Are you someone who enjoys daydreaming about buying a new home or selling your current house to start fresh elsewhere? Many people like to scroll through Zillow listings and ponder the possibilities. But for serious home buyers or sellers, Zestimates and other third-party valuation tools can be problematic.
If you are wondering about your home’s worth for resale or are looking to buy, reach out to Julia Monaghan Real Estate. With strategy, education, and advocacy, we work to find you the perfect house, buyer, or both.
How Do Zestimates Work?
In 2011, Seattle-based Zillow launched its estimation tool, dubbed the Zestimate. This popular feature now houses data on over 100 million homes. Other sites such as Trulia and Redfin followed suit with their version of online property estimates. These tools fall under the umbrella of automated valuation models (AVMs).
Zillow and other third-party home estimates use algorithms to generate the website’s best guess at a property’s value. They typically include the following reported data in computing an estimate for a house:
- Square Footage
- Number of Bedrooms and Bathrooms
- Property Tax Assessment
- Area Home Sales
- Most Recent Home Sale Price
The AVMs mine public records for the relevant data and compress it into a supposed estimate of the home’s value. And hundreds of thousands of buyers and sellers take these numbers at face value.
Unfortunately, there are significant problems relying on a Zillow or Redfin home estimate when you are serious about buying or selling.
The Trouble with Zestimate Accuracy
The critical problem with these third-party estimates is that they are frequently inaccurate. And this inaccuracy is a significant disservice to home buyers and sellers.
And the inaccurate numbers can go both ways. House values on Zillow or other sites are often too high, leading to disappointed sellers who dream of making an additional $10 thousand or more on their sale.
But these estimates can just as often be too low. And if you combine that with someone who tries to do a For-Sale-by-Owner, they will likely leave tens of thousands of dollars in someone else’s pocket.
A homeowner in the Portland, OR area discovered this recently. Her home’s Zestimate was around $450K. However, under expert realtor guidance, she listed it for $480K and accepted a full-price offer the day it went live. Had she tried to go it alone and trust in the Zestimate accuracy, she would have lost out on a lot of money.
So why are house values often so wrong on third-party websites? There are several problems with the way they generate their numbers, and they all come down to having lousy information as the starting point.
Algorithms are only as good as their data, and frequently, these sites have stale data. Poor input gives a poor output. Here are some of the typical troubles these estimates have.
Inaccurate Tax Assessments
Websites such as Redfin and Trulia rely heavily on public tax records for their numbers. This structure would be great if those records were always accurate. Unfortunately, they often are outdated.
There could be a domino effect of bad data if the tax assessor’s information has mistakes in it. When third-party sites access these faulty records, they include it in their estimates, creating more incorrect data.
Inaccurate Sale Prices
A website’s AVM utilizes the home’s sale price history as part of its algorithm. But just as with the tax assessment, if there is an error in recording a property’s sale price, that error will become part of the estimate.
And this inaccuracy not only impacts that home’s reported estimate, but it also affects the Zestimates of other houses in the area. One error has a significant ripple effect.
Inaccurate Property Details
Third-party home estimate tools utilize not only public records but also homeowner input. If someone mistakenly indicates that their house has three bedrooms instead of four, for example, the estimate will not be accurate.
No Accounting for Upgrades
Unless a tax assessment accounts for them, a website’s AVM won’t include the valuation of home upgrades. Many improvement projects don’t require permits to complete, so the assessors won’t know about them.
For example, if you have done a significant cosmetic update to your kitchen or bathrooms, this value increase won’t show up in Zestimates. This fact makes it crucial that you rely on an expert real estate agent when looking at your property’s value.
Luxury Home Values Can Be Highly Inaccurate
House values on Zillow and other sites are iffy for any property. But when it comes to luxury homes, they can be wildly off base. In extreme cases, homes have sold under a realtor’s expertise for almost double what the AVM indicated as a home’s value.
Simply a Best Guess
Zillow and other sites admit in the fine print that their estimates are starting points to figuring out a home’s value. In no way can these numbers indicate an accurate worth for any particular house.
And they do not take the place of a professional appraisal. Regardless of what an algorithm says, a lender’s appraisal will be the judge of value when it comes to extending a mortgage or not.
When you are ready to sell your home, it’s vital that you have an experienced and educated realtor on your team. When you work with an expert in your market, you get hyper-local data and insights as you set your asking price.
Real estate agents know how to value your home’s updates and upgrades. And they understand the area trends and patterns that inform their suggestions when it comes to setting a list price.
Portland Area Expertise
If you’re looking to sell an Oregon home in Portland, West Linn, Lake Oswego, or surrounding areas, we’re here to help. The Julia Monaghan Real Estate team is passionate about education and advocacy for our clients. Armed with accurate data, we work with you to set and receive an asking price that serves you.
And if you are ready to purchase a house, we are excited to represent you on such an important journey. Reach out and let’s connect!