How Accurate is a Zestimate?
Zillow, it’s the #1 website and app used to search for houses for sale. From the commercials, to the mobile app, to the website, many consumers are drawn in and use this valuable resource to not only search for houses and see the house prices but to see what they are worth, too. Zillow does indeed provide some comprehensive information on a platform that is very appealing. A comment that is frequently made by homeowners is “Zillow says my home is worth (just insert any random dollar amount, because those zestimates really are that random). When home buyers do a home search, they often compare the list price to the zestimate found on Zillow. They will frequently say, “Zillow says the house I’m interested in is worth $xxx,xxx. I want to offer X amount of dollars and not a dollar more because the zestimate shows the house is worth this much.” Do you honestly believe everything you see and read online? Because like many things found on the internet, there are times when what you find on Zillow just isn’t accurate.
Where Do Zestimates Come From?
Zillow says a house is worth a particular dollar amount. Buyers and sellers love having this information readily available. After all, if it’s online it must be correct! In reality, though, it is just a dollar amount that is determined by an automated computer program. There is no actual person who researched the house so an accurate value could be determined and displayed for everyone to see. There are many factors the computer program does not know about any given house. These missing factors can cause the true value to be higher or lower. Who wants really want to buy or sell a house in Maryland when Zillow says it’s worth one price but it’s really worth another? You can’t afford to be off by thousands of dollars (or more).
Here’s a great example: The CEO of Zillow (yes, the CEO) sold his home. The Zestimate said it was worth $1.75 million. The home sold for $1.05 million, much less than the Zestimate. Actually it sold for 40% LESS than the Zestimate. Ouch! Here’s the article to see for yourself: Zillow CEO Spencer Rascoff Sold Home For Much Less Than Zestimate.
Why are Zestimates Inaccurate?
One of the things Zillow uses to calculate a Zestimate is derived from a home’s assessed value, which is found in public records and easily accessed. The problem is that the assessed value has nothing to do with a home’s real market value. Assessments are determined by the local tax office, and are used as the basis for collecting property taxes. The assessed value is often different than the true market value of a home. Real estate agents should never, ever use the assessed value as a guide when determining a home’s true market value.
Another thing used to calculate a Zestimate is the most recent selling price. The problem is that it has no bearing on a home’s current value. The real estate market, like the stock market, changes constantly. A sales price from even a few years ago has nothing to do with it’s current value.
In addition, Zillow relies on the information in the public records which is easy to access. The problem is that what Zillow says isn’t always what the public records say. For example, the square footage may be wrong in the public records and the number of bathrooms may be wrong in the public records. Sometimes the public records will report a home has an unfinished basement, when in fact it is finished. The public records may report there is a fireplace in a home, when there is no fireplace whatsoever. Just because they are public records and Zillow relies on the information doesn’t always mean it is correct.
How Are Accurate Home Values Determined?
Real estate agents and appraisers determine a home’s value based on “comparables”. A comparable is a similar home that has recently sold in the area. Things such as square footage, number of bathrooms, garage space, presence or absence of decks, fireplaces, and upgrades are taken into consideration. Has the kitchen or bathroom been upgraded? Zillow has no way of knowing or factoring it in. Maybe the basement has recently been finished. Zillow doesn’t know that either. An extra bathroom added? You guessed it, Zillow doesn’t know that either. All of those types of things add value to a home in Maryland, but Zillow doesn’t know it.
If a house is located in a development, the best comparables are similar homes that have sold in that same development within the previous 3-6 months. If no homes have sold within the previous 3-6 months, or in the case of homes located in areas other than developments, comparables are selected from the surrounding area.
Using comparables is a very realistic method of determining a home’s true value. Think of it this way… an appraiser uses comparables to determine a home’s value after it has gone under contract. If the house doesn’t appraise for the contract price, the lender will not approve the loan, and the house won’t sell at the agreed-upon price. So, it’s imperative a real estate agent use comparables as well to determine what a home might sell for. Real estate agents are NOT appraisers, but it only makes sense to use a similar method that is based on similar houses in the area.
A real estate agent’s method of comparing houses to obtain an accurate price is entirely different from Zillow’s method. Zillow is not able to make the same real-time comparisons. Why? Because Zillow doesn’t know all the details about a house and has never seen the house! So, Zillow has no clue what the inside even looks like. As a result, the Zestimate can be extremely inaccurate, either too high or too low. Who wants to sell their home for LESS than it’s really worth? NO ONE! And homes that are priced too high just don’t sell. Over-pricing a home is always a bad idea. An over-priced home ends up having price reduction after price reduction until it is finally at the right price to get it sold.
Zillow also has a tendency to obtain it’s data from areas that are too far away from the home being valued. This can skew the home’s real value. Home values are local and can vary from one neighborhood to another, from one school district to another, from one zip code to another. Zillow does not necessarily know all the boundaries that affect a home’s value, and therefore the Zestimate is not all that accurate.
And here are some other things Zillow doesn’t know:
- The exact number of bedrooms in a home – once again, Zillow hasn’t been in the house.
- Any upgrades that have been completed, such as: granite countertops, new flooring, renovations. These items offer a greater return on investment for homes in Maryland, but Zillow doesn’t know about any of them.
- Issues with your home – Does the roof need to be replaced? If so, it will bring down the value of a house, but Zillow doesn’t know how old the roof is. Does water leak into the basement when it rains? If so, it will also bring down the value of your house, but Zillow doesn’t know about it.
- Did a house in your neighborhood sell recently? If so, Zillow will use it as a factor in determining your home’s value. However, Zillow doesn’t have a clue what the inside of that house looks like compared to yours. Sure, if the house was on Zillow, there were likely interior pictures. However, Zestimates are determined using data from generalized public records. No one from Zillow was ever in that house, so can the website really make a fair comparison? No!
How Do Real Estate Agents Feel About Zillow?
Real estate agents are not a fan of Zillow when it comes to Zestimates. Many agents will agree Zillow is a great search tool for people who are looking for a house to buy. Zillow offers a lot of details about the homes (although those details are obtained from other sources, more on that below). The problem real estate agents have with Zillow is two-fold.
First, the information isn’t up-to-the-minute. (This applies to other real websites as well). When a house is entered into the multiple list, it can take a day or two to make it’s way to the other various websites. There are times when a buyer sees a house online, then asks their real estate agent if they can see the home. The agent then finds out the house is already under contract. Now the real estate agent must notify their buyer that house is not available, and that buyer loses out.
The same thing happens when a house sells. It can take awhile for real estate websites to update the sale. A real estate agent can have a new buyer who found the house on a real estate website. The agent must inform them the house sold already and it wasn’t updated on the website right away. How can buyers obtain the most up-to-the-minute information so they don’t miss out on their dream home? The answer is below in the section entitled “What’s The Best Way To Find All Homes That Are For Sale”.
The second problem agents have is Zillow isn’t entirely reliable. This can make things extremely difficult when an agent sits down with a homeowner who has already obtained their Zestimate from Zillow. Homeowners tend to have 100% faith in their Zestimate. After all, if a website like Zillow calculates a number, it has to be right! WRONG!
Consider this scenario:
Mr. and Mrs. Smith want to sell their house and they contact Agent Jones. Agent Jones spends hours reviewing the comparable homes that have recently sold, gone under contract, and are currently for sale. Agent Jones shares and explains the real and most up-to-date information with Mr. and Mrs. Smith. Agent Jones has also researched other data, such as: average and median sales prices for that particular area, the average number of days it has taken homes to sell, types of loans buyers might use for Mr. and Mrs. Smith’s home, and more. Agent Jones then suggests a list price and also shares what she expects the house will sell for.
Mr. and Mrs. Smith have a look of disbelief and become silent. They don’t know what to do or say, they are not happy with what they hear. Agent Jones, who they thought was a Maryland real estate expert, does not tell them what they expect to hear. Zillow said their home was worth much more. Agent Jones then gets that feeling the Smith’s don’t trust or believe her. The reality is that Agent Jones does know what she was doing and saying, and has backed it up with her extensive research. The Smith’s just can’t believe Zillow could be wrong, after all Zillow has a great website, and mobile app, and even advertises on TV. And those ads? They are attention-getting and create trust among consumers.
Zillow is also in business to make money (more on that below). Any business who wants to make money will do what they have to do to make money. Zestimates, no matter how wrong they can be, are one of the things that continually draw people to their website, in addition to the many homes for sale. Zillow provides estimates to millions of homes throughout the U.S. Do you really think every single Zestimate is 100% accurate? Yes, some are closer to being accurate, while others can be off by tens of thousands.
Ultimately, Zillow’s Zestimates are not always accurate! Wouldn’t you rather trust a real person who knows the real estate market in Maryland? Someone who actually knows your neighborhood and the surrounding area? Zillow uses the exact same formula to determine Zestimates whether homes are located in California or Maine. Hmmm, do you honestly think the same formula can be applied and be accurate everywhere? The answer is NO!
WHY CAN’T I FIND CERTAIN HOUSES ON ZILLOW?
Have you ever found a house for sale on one web site but not on another? Maybe you found a house for sale on Homes.com but couldn’t find it on Zillow. Or maybe you saw a “For Sale” sign in a yard but couldn’t find it on Zillow or one of the other may real estate websites. What happened? Real estate companies must pay hefty fees to have their listings appear on the various real estate websites (that is how Zillow, Trulia, Realtor.com and others, make money, lots of money. Zillow holds the cards here, Zillow knows real estate agents want their listings on Zillow). After all, that’s where most home buyers go to look at houses online. And the Zestimate? It draws a crazy number of people onto their website and app.
Here’s how it works: Agent Smith, who works for ABC Realty, listed a house for sale. The listing starts out in the multiple list. The multiple list is where ALL real estate agents in Maryland first put their listings. From there, the listings are “syndicated” This means each listing gets distributed to whichever real estate websites the particular real estate company pays for. So, homes for sale might be found on one website but not another. Listings only end up on the websites the real estate companies pay for. It’s expensive, which is why the same house for sale might not be found everywhere. And homeowners who try to go it alone and do “For Sale By Owner”? Those homes likely won’t be found on real estate websites unless the homeowners find a way to pay to have their houses appear on those websites.
WHAT’S THE BEST WAY TO FIND ALL HOMES FOR SALE IN MARYLAND?
Is there one resource that includes all the listed houses for sale? One place that is reliable and up-to-the- minute accurate? Yes there is! That place is the multiple list. If you want the most reliable information that is constantly updated, the multiple list is THE answer. Are you wondering how to access the multiple list? It’s easy! All real estate agents have access to the multiple list. To receive the latest and greatest updates, a good real estate agent will offer to provide you with these updates. This can even include homes that aren’t yet for sale, but will be soon. This also includes houses that go on sale on any particular day. Why wait for the other real estate websites to gather the information a day or so later? It may be too late.
Are you ready to receive the most up-to-date list of Maryland homes for sale, or do want to rely on outdated information? Sign me up, I want “THE LIST”!
IS ZILLOW ENTIRELY BAD?
Zillow can indeed be very useful, it’s a great tool for researching the houses that are on the site. As a matter of fact, that’s where the majority of home buyers go to look at houses for sale, and is the #1 most visited real estate website. The site is easy to navigate, appealing to view, and is well-known. Whether on a computer or on a smart-phone, the details can be found. Sellers love knowing their home can be found on Zillow (sellers should always ask on which sites will their house will be found, appearing on Zillow or other sites should not be assumed).
Both buyers and sellers look at Zestimates, it’s what they do. It’s a good place to get a rough idea, since sometimes the numbers are close to being accurate. However, when it comes time to determine the true value, a real estate agent should always be consulted. Using an agent who can do research using the most up-to-the-minute, real-time data, will produce the most reliable results. Zillow has no way to prove their Zestimate and demonstrate how their price was derived. A real estate agent can always provide real, actual proof to justify the recommended value of a home.
THE BOTTOM LINE
The #1 reason why a house doesn’t sell is because it is overpriced. Overpriced homes typically end up selling for less than if they had been correctly priced from the start. A real estate agent is the best resource for pricing a home correctly. Why wouldn’t you want the best?
Find out the REAL value of your house instead of only relying on a Zestimate!
Better yet, find out the REAL value of your house, then compare it to your Zestimate!
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Need more info on Zillow? Check out these helpful resources:
How Accurate Are Zillow’s Estimates – by the Ferris Property Group
Are Zillow’s Home Value Estimates Accurate – by Bill Gassett, Maximum Exposure Real Estate
Zillow’s Typical Error is $14,000 – by Real Estate Decoded