Below is an old proverb in Real Estate:
Your home is worth what someone is willing to pay it for…
This suggests that there are many different factors – some arbitrary, some not – that play a part when valuing a property.
These days with more and more homeowners becoming internet-reliant, many look to industry leader Zillow for information. But this brings up the question:
Is Zillow A Reliable Source Of Information?
Zillow’s Margin for Error
Zillow has been reported to average somewhere between 18 to 20 percent higher or lower on home estimates. There are even reports of home values on Zillow climbing in declining market areas!
Let’s take a second to discuss this.
For a $200,000 home, a 20 percent deviation is $40,000.
You can see how this could become a real issue in higher-priced markets like Los Angeles or Miami. A $1 million home could see unrealistic estimations that are off by $200,000. That’s a significant difference in pricing.
Zillow estimates may discourage potential buyers and leave them disappointed, thinking that their dream home is well out of their price range. At the same time, sellers are being given unrealistic starting prices to work with.
This has lead to many disagreements between sellers and real estate professionals with homeowners assuming that whatever price Zillow comes up with should be attainable.
How Does Zillow Create Estimates
Zillow calls its proprietary estimating tool a “Zestimate.” Regardless of how many pricing factors they cram into their formula, there is still a high margin for error because Zillow never actually looks at your home.
The proprietary formula looks at the market pricing in the area. It factors in the size of the house, the lot, features of the home including the number of bedrooms, bathrooms, pools, and any highlighted characteristics.
You might think this sounds great! But, even Zillow states that this should not be considered an appraisal or a true valuation of your home.
The reason for this is because the information Zillow uses is dependant on access to public records and user input such as realtor sales.
However, Zillow cannot determine whether your home is a dilapidated eyesore within the community or a beautifully renovated family home.
You can have an up-market community mere blocks away from a mid or low-end one. These “pockets” can significantly skew or be skewed by larger metro data that Zillow factors in that aren’t relevant.
The More Accurate Model
Any professional realtor will tell you upfront that a true valuation of your home requires fully understanding the property itself, the layout, the style, its features, the neighborhood, the wider area, and the current market.
The truth of the matter is that most realtors look at Zillow with disdain because it makes pricing and managing realistic client expectations that much more difficult.
A realtor will look at sales specifically in your area, creating a radius based on your pocket rather than an entire zip code. Then, he or she will compare your home to – similar and not so similar – properties that sold recently in the last 3 to 6 months.
He or she will then compare this information to existing listings on the market. How does you home compare to other available properties? What does the competition look like? After all, even if you’ve looked after your home with care over the years, if it’s being sold next to a stunningly beautiful remodeled home, chances are you won’t get the same price per square foot at the other.
Additionally, realtors will always take into consideration whether you’re selling in a buyer’s or seller’s market. If you want to create a frenzy in a seller’s market with all eyes on your property, you can underprice the property and let the bidding war begin. This tactic works in many markets outside of Miami as well.