Zillow Home Values:
Do They Really Know What Your Home Is Worth?
Zillow home valuations were supposed to be the beginning of the end for modern day real estate agents…or at least that was the plan. This real estate information site and its free home appraisals generated comparisons to the travel, insurance, and financial industries as to how this new competitive efficiency would begin to make Realtors obsolete.
Many agents themselves were at an even higher panic level than usual when Zillow first grabbed headlines. While amused by this “chicken little” behavior, the idea of what Zillow was going to deliver had us intrigued and interested.
How’d It Rate? - A Professional Look Into Their Crystal Ball
Preliminary research was indeed very eye opening. We decided to input our own homes as well as some of those that we had in escrow into Zillows home value estimator to see what “the computer” thought they were worth. Our first two tests were not positive as we were seeing discrepancies up to $150,000 on an $800,000 house! You may ask how we know it was worth $800,000? Our answer lies in a true fair market analysis, more specifically, we had a buyer who was willing to pay that price and a seller willing to sell for that price.
Now this isn’t to say that all of their estimates were bad, in fact, some were quite good especially in the planned communities of cookie cutter houses. But as you’ll find, we are less than ecstatic about anything that is only “sometimes” accurate.
Where They Gettin’ These Numbers? - All Square Feet Are Not Created Equal
We did a little investigation and think we have figured how they are coming to their price estimates. It appears that they are looking at past sales and taking “average price per square foot” as a heavily weighted determining factor. Ask any professional appraiser and you’ll find that this is usually not an accurate measurement of a homes value. Typically the smaller homes sell for more per square foot than the larger homes when they are in the same neighborhood. This is true even though the total value of the larger homes is greater. This “average price per square foot” methodology will yield results where estimated neighborhood values are too high for the large houses and too low for the smaller ones. Coincidentally, this is exactly the trend we noticed at Zillow.
Experience has proven to us that the first few square feet of a home are the most expensive and each additional square foot will get progressively cheaper. This is similar to commercial retail property where the frontage feet are disproportionately more expensive than the remainder of the lot.
Even if they are not using the average price per square foot or they find a way to fix it, we are not sure how, or if, they are taking upgrades into consideration. An appraiser can typically allow up to a 10% valuation increase for upgrades in comparison to properties of comparable size and locale. It appears that either they are not taking these various levels of upgrades into consideration or that they are relying on homeowners to do the valuation.
Given the various levels of craftsmanship, usability, materials, and the fact that many homeowners will always believe their house was built with gold-plated nails, we don’t think a homeowner valuation is such a great idea. If we had a dollar for every home that was overbuilt given its particular location or two bucks for every homeowner that considered new paint a complete upgrade, we would be writing these articles from the Bahamas and not our Orange County office!
How’d They Know This Stuff About My Neighbors –
Reliable Sources 101
Many are unaware that most property sale records are within the domain of public information through your local tax assessors office. This is where we believe Zillow is getting the majority of their information. The problem is that it is all too common for tax records to be incorrect as noted by disclaimers like this one from Los Angeles County:
Disclaimer: The Information Provided here is in compliance with Section 408.1 of the Revenue and Taxation Code. All indicated sale prices are unverified. Please consult a third party source, such as a real estate broker, prior to making valuation or business decisions.
Because the information is unverified, we often find records where the number of bedrooms, square footage, selling price, or even the owners name is incorrect. Obviously, basing any sort of analysis on a primary source of data that is unverified is a good way to draw some bad conclusions.
Why Isn’t This Working For Real Estate? - “Boots On The Ground” Type Business
Even though we operate our own free home valuation services, we’ll be the first to admit that Real Estate is a “Boots On The Ground” type of business. What that means is that you can have a plethora of information available at your fingertips and it is still no substitute for a knowledgeable real estate agent who’s job it is to be familiar with the sale of homes in your area.
Recall for a second who the disclaimer references as being the person you should consult prior to making any decisions. There’s a reason they recommend a Realtor and that is because they have access to more of the important details and experience in correctly evaluating them.
Details such as the number of days on the market (DOM) it took to sell, original listing price, commissions being paid to selling agents, non-permitted additions/rooms/units, upgrades, amenities, property photos, listing office/agent name and contact information, the ability to have seen the property in person, historical significances, usability of lot, and a whole host of other important details. It would be wise to take the assessor’s advice and seek qualified professional help if your interest in a home appraisal is anything more than casual.
But maybe, and we mean maybe, for a quick ballpark it’s a decent resource for the consumer. We just don't feel comfortable using ballparks in real-life property transactions where details can mean tens of thousands of dollars. If your interested in a more accurate way of tracking your home values in Los Angeles and Orange Counties, please take advantage of our FOUST Property Tracker™ for more of the important details you’ll need to stay in the loop.
But Once They Iron Out The Bugs, Then The Realtors Are In Trouble…Right?
With regard to replacing Realtors, we think if the primary value an agent brings to the table is pricing, then we deserve to be replaced! However, we know first hand the extremely high emotional nature of the business, the inherent liability, knowledge requirements, and resulting time demands placed on us by consumers (and gladly accepted by us) that make our replacement by E-brokers a slim chance.
Besides all this, most agents already have an analysis program or CMA that they can use to generate a home valuation report. Even better, they can then double check the computers findings using their own eyes, ears, brains, and informational details previously discussed. As far as availability is concerned, we’ve yet to meet any agent who wouldn’t jump at the chance to help a homeowner correctly value their real estate.
The most likely result of this will be that Realtors will have to adapt new prospecting techniques. Home valuations have been a tried and true technique for agents with regards to acquiring new listings. Personally, I've never understood the logic of "this agent knows how much my house is worth, therefore they must be qualified to sell it" but that’s a story better explained in our article Orange County Realtor Information – 10 Essentials For Avoiding A Bad Real Estate Agent. Best of luck and happy selling!
About the Author:
Todd Foust is the chief marketing executive for the FOUST Team at C21 Discovery; one of the top-selling real estate teams in Southern California. He specializes in Orange and Los Angeles Counties and operates one of the area’s most informative real estate websites. To contact him or learn more about Orange County real estate, please visit www.FOUSTonline.com.
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