Zillow May Be Overestimating the Value of Your Home and the Accuracy of the “Zestimate”
Buying and selling a home is arguably one of the biggest decisions you’ll ever make. Find the right home then sell and hope you gain more at the sale than you paid initially. Most of the time homeowners do a little research on their own to get an idea of what their home could be worth. The problem comes when many of these online websites inaccurately estimate the value. This can create quite a conflict when the listing agent proposes a different amount, usually when it’s far below the online estimate.
These inaccuracies are happening more and more with the implementation of Zillow’s “Zestimate”. With the over 105 million people visiting real estate related websites monthly, over half of those visited Zillow.com. Trulia, which was acquired in February by Zillow attributed an additional 36 million visitors representing nearly 71% of the total visitors in the real estate category.
Even though Zillow offers a section on their website explaining how the “estimates” are created, in most visitors don’t bother to learn the details and the factors that can skew the results of these estimates. In this detailed report, Zillow admits that they have an 8% median error rate across the country. With these nearly 100,000,000 homes nationwide, that means about half of these estimates file with an 8% of the selling price and about half fall out of that range.
To really give this some perspective, if a home sells for $350,000, Zillow’s “Zestimate” will show a price between $320,000 and about $380,000. That’s nearly $30,000 on either side of the actual selling price. However, half of the time it could be far outside that range because the value of a home directly impacts the range that Zillow calculates. The higher up in sales price you go, the wider that range could be, completely skewing the actual market value of the home.
This 8% margin of error is across the board nationally but in some areas it’s upwards of 35%. Even though the website uses a variety of public information such as property taxes, previous sales, the location, size and other factors, it can’t compete with human input. Zillow allows homeowners to claim their home online and input more accurate data which can improve the estimate overall, even though the company acknowledges that some of the information may be outdated.
How accurate are Zillow’s “Zestimates”?
The major problem occurs when homeowners assume that the Zillow price is the end-all fair market value. This may cause arguments with real estate agents or refuse to drop an asking price because of the unrealistic estimate they received from these types of sites. This estimate is not designed to take the place of an appraisal. If a real estate agent goes with the Zillow estimate instead of doing the research to find out what home is actually worth for a particular neighborhood, they could find themselves in hot water come appraisal time.
Zillow is a very popular website in the real estate world. One of the most popular in fact it is probably safe to say that the Zillow site receives most of online real estate use. Zillow is a good website and there are many useful tools to help buyers and sellers here, but there is one feature on Zillow that buyers and sellers need to be cautious and aware of and that is the” Zestimate”.
A “Zestimate” is an estimate made by Zillow through a computer formula. This estimate is meant to deduce the current value of a home. These “Zestimates” lead many buyers and sellers to believe that all of the information they need to buy or more so to sell a home is right at their fingertips and they no longer need an agent to help them with tasks such as figuring out a listing price.
Unfortunately Zillow’s current formula or method for arriving at their “Zestimate” value is very flawed. The problem lies in the computer automated formula. The system gets information from public records and a small amount of details added by users of the site. While these are useful tools they don’t come close to telling the whole story about a home’s value. The automated formula cannot think for itself and therefore ends up giving very inaccurate information. A huge component in Zillow’s formula is assessed home value or the value placed on a property for tax purposes which is usually only around 20% of the fair market value of the home. This flawed formula can lead to an inaccurate “Zestimate” of tens of thousands of dollars and in some cases hundreds of thousands.
An experienced real estate agent will take in to account the recent sale prices of homes in the area just as Zillow does these are called comparable sale prices. The difference in accuracy lies with how the computer uses them with how a real estate agent uses them. Comparative sales are more of a launching point or partial factor in deciding on a listing price for a home. If you were to sell your home for $500,000 because a home a mile away with the same square footage and number of bedrooms just sold for that much you could be missing out on more money. Unless your home is almost an exact replica of the other it would not be wise to price your home the same off of comparative sale information alone. A real estate agent can take into account assessed value, comparative sales AND any features and upgrades in your home along with the current ever changing market conditions to help you assess a fair market value and an accurate listing price for your home.
Sellers Tip: Stay objective and put emotions or attachment to your home aside when pricing your home, sometimes even fair market value can be less than you expect your home to be worth.
If there are no homes currently for sale in the same area as a home Zillow has been known to compare with other homes in the same county to find comparable sales. If you were to do this in King County it could easily give you skewed information. Seattle alone is a wonderful mecca of very different cultures and equally different neighborhoods within blocks of one another. Only an experienced agent knowledgeable in the Seattle area would be able to give you an accurate value for your home using their expertise and ability to change the factors to fit your home.
Zillow is very useful for a number of things in the real estate world such as looking at properties to buy and pulling up a map of the surrounding area, basic information on the home for buying purposes such as number of rooms square footage and taxes, and a good app for smart phones which is useful upon discovering a home while out and about. As for determining the true fair market value of a home Zillow falls very short. Only a truly knowledgeable and experienced living breathing agent should be trusted to help when listing a home because an accurate list price is crucial when putting a home on the market.
It all comes down to the human touch; using a qualified real estate agent that not only knows the market but individual neighborhoods and towns. Only a qualified real estate agent can offer true estimates on fair market value.
If you’re looking to get an estimate on your particular home throughout the Seattle and Bellevue area please contact Mary Pong at any time. She can offer a free listing presentation and provide insights on what your home could potentially be worth.