Zillow vs Your Real Estate Agent. Who’s the Best Judge of Home Price?
Zillow surfing has become a past time during the pandemic. Many buyers have been making offers based on Zillow estimates. Does this sound like a bad idea? Zillow thought its numbers were Gospel and began buying homes for itself. That created a loss for Zillow of about $1 billion in about a year. Probably a good indicator how much trust you should put in a Zillow estimate.
Zillow began by primarily estimating home values based on local property tax data. Over time, more and more data became integrated into the Zillow estimate from multiple sources. Listing prices of homes and sales reports (where sales prices are public knowledge) provide additional data points. In addition, formation of its own business brokering and buying/selling homes adds more information. Not all states have publicly available sales prices of homes. So the comparable sales information feeds more in depth data for better accuracy. Because some states still allow sale prices to remain confidential (not public), access to actual sales prices through the realtor network supplements the accuracy.
As with most software programs, Zillow uses a set of calculations programmed into it to estimate the value of a home. What information goes into the software program? How does the program adjust values between homes with differences or different neighborhoods? Why might this be a good estimate and why might a real estate agent be a better choice?
Mass Appraisal Techniques and Local Factors
Your local taxing jurisdiction, whether city, county, school or other, likely uses what is called “mass appraisal technique.” Having worked on this software programming, our team knows this approach. This differs from an appraisal on a specific property. It attempts to treat homes within a neighborhood alike with adjustments for known information in the public record. But software cannot correctly adjust for inaccurate information, non-public information, or other unknowns. The software must be written to treat like homes alike. However, the software also cannot determine the condition of each home. So it may treat unalike homes the same. An attempt to quantify the condition of one home against others may fail. Building permits do not exist for most upgrading. How much a home has not kept up with updated homes comes though adjustments in the Depreciation Factor. But the Depreciation Factor represents only a guess.
Running all this information through a software program with guesses for unknowns provides a general guide, but one which can be wildly inaccurate. Have you looked at a Zillow estimate and then walked into a home and immediately walked back out shocked to find a house is disrepair and needing to suck cash out of your wallet to meet your standards? It cannot distinguish a home with chipped, laminate countertops from one with new granite or stone ones. It doesn’t know if the bathrooms are updated or landscaping is dead. The style of cabinet doors many times can date the last upgrade for an experienced sales agent, but not Zillow.
Zero in on the Neighborhood and Home Characteristics
A good real estate agent has spent time understanding each house on the market and each one sold in a geographical area of expertise. Which houses have been updated? What type of updates? When were updates made? What is missing in the home that is typical for the neighborhood? How is the neighborhood changing-up, down or stable? What is the common area, shopping, commute, schools, parks/green space, and feels of the neighborhood? Is it on a busy street, a side street, a cul-de-sac?
Not knowing the update status can change a value by more than $100,000. Is the tax roll not accurate about the house? Was the house updated with energy efficient windows, A/C, roof, or other amenities? What does the yard look like, the drainage, the exterior paint, the curb appeal? What do the neighboring homes look like? Is the neighbor a jerk and someone you don’t want to live next to (this is more common than you think).
In the end, you may look at Zillow for an idea of prices, but one should never make an offer on the Zillow estimate alone. Zillow is but one tool to ballpark an area. To get down to the specific level of one house, it’s an inaccurate one. So, It’s good if you’re throwing darts about an area to pick a home, but nothing beats your own eyes and a professional opinion backed by extensive, local, accurate, up to date personal and professional advice. Don’t be Zillow and overpay by 20% for a home (or even 27,000 homes as did Zillow). Better yet, pick up a copy of Winning Mortgage, Winning Home for more insight.