From the DCrealestateguru.com 2017
When Zillow first launched in 2005, it shook the real estate industry for its ability to provide instant appraisals. Zillow’s search engines allows users type in an address and see an estimated value of any home. Over the past few years, more people began to trust Zillow and it grew to become an indispensable tool for homebuyers and sellers.
As a real estate agent, my clients often ask me about the accuracy of the Zillow home value estimates, which Zillow calls “Zestimates” – and this is where the problem lies. Most homebuyers begin their search for properties online. So, while Zillow and similar tools can be useful in providing important property information, these sites can also pose a serious problem as it pertains to determining the true value of a home.
Why You Can’t Trust Zillow Home Value Estimates in 2017
To put it simply – Zillow’s estimates come from an automated system, which means that it doesn’t have the ability to think for itself. This is the reason why oftentimes its home value estimates can be wildly off, sometimes to the tune of thousands of dollars.
Because Zillow is a system, it can’t take into consideration variations in the property that would differentiate an average home to a renovated home full of upgrades. Both buyers and sellers face a serious risk here when using the system. A seller can end up overpricing their home as a result of over relying on Zillow’s estimates thereby scaring off potential buyers.
In my experience analyzing Zillow home estimates in the Northern Virginia and Washington DC areas, it’s not uncommon to see Zillow home estimates sometimes as much as $50,000 over the actual market value.
While online services like Zillow are designed to provide quick and fast answers, it isn’t always ideal for the real estate market. When it comes to determining the actual value of a home, this presents a multi-layered problem that is often full of complex details.
Margin Of Error And Formula Used
On its website, Zillow claims that it has a median error rate of 5%. They also claim that the “Zestimate” are merely starting points that can be used to determine the actual market value of a property.
The Zillow system uses algorithms that consider property tax assessments, recent sales, and calculations all of which are updated based on user-submitted data. The site knows how much a home was sold for on its most recent purchase, and it also knows the same kind of information for homes surrounding the property. Together, combined with data inputted by homeowners, Zillow will then come up with its own estimate.
How Zillow Determines The Market Value Of A Home
However, one of the biggest problems about the formula used by Zillow is that it takes into consideration a home’s assessed value. But the truth of the matter is that a home’s assessed value rarely has any correlation to market value. I’ve seen many cases of homes selling for more than $150,000 over its assessed value, as well as below its assessed value. Real estate professionals know that one should never look at the assessed market value when determining the market value of a home. It’s never that simple, although it would make the job of a real estate agent easier.
What’s even worse is that the accuracy and margin of error varies by region. Some real estate markets in the US have zero stars in terms of its Zillow accuracy rates as well as no identified error rate, which means that it’s impossible to get any actual valuations. In some states such as Texas, the public can’t get access to the completed sale price of homes, so analyzing accuracy of valuations is virtually impossible.
Why Zillow Estimates Can’t Be Relied On
In some cases, few and far in between, Zillow estimates may actually work. But in my career working as a real estate agent in the Washington DC area, I’ve noticed discrepancies as much as 50% higher than actual market value.
While the last selling price of a home is useful to know, it’s also the only concrete data that Zillow has on a property. The last selling price has no weight on what a home is worth now, and we all know that the real estate industry changes quite frequently. With an industry as dynamic as ours, there is no point in relying on a system for estimates of a home’s current value, especially if it’s taking into consideration a sale price that is months, years, or even decades old.
Knowing how much nearby homes sold for is also important in both buying and selling. These numbers, known as comparable sales, are a major deciding factor when real estate professionals price a home. But considering comparable sales needs a human aspect to it; these can’t be analyzed just for the numbers that they provide. There are only specific situations when comparable sales can be considered; for example, if you are living in an area where all the homes are similar, same price range, and none have been renovated, then this is a scenario where you can apply comparable sales without analyzing other factors. On the other hand if you live in an area where there are several different housing styles and sizes, and the houses are of different ages, comparable sales can’t be used to determine the actual market value of a home.
Never Rely Solely On Zillow As A Buyer Or Seller
Buyers and sellers should never rely on the Zillow tool alone. Even the website itself tells you that the estimates are only a starting point. This should be kept in mind if you were intending to use the site to sell your home and you had no plans of meeting with an appraiser or a real estate agent because you thought it was good enough to rely on the Zillow estimate alone. A house is worth what people are willing to pay for it, and this is information that a real estate agent would know. Buyers can’t force the issue of a property being worth $1,000,000 if that’s what Zillow says it’s worth, because if it’s still in the market for 6 months, it is clearly worth less than that.
Any seasoned realtor will tell you that the number 1 reason that homes don’t sell is because of an unrealistic asking price. There are consequences if you price a home too low; in the same way that there are consequences for pricing a home too high. Make sure you get a 2nd opinion from a trusted agent before you decide to buy and sell any home.
Why Realtors Are Still Indispensable
Despite the popularity and prevalence of online real estate tools such as Zillow, it’s important to know that these systems can’t replace the work of realtors.
Real estate professionals use different methods to appraise the value of a home, and can even provide critical insight on how one comparable sale plays a role in appraising the next property. Realtors have the experience and skills needed to compare entirely different homes in one neighborhood to give a seller an accurate price on their property. Zillow doesn’t have this feature; as mentioned earlier in my post. It doesn’t have the ability to think because it’s merely a system that is prone to errors.
Additionally, realtors also complete a comparative market analysis (CMA) when appraising a home. The data used by Zillow is far too broad, and sometimes the system has to rely on all the county data available to make a calculation.
Every time I check home value estimates especially in my areas of Northern Virginia and Washington DC, the Zillow figures are usually just too far off! Any good realtor in my areas will tell you that the values vary greatly from one area to another.
Truth be told, while technology can replace many industries today, I doubt it will ever happen in real estate. Zillow only makes it difficult for real estate agents to do their work. For example, when a seller sits down with an agent to interview them, most likely they’ve already looked at the “Zestimate” of their home. The real estate agent then presents the seller with a comprehensive CMA and walks the seller through data to show how they’ve arrived at a suggested list price.
These figures will come as a shock to the seller, especially when they are presented with figures that are as much as $50,000 lower than what Zillow says their home is worth. See what I mean?
You Still Need An Agent For Accuracy
Every home seller and buyer needs to understand that Zillow is a system tasked with estimating hundreds of millions of homes across America. It’s simply impossible for them to accurately know the exact value of each of those homes. If the owner of one of those homes suddenly spends $50,000 renovating their swimming pool, there is no way for Zillow to know this and suddenly update the system automatically, unless the homeowners does it themselves. Zillow doesn’t employ people whose sole task is to check on the accuracy of their estimates. There is no such system in place, which is why people still need real estate agents to do their job.
There are so many things that Zillow doesn’t know. In fact, the town card data that feeds into the system could have several errors, but the system wouldn’t know this. Any home could have an area that needs major repairs, which will of course affect the sale price, but Zillow wouldn’t know this. Zillow doesn’t know that you just spent $100,000 on interior upgrades. We know that these are all things that will affect the sale price of a home, and these are also important details that only real estate agents will know and understand. Real estate agents will take these things into consideration when providing you with the suggested list price and the probable sale price.
How You Can Make The Most Out Of Zillow
The Zillow website is very well built, and all the features can come in handy to buyers, sellers, and real estate agents EXCEPT the Zillow estimates.
For example, Zillow has excellent integration with Bing maps. This makes it easy to understand what is in the surrounding area. The system also compares to none when considering the depth of information about a property, such as bath and bedroom count, lot size, age, and square footage. Sellers can take advantage of the site because when their properties look good on Zillow, there’s a higher probability that interested buyers will talk to real estate agents about it.
Zillow is also useful in determining what the seller paid, and when. These figures will also have an impact on the selling price.
I also have to admit that the Zillow app is useful for buyers. Imagine driving around looking for a house, but you don’t have a real estate agent with you and find one that you’re interested in. All you need to do is pull up the app and you’ll immediately have all the information about the house at your fingertips.
The Final Word On Zillow
When it comes to real estate, different areas will have trending prices, which will fluctuate with market, and these prices will also change based on several other factors. Zillow can be useful for the buyer in determining where and when to buy, because the website can be accurate in showing trending prices.
While Zillow might not be able to provide true market value of a home, the estimates can serve as a good starting point. But for sellers who want to accurately price their home, or for those who want to know what a home is truly worth, Zillow will never be able to replace the job of a professional realtor in providing good insight and more accurate values.