Zillow's  Zestimates are Not always Right

BY: DENISE & MELISSA STEWART

By Zillow's own Zestimate, last year Zillow's CEO overpaid for his Los Angeles home by $1,600,000. The Zestimate was for $18,400,000, and the price tag was $20,000,000.

Anyone who has ever clicked on the Zillow website has seen those famous words "How much is your home worth?". Most real estate websites use that or a similar catch-phrase to entice homeowners to use their service, whether knowingly or not.

What is a Zestimate? Does Zillow pay an army of appraisers to look at your home, establish comps, make adjustments for your features and  upgrades, and produce a value that whether you are buying or selling, you can assume to be accurate? Or does Zillow have a super-secret software program with an algorithm that interprets data from a couple of sources, to produce a number that purports to be a valuation of millions of properties?  Although some people may think Zillow used a dart board  to value properties, option 2 is closer to being what a Zestimate. 

This year a group of property owners took Zillow to task by filing a lawsuit based on their argument that the Zestimates for their properties were undervalued, thus making the properties harder to sell, at least at the prices being listed. Ask any agent for a seller what it is like trying to sell a home that is listed for $400,000, and a buyer brings a copy of the Zestimate indicating a value od $275,000 what they think of the Zillow Algorithm, and your typical answer will not be very positive. In a recent poll of real estate professionals over 75% of those responding indicated that Zestimates were not accurate, and over 85% of respondents stated that they would never use Zestimates as a tool to convince buyers or sellers of a property's value. The result of the lawsuit did not take long, and the Illinois court ruled in favor of Zillow. The Plaintiffs in the lawsuit offered evidence to bolster their position that Zillow produces what is represented to be a value, but fails to use any recognized appraisal standards. This failure was resulting in values that are too low, which directly results in a loss of income to buyers.  In the court's decision, the Judge sided with Zillow. One of the reasons is that Zillow has disclaimers which basically state that Zestimates are nothing more than estimates and they are not official appraisals. 

What are you to do if you really want a realistic value of a property? There are 3 ways to achieve this.

The first way is to reach out to a licensed appraiser, whose profession is to prepare appraisals, and have an appraisal prepared. This should give you a clear indication of value, with comps, and the reasoning why adjustments were made to arrive at a valuation. Appraisals cost money, so be prepared to pay from $300 - $600. One of the benefits of having an appraisal is that you may be surprised and your property may be worth more that you thought. Appraisals are sometimes a good marketing tool, especially if a buyer is squabbling about your asking price. 

The second way is to contact a Realtor, and ask the Realtor to prepare a CMA (Comparative Market Analysis) for your property. Most Realtors will do this at no charge, because it is a common service performed because Realtors want the opportunity to get your business. Remember that the CMA is only as good as the Realtor preparing it, so get an experienced Realtor. The Realtor's focus should be to find comps in your area, and do an analysis of the comps, make adjustments for conditions and features of your property versus the comps, and come up with a figure that is based on this information. Does this mean that you can sell your property for this figure? Not necessarily, because of market conditions and other factors which may have nothing to do with your properties value, but more to do with the salability of the property.  If you are not sure how experienced the Realtor is, just ask. If you want 2 opinions, there is nothing wrong with contacting 2 Realtors and asking both to prepare a CMA for you. 

The 3rd way is to login to www.zillow.com, and click the button that says "How much is your home worth?

If you have questions about you property and its value, call, text or email Denise @ 866 783 6011,   denise@condo.net