 in sales price.  And yet, everything depends on how much just one qualified buyer is willing to pay.

 

By the way, I've found the Zillow estimate to be much more reflective of market reality than the figures that appraisers generate as part of the re-fi process.

[mrdavex]

Thanks for the great article Steve!  My final nail in the coffin for not believing the Zestimate was this past Summer when I re-fi'd my place.  First, Zillow had 2 separate records for my property, one of which was at least $20k lower than the other.  There was more hard evidence when the house across the street sold, and even though Zillow had record of the sale, the Zest was $40k lower.  And the pro appraisal on my place came in higher than the Zest. 

 

The only thing I've found Zillow useful for is to show records of recent sales, which I used when trying to apply for a re-review of my property taxes.

[Steve Heard]

 

My hunch is that real estate agents will tend to tell sellers that their homes are worth less than what Zillow states.  After all, the agent is ultimately interested in selling the house, and not necessarily in squeezing out the last $10,000 or $20,000 in sales price.  And yet, everything depends on how much just one qualified buyer is willing to pay.

 

 

 

I'm sure that does happen, but Zillow can be off high or low, and many agents will tell sellers what they want to hear just to get the deal.

 

Always ask to see comparable sales. You can find those on Zillow, through your title company or through a reputable Realtor. 

 

Funny thing is, if you list it below market, buyers and agents recognize that and often try to out bid other buyers by offering closer to market value or better. 

[Rich_T]

 

I'm sure that does happen, but Zillow can be off high or low, and many agents will tell sellers what they want to hear just to get the deal.

 

Always ask to see comparable sales. You can find those on Zillow, through your title company or through a reputable Realtor. 

 

Funny thing is, if you list it below market, buyers and agents recognize that and often try to out bid other buyers by offering closer to market value or better. 

 

Good points.