Many websites offer estimates of home values, but it’s crucial to be careful when you use them. Zillow is one of the most popular websites for estimating home values, but it’s essential to know that their estimates aren’t always accurate. In fact, their estimates may not be accurate at all!
Unfortunately, many consumers do not realize how off Zillow estimates can be. When you buy or sell a home, having a handle on the fair market value is one of the most crucial aspects of making good business decisions.
We will take a look at everything you need to know about Zillow Zestimates, so you can understand why they should be taken with a grain of salt. Never hand your hat to home values on Zillow or other estimates you find online like them.
What is a Zillow Estimate of Value?
Zillow’s home valuation tool estimates a home’s market value. They call this estimate of value a “Zestimate.” Zillow was founded in 2006 as a site for homebuyers and sellers to browse homes for sale and connect with real estate agents.
Many Realtors list their homes on Zillow, a popular site that receives a lot of traffic from buyers and sellers. Multiple Listing Services around the country feed new listings into the site on a daily basis. Once they are populated on the site, a potential buyer can look at a wealth of information about these properties.
While the site does an outstanding job of presenting properties, Zillow home values can be misleading. Consumers see valuable information being provided and assume the estimate is also accurate.
Real Estate agents are left to constantly educate the public that an online estimate should never be the basis for buying or selling decisions.
How Are Zillow Home Value Estimates Calculated?
Zillow’s proprietary algorithms take data from brokerages and multiple listing services into account to calculate an estimate. They will also use features provided by public data sources such as the number of bedrooms and baths, square footage, location, and tax assessment data.
To attempt to provide an accurate estimate, they include details like the listing price of comparable data, tax assessments, and prior sales records. It’s a rudimentary way of calculating market value, just like using price per square foot.
How Accurate Are Zillow Zestimates?
A Zestimate’s accuracy depends on data specific to the area and location.
This method is more effective when valuing listed properties, as the price is already accounted for. However, it may not be as accurate when valuing off-market homes.
However, appraisers and real estate agents consider list prices as the least essential data point in valuing a property. A home’s list price can change and often do at a moment’s notice.
Probably the most crucial thing to realize is that Zillow has no idea what you may or may not have done to your home. Did you recently invest a ton of money into renovating the kitchen and baths?
How could you expect Zillow to know that? They won’t. Does your lot have an unusual setup that impacts the market value? Maybe there is very limited yard space. Zillow doesn’t know this.
Does your home flood in the spring? This kind of drawback will undoubtedly impact a home’s market value. Zillow doesn’t know this either.
Are Zillow Estimates Higher or Lower Than Market Value?
Zillow estimates are all over the map. There is no rhyme or reason to where they come in. I’ve personally seen home values over $100,000 higher and lower than the actual fair market value.
Reports suggest that the median error rate for larger markets is approximately 2%-5% of the home’s value. Personally, I have seen it off by much more. The accuracy of a Zillow estimate is contingent upon the amount of data available for a specific property. Inaccurate or incomplete information will affect the calculated Zestimate.
If a Zestimate is based on outdated information, it may not be accurate. For example, are the architectural style, heat and cooling sources, and property amenities accurate? Of course, a home’s value will not be accurate unless the data is accurate.
Getting Accurate Home Values Means Speaking to Reputable Professionals
Hopefully, you are getting a better feel for why an online valuation tool is not the best way to get a handle on a home’s value. When you want to nail down the fair market value of a property, it is vital to speak to a qualified professional. Determining a home’s market value goes well beyond an online evaluation.
If you are interested in knowing the actual value of your home, it is necessary to speak with a real estate appraiser or real estate agent. An appraiser is an unbiased third party who typically has no interest in the outcome of the appraisal. Their job is to provide accurate data.
Real Estate agents can also be helpful, but you need to understand that there are no specific qualifications for giving home values. It makes sense to look for an agent with much experience valuing property vs. a newly licensed agent.
You also need to understand that when you’re selling a home, an unprofessional real estate agent may tell you what you want to hear to get your listing. Look for an agent who has a track record of success. The agent who rarely has price reductions for their properties will be the best source.
Realtors get paid a commission to be accurate, but sometimes that doesn’t always happen.
How Do Appraisers and Real Estate Agents Figure Out Market Value?
The number one way that both real estate agents and appraisers will provide consumers with market values is by analyzing comparable sales. A real estate agent will complete a comparable market analysis or broker price opinion, while a real estate appraiser will provide an appraisal.
Both professionals will pick similar properties that are in close proximity to the subject property. They will make adjustments up and down based on the characteristics of each property.
Both appraisers and real estate agents walk through the property. To get an accurate value on any property, you need to visit the home and get a feel for all its strengths and weaknesses. An online algorithm cannot do that.
While Zillow has an excellent website that provides consumers with loads of valuable information, it falls short in estimating value. It has improved over the years, but nothing replaces a professional walking around the interior and exterior of a home.
If you want an accurate property value estimate, make sure you consult with a professional.
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