One of the most fascinating innovations in the real estate industry over the past several years is the rise of online real estate websites like Zillow.com, Realtor.com and Trulia.com. These sites have done their part to transform our industry. Primarily, they benefit home buyers by offering quick, free ways to view the real estate. Buyers can quickly see when new listings come on the market and notice when properties they are interested in sell, including what they sell for.
However, as real estate professionals who deal with transactions in our market first hand, more often than not we are having to challenge seller’s beliefs about the Zillow’s Zestimate®.
What is a Zestimate®? Here is Zillow’s definition:
“A Zestimate® home valuation is Zillow’s estimated market value. It is not an appraisal. Use it as a starting point to determine a home’s value.”
Even here, Zillow somehow begins on shaky ground. The Zestimate® has worked well for them though, catipulting the sites credibility in the average consumer’s mind as it offers a seemingly scientific look at the value of a home. Although it has made it the most popular real estate search site in our market, unfortunately by their own admission, it is not very accurate .
1. What Zillow meant as a starting points, many home sellers use as their sale price.
To understand why Zillow produces and publishes an estimate, one has to understand their wish is to become a trusted source for buyers valuing homes in a particular market. Their valuation is typically a mathematical combination of past sales in your neighborhood, the mortgage records from those sales, and the public tax records. Although this data is helpful, it only makes up some of the picture, like having a map that is ripped in half to find a destination. Home owners are mislead when they believe that their home will sell for the Zestimate® instead of finding more trusted sources to accurately define a sale price for their home.
2. Wee most often believe the best possible financial scenario
This is not a scientific study but even Zillow’s aggregated statistics seem to reveal my observations. I believe in our market Zillow most often overvalues property by an estimated 10%. This is an educated guess. Of course to have a hiigher valuation can be exciting news because it plays into our hope for the best. We just want to believe for the best possible outcome when it comes to our financial lives. If the estimate is lower than we hope, we tend to have internal dialogue about the reasons they are wrong. If it comfirms what we hoped for, then we tend to bolster our belief with the reasons why they are correct. Our biases play into this deception.
Consider Zillow’s own statistics found on their website for the accuracy of the Zestimate® in the state of Oklahoma.
Oklahoma Zillow.com Zestimate® Statistics March 2018
|Houses in Oklahoma with Zestimates®
|Within 5% of Sales Price
|Within 10% of Sale Price
|Within 20% of Sale Price
|3 out of 4 Stars
Simply put, Zillow is wrong about the value of your home more than fifty percent of the time.
3. The Zestimate does not take into account, in a meaningful way, homes that simply do not sell.
When a home enters the marketplace with prices which are out of scope or with defects, they simply do not sell quickly. They often times do not sell at all. That in part is because sites like Zillow actively publish every listing that comes on the market. Buyers become experts at the prices of homes in the specific neighborhoods where they are looking to purchase. When a house does not sell based on factors the Zestimate® cannot distinguish between (i.e. a house that has poor finishes, aged heating and air, a bad roof or has structural defects), simple math alone cannot account for this. There is more to the value of a home than just price. Flaws in a property outside of what is average in a neighborhood are not accounted for. Neither are a buyers “feelings” about a property.
Based on our experience in the marketplace we believe that Zillow is a great starting point in valueing your home however if one ONLY uses that number there will be grave errors made. Sellers need a trusted source and a team to surround them in order to accurately discern what buyers will pay for their home. Coming to the marketplace with the appropriate price is the most important factor in selling your home.
Call us to understand how we can help you get your home on the market quickly and effeciently at the right price.
Learn more about the Zestimate® here. It confirms many of our assertions.