“East Bay Real Estate” with Nancy Bennett – Are Zillow’s Home Value Estimates Accurate?

July 9, 2014 · 24 comments

nancy

Most of you have probably heard of Zillow – this is one of the largest and most popular online and mobile real estate sites, a leader in its field beloved by analysts and used by millions of home buyers and sellers. As a Realtor, I love many aspects of Zillow – but not all.

Every week, some of the most common questions I get from buyers and sellers relate to the “Zestimate” – Zillow’s hugely popular online home value estimating tool. Zillow invented this online feature and changed the real estate marketplace in 2005. It’s a cool idea. Many homeowners start their selling process by getting a Zestimate, and many buyers use it to get a “second opinion” on the value of a property they’re interested in. Friends, if only it were so easy … Unfortunately, those estimates are frequently inaccurate – and sometimes they’re wildly off base.

Zillow and major competitors like Trulia and Redfin are awesome because they’re empowering for buyers and sellers. Back in the day, real estate agents held all the cards – only they knew which homes were on the market and only they understood property values. Nowadays you can get much of this data online before you ever meet an agent – and that’s great when the info is on target.

The problem starts when a buyer/seller gets an online estimate on a property and believes it’s accurate … until they receive a very different estimate from their real estate agent. Then they don’t know who to believe, or worse – they want to sell their home for more than it’s really worth.

Zillow’s system is well designed – but at the end of the day it’s an automated system that’s pulling data from a few sources and making generalized assumptions. It cannot account for exceptions and variations – and those details can substantially alter home values from an “average.” Furthermore, the market determines the price … In the space of a year, the value of your home can shift by tens of thousands of dollars, due to supply and demand and other market forces that Zillow cannot know or quantify.

How does Zillow value homes?

Zillow uses a proprietary formula to determine the value of a home based on a ton of data that it pulls from public records and information entered by users, such as – the home’s last sales price and the sales price of “comps” (homes in the surrounding area), the home’s layout and features, tax records, and so on. However, the data they use has many issues – for instance, different data is available in different counties … the info Zillow uses for New York City may be different than the info it has access to for Contra Costa. And part of the formula is the property’s assessed value. Unfortunately, it’s rare that assessed home value has any correlation to market value – these are two completely different things. Assessed values are used by towns to collect taxes and in many cases they trail the actual market value of a home. Here in the East Bay, I’ve seen homes sell for tens and even hundreds of thousands more than their assessed value – and I’ve seen them sell for under it too.

The biggest single problem with Zillow is their methodology – it just highlights the limitations of technology, no matter how innovative.

How does a real estate agent predict a home’s value?

I could tell you … but then I’d have to…Okay, I’ll let you in on a bit of The Secret Formula!

It’s actually a combination of art and science that requires a real understanding of the local market – bearing in mind that the market changes day to day and data gets old quickly, and interpreting recent sales data is complex and demands intimate knowledge of the area. Moreover, adding in variables like schools, location to freeways and changing neighborhood demographics can be daunting if you are not very familiar with an area.

So should home sellers and buyers just forget about online home value estimates?

In my opinion, no – you should research as much as possible. But be smart about your research and have reasonable expectations. For this article I searched on a friend’s property from several leading sites, and got these values:

  • Zillow Zestimate – $812,00
  • Trulia – $955,304
  • Redfin – $944,000

Notice how the Zestimate is quite a bit lower than the others? Zillow tweaked its system recently and according to some analysts, as of 2014, Zillow’s estimates are too low. My suggestion is, go to 3 or 4 sites that you trust and get their estimates. Then take them all and calculate the average to get a quick snapshot of your home’s current value.

But don’t get too caught up in the results. If your local market is smokin’ or your home is super snazzy, it might generate much higher offer prices when you list it … and if your roommates are termites and your house hasn’t seen an update since 1948, it’s probably worth less.

Online estimates are fine if you’re not selling soon. But if you are – you’ve got to meet with a great real estate agent and have them present you with a serious CMA of your home’s value at this exact moment in time, based on the current condition of your home. No algorithm can beat the expertise and intimate market knowledge of an agent. The computer doesn’t know some very important factors that can affect price, like recent remodels, curb appeal, additions on a home and upgrades – and real live agents can pick up on market trends much faster than any old algorithm.

Keep in mind that the number one reason why homes do not sell is because of an unrealistic asking price. If you price your home incorrectly out of the gate more than likely you will end up selling it for less than you would have if priced correctly from the start.

Until next time … Nancy

Nancy Bennett, REALTOR, Keller Williams East Bay CalBRE 01399870

Nancy Bennett has over 20 years of sales and marketing experience, with over 10 years selling real estate in the East Bay. She’s an award-winning real estate agent in Contra Costa County, the #1 Realtor in The Crossings neighborhood, and she heads up The Bennett Team – the leading real estate team at Keller Williams East Bay. She’s won the Five-Star Professional Award in Real Estate for 2012 and 2013.

Nancy is also a member of the National Association of Realtors, the California Association of Realtors, the Contra Costa Association of Realtors, the Fortune 400 Masterminds, and Contra Costa Realtors in Motion. She serves on the Agent Leadership Council, as well as being a faculty member and mentor to new agents at her office.

Nancy is a licensed foster parent and a volunteer with local organizations such as Meals on Wheels and Youth Homes in Walnut Creek.  For more information, please visit www.BennettBetter.com or reach Nancy directly at: Nancy@BennettBetter.com.

1 Fred July 9, 2014 at 2:20 PM

Since I just bought a house the website estimates are good. Then lookng around at my neighbors they vary so much it’s you have to wonder what’s going on.

2 Diablo July 9, 2014 at 2:50 PM

After closely watching it there seems to be a 60k to 70k variable.

3 Atticus Thraxx July 9, 2014 at 2:56 PM

That is a beautiful house. Cool little gym, nice pool. How much?

4 waverunner July 9, 2014 at 3:02 PM

Excellent article, and right on in regard to Zillow.

5 cf July 9, 2014 at 3:12 PM

Zillow can be very inaccurate.

I just checked and it said that my house went up $217K in the last 30 days? I don’t think so.

In the past Zillow showed 800 sq ft, 2BR, 1 BA houses as comps for our neighborhood of ridge top homes with 1 acre lots, 3000 to 12,000 sq ft. and panoramic views.

About 8 years ago, Zillow said that a manufactured home in the trailer park was worth as much as my 3300 sq ft.home.

6 I'm rich!!!!!!!! July 9, 2014 at 3:18 PM

My “Zestimate” says my house is worth $1.1 million!!! My realtor says it’s more like $450,000. I got all excited for nothing. Zillow should just remove the Zestimate from the site. Very misleading.

7 Mr. John July 9, 2014 at 4:01 PM

Remember when you get an estimate from a person, you need to consider that person’s incentives. If someone only gets paid when a home sells, they may encourage a lower price, even if they get a percentage of the sale price as compensation. Why? Because if you sell fast, they know they’re getting paid faster – and they know you won’t take the home off the market, use another group, etc… and prevent them from getting paid at all.

8 From immediate experience July 9, 2014 at 4:38 PM

My Wife and I are selling our house and are
close to closing. We have learned that the entity
that determines the value of a home that is the
most important is the Lenders Appraisal of
a home for the buyer. Our home inspection
took two hours and a termite inspection an
hour and a half, his took 15 minutes.
And at this point in the process we still don’t
know what the selling price they will ok.
Perhaps you can explain the fact that if a lender,
After your broker/ agent , determines a market
value for your home, it may be appraised for
much less( never more), and this must be
disclosed to the next buyer if your deal falls
through.
So in short, we still don’t know what the real
selling price will be.

9 Nature Lover July 9, 2014 at 4:47 PM

Good article and so true! I’ve also noticed that Zillow’s Comp’s are not in the immediate neighborhood….even when there are excellent Comp’s in the neighborhood.

10 @Atticus July 9, 2014 at 5:37 PM

I don’t think it is an actual listing because the same pic is on on Pinterest for Modern pool design- backyard design. I agree it is a pretty sweet house though!

11 Claycordian July 9, 2014 at 6:03 PM

I realize as a realtor you’re probably not that interested in refinancing issues, but homeowners should also think twice about these on-line sites before shelling out the money for an appraisal only to find the value is still below you owe. The value listed for my home on Trulia was $120k higher than Zillow, higher than what I paid five years ago, and $70k higher than the appraisal. I was so happy to think I could get out of my 7% mortgage rate, but have to keep slogging along throwing what I can at the principal. Lots of questions about that appraisal too, like why he asked me some questions (when was the kitchen last remodeled) but didn’t want other information (like new roof I put on 3 years ago).

12 Yah, nice house... July 9, 2014 at 8:29 PM

If you still watch Miami Vice and dress like Don
Johnson. Rolled sleeves on a sport coat anyone.
LOL, I crack me up.

13 slagheap July 9, 2014 at 9:24 PM

bottom line – don’t trust any of ‘em, including the appraiser(s) and ‘specially the realtor. look at any & all recent comparable actual sales in your area, go to some open houses, talk to multiple realtors, etc. etc.

14 Great article Nancy... Thank you! July 9, 2014 at 9:30 PM

I wish we could get a holed of these people to get our values updated.

I think that these are great web sights also.

I guess they get away with this because they say that….

(THIS INFORMATION IS DEEMED TO BE RELIABLE BUT IS NOT GUARANTEED)

But with all the people using these sights they should get a better handle on this..

I hope it does “NOT” take a law suite to get this done because you can not hide behind this information is just deemed to be reliable otherwise why not start up a web sight on anything and claim this.

In short if people are getting hurt because of these sights for what ever the reason they may not have much law to help themselves out.

In closing look at napster the online music sight its claim was that they where the middle man they where not posting the copy righted material we all saw how good that held up I think these sights are headed down a slippery slope the question is how far will this go because I am quite sure that countless people have told them that their price is wrong only to fall on def ears.

Well have a very nice evening.. Thank you for your great articular.

Dave…

15 Clayton Squirrel July 9, 2014 at 10:10 PM

Zillow had the correct square footage for my house which is unusual.

Trulia has info just from the county records where someone in 1974 forgot to add the footage of the second story, thus it lists my home as half as big as it is. They always have the correct number of rooms and bathrooms though. The county inspects and raises our property taxes when we remodel but they never fix the error even after I tell them and they can see for themselves.

16 Always Right July 9, 2014 at 10:13 PM

There is a big problem with appraisers these days. They have no incentive to get the price right based on current market conditions. They just look at old comps, take an average, and go with it. The more appraisals they do, the more money they make, so the less time they spend on each appraisal the better.

In a rising market, sales 6-12 months old produce an average price that is too low. These comps need to be adjusted to reality, but few appraisers take the time to document such adjustments. Why should they? The government buys 90+% of the conventional mortgages these days and they simply don’t care if the deal falls through.

17 OhSoCasual July 10, 2014 at 9:05 AM

In response to Always Right…

I don’t know which appraisers you may know or which have provided you with any appraisals lately but I somewhat agree and somewhat disagree.

There are appraisers out there who have at least a decent idea of what they’re doing, enough to do churn out mediocre appraisals, keep their jobs and earn a paycheck.

That being said, there are certainly very experienced appraisers who really know their stuff. Hand’s down, my Dad is one of them. He’s worked in our greater area for 25+ years now and I was fortunate to get to work with him for several of those years and became an appraiser myself for about 5 years. He’s an awesome teacher and it was great getting to learn from and work with him.

A good appraiser should always be researching the MOST RECENT comps (and to clarify, true comparables that should be used in an appraisal to compare your house with, should be preferably in your immediate neighborhood when available, you should be showing at least 3 recent closed sales (the more recent the better, and the comps should be as close in GLA [Gross Living Area aka interior square footage of the home, with similar bedroom/bath count) to your home as possible/available, as well as either 2 pending listings, or 1 pending listing, 1 active listing and if there are no pending listings at the moment in the immediate neighborhood but there are multiple active listings, then use 2 (or more) active listings.

Then there are a slew of other factors to take into consideration to ultimately make an educated decision on the current market value of your home, a couple basic examples:

Is your home located on a busy street or is there a busy street that borders your property? (External Obsolescence – negative effect on value typically)

Do you have a pool?

Do you have a gorgeous view?

What kind of updating/remodeling has been done to the home? When was the updating or remodeling performed? Recently? Many years ago? More experienced appraisers will be able to tell fairly accurately on their own (thank you experience), however, they still should ask.

I always laugh at agents who list homes for sale or rent and exaggerate it’s condition. I see them often describe a home with new paint and carpeting as being “remodeled”, sometimes even “renovated”. I’d call that basic updating at best. In a kitchen, if you replaced all the appliances, but that’s it, you updated the kitchen with new appliances. Even if you did the counters too, still just updated. If you did the cabinets, flooring, appliances, sink/faucet, hardware, perhaps new lighting, I’d call that remodeled. Renovated would be considered, ripping out the previous kitchen and completely redoing everything, possibly taking out a wall and enlarging or adding a new big island, etc. Updating = updating a little of this, a little of that. Remodeling is more “thorough” updating and Renovation is more or less gutting the place and completely redoing everything with all new finishes.

If an appraiser doesn’t ask you very thorough questions about your home or what upgrades have been completed, don’t be shy to just tell him/her, they should be asking but you never know if they’re attention my be somewhat elsewhere that particular day and perhaps they’re not being as thorough as they should be. It’s your home, make sure you inform them (if they don’t ask for whatever reason) of any and everything that you might think could help them properly value your property.

Often times a homeowner who owns let’s say a 1,400 sqft. 3 bed/2 bath home, will be keeping an eye on recent sales in their neighborhood and I’d come along and ask them (even though I typically already did my own research and had a pretty thorough idea of what sales/pendings/actives were going on in the neighborhood) “Have you seen any recent sales or know of anyone in the neighborhood who’s selling their home?” And sometimes the reply would be like “Oh yeah, the house up the street just sold for $650,000, so my house has got to be worth $600,000. Little did they realize, the house they speak of is a 2,400 sqft., 2-story, 4 bed/3 bath, with a pool and completely remodeled. I make my notes, get back to the office, do some additional research when necessary and then create my appraisal. Often times people aren’t aware or don’t know to make sure they are comparing their home to near-by homes that are very similar in size, not the home that sold next door that is twice the size of their home. That home miiiight be mentioned in an appraisal (if it was very recent and right next door, or real close) but not typically considered a strong comp in determining current market value of your home because, in that case, you’re comparing apples with oranges. Stay focused on as similar properties, as close to yours as possible, size/location/condition.

The basic training stops here for me, there’s quite a bit more to it than I touched bases on here, but hopefully some of this info. might paint a little clearer picture of how appraisals should be performed.

Take care everyone.

18 Patty July 10, 2014 at 11:00 AM

I took the author’s advice and went to Trulia to get an estimate on my home value. It was $53,513 higher than the Zillow estimate. I then tried to go to Redfin to get an estimate, but could not find where I could get a free estimate. Within an hour, I started getting calls from Trulia Real Estate Agents, even though I marked the box that said “just looking”. Ugh!

19 The Mamba July 10, 2014 at 11:39 AM

I noticed the same thing when comparing Zillow to Trulia and Redfin. Also, the websites don’t really take into any account the upgrades you may be making internally, they are based on comparable nearby houses of similar size.

20 Always Right July 10, 2014 at 11:57 AM

@OhSoCasual – my comments were a generalization. Of course there are some diligent appraisers out there, but my recent experience with those doing refi appraisals has been underwhelming to say the least.

You are correct in your description of what a good appraiser should do.

Today we have a dis functional real estate market thanks to the government take over of lending and bad legislation like Dodd-Frank. We need to transition away from Fannie and Freddie to a private market for lending and go back to a system which allows lenders to directly hire appraisers.

We would have a lot more deals close with more accurate appraisals.

21 @Not Zillowy July 10, 2014 at 3:10 PM

If you have lived in your house for a long time and have made no improvements (on the record) and therefore have not had a tax adjustment, Zillow is way off.

22 Silva July 11, 2014 at 9:37 AM

Weird. My Oakland lot is a LOT (tee hee) larger than my Concord lot, yet the ZESTIMATE says they’re the same size. I do like that pictured pool.

23 nytemuvr July 11, 2014 at 10:04 AM

@Silva #22
You can register on Zillow and amend the description, post your own photos of your house/lot and change any wrong information. You can also change your own estimate as to what you believe the house(s) are worth.

24 Silva July 11, 2014 at 11:56 AM

nytemuvr, thanks. That’s good to know.

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