Many consumers and real estate junkies are turning to the website Zillow and their proprietary home value estimate feature Zestimate to arm themselves with real estate market knowledge. Many Realtors face clients with a Zillow listing firmly clasped in their hand as they meet to discuss a possible transaction. So how does Zillow get their real estate information? How do they come up with the Zestimate? Understanding how Zillow works and their business plan can shed a new light on the use of Zillow in the home value process.
One hundred million homes nationwide have a Zestimate on the Zillow website. Zillow is a slick, well presented website that has brought Real Estate listing information to the consumer. The Zestimate is a feature of the website that gives an estimate of the value of a property. This information is used by some home owners to track the value of their home, and can impact decisions about selling. It is important to know that Zillow never claimed to provide this information as a substitute for a professional appraisal, and is now defending itself in a class action lawsuit in Illinois that the Zestimate is being viewed as an appraisal by the public. Zillow has always stated that the information provided is a “starting point” for determining value. Don’t forget that Zestimate rhymes with estimate.
So how does Zillow calculate the Zestimate? Zillow uses an algorithm that takes public record information to crunch the numbers. Public records include a recent sale of the subject property, tax records, permits pulled to renovate the property (change in square footage or number of rooms) and sales of other similar properties. The algorithm is not perfect, is being updated constantly. Zillow is offering a $1 million bonus to anyone who can offer the best solution to make it better.
Zestimate quick highlights:
- They do not use foreclosure properties to estimate value. Appraisers do the same as they do not represent market value.
- The more transactions on a property, the more accurate the Zestimate.
- The algorithm is a neutral unbiased model, so homeowner comments and updates are not always taken into consideration.
- Zestimates cannot be used to get a loan.
- The algorithm does not always understand nuances of a neighborhood or area. The size of the data area pulled to find the value of a home can be as large as an entire county, or intermingle newer/older construction phases in a subdivision.
- MLS does not syndicate information to non-members such as Zillow. Zillow uses a third party such as ListHub to get the listing information you see on their website. That can create a time lag with accuracy of the status of a listed property.
- Tax appraisal information used in the Zestimate algorithm may not be accurate, and can be off by a significant amount.
- Zillow accuracy is within 5% of the actual market sale value 54.4% of the time. They are within 10% of value 74.5% of the time, and within 20% of the value 86.9% of the time. The Phoenix market has better accuracy within 5% of value 67.3% of the time.
- More information is available on the Zillow website.
The top take-away is this: Zillow’s business plan is to sell ads on their website. A Realtor’s business plan is to sell Real Estate. There is no substitute for the “boots on the ground” work of a licensed Realtor. To find the market value of your property, contact a Realtor to have a comparative market analysis run on your home or hire a professional appraiser. If you want to know the latest up-to-date information on a listing, contact a local Realtor who subscribes to MLS. Realtors use MLS for a reason.
During the process of purchasing a home the residential purchase contract allows for the buyer to have a period after the terms of the contract has been accepted to go into the house to have the home inspected. In Arizona, it is normally 10 days, although it may be extended as an additional term of the contract. This is the only time that the buyer may “peek under the tent flap” and take a free look at the property. It is now that the buyer will use these inspections to determine if the condition and value of the property meet expectations set forth in the contract.
This inspection period may pass quickly, so management of the time and order of inspections is imperative. The first person to inspect should be a good reliable home inspector licensed to do this type of work. They will do a complete overview inspection of plumbing, electrical, structural, drainage, roof condition, mechanical and appliances. If qualified they can also inspect for termites and inspect pools and spas. One thing to be aware of: they cannot pull apart, cut open or dig down to inspect the home. For example: if there is evidence of a possible leak in a wall they are not allowed to cut open the wall to make sure. In addition to the general inspector, a termite inspector and a roof inspector need to follow up, or any additional inspections to follow up anything unusual found in the general inspection. These inspections are to confirm the condition of the property.
If the buyer is purchasing the home with cash, they may want an appraisal done to verify the price/value of the property. The lender for the buyer using financing will order an appraisal, but this appraisal is part of the loan process and doesn’t fall in the inspection timeline. The inspection period is the time for a cash buyer to go forward with an appraisal if needed to confirm the value of the property.
Once this information has been gathered by the buyer, the buyer decides which items found in the inspection are troubling enough to be brought to the seller’s attention, and to request the seller repair those items as a condition of going forward with the contract. This can be a delicate negotiation and both Realtors need to balance being an advocate for their clients and a mediator as well. Buyers need to realize that when they viewed the property before putting in their offer they likely built into the offer the age and general condition of the property, and the seller may have taken the condition and age into consideration when they priced the property in the first place. Sellers need to realize that an unknown expensive hidden repair (such as the condition of an air conditioner on the roof) now brought to their attention needs to be addressed. I have counseled buyer clients that a low-ball offer accepted by a seller will have little tolerance for repairs. On the other hand, a buyer’s offer close to asking will produce a buyer expecting repairs to bring the home value up to the offer price.
There are many different tools and considerations in setting the price of a home to sell. It is a fact that the seller or a real estate agent eager to obtain a listing may believe they get to set the price of a home for sale based on their needs. The truth is that the buyer gets to set the price. Anything for sale will only sell for what a buyer will pay, a seller will accept, and what a bank will loan.
To set the market price for a property agents will gather information about comparable properties in the neighborhood, evaluate the condition of the property, and consider the market conditions (supply and demand). When the lender sends an appraiser out to appraise the property, they do the same thing. Price is what you pay for a property.
How does the price impact the marketing? How does marketing a property impact the sale? Marketing needs to do two things. First, drive traffic to the property. Second, showcase the features that add value to a buyer. Once the buyer gets into the home to view the property, price and value take over. This is when the house “sells itself” or fails to deliver market value and sends the buyer to another property.
But what about value? What is the difference between value and price? If price is what you pay, value is what you get. Value is based on the buyer’s opinion of the functionality of the property. This is where the seller and the buyer may drift off the same page. What the seller values, the buyer may not. An example is a seller putting a new roof on the property last year. He thinks this has added value, while the buyer may view having a good roof as expected maintenance, and sees no additional value. The size of the lot can be another example of the seller finding value and the buyer maybe not so much. An appraiser will give $1 a square foot in value for a bigger lot, yet the buyer may be more interested in the views, location or how the home sits on the lot, not the additional square feet.
In a sellers market, when supply is low and demand is high prices will rise and value will contribute to that rise. When the buyer is paying a higher price, they will be willing to pay for value and expect it! In a buyer’s market, where supply is high and demand low, prices will decrease. Getting a great price trumps value for the buyer in this case.
So your house is going on the market. What can you do to make your home “pop”, and move to the top of buyer’s wish lists? There are lots of good ideas to help make your house attractive: Continue reading
Selling your home may not be as easy as you would like! When weeks turn into months and months turn into….perish the thought. The home seller needs to pull out all the stops to get that house sold. Some sellers will even turn to home selling superstitions. It can’t hurt, can it?
Superstition is defined as “a credulous belief or notion, not based on reason or knowledge”. But that won’t stop the motivated seller. While sitting in bed awake at night staring at the ceiling, it is easy to second guess what could have gone wrong when you moved in. Did you move into the house on a Friday, Saturday or on a rainy day? Did you bring the broom from the old house into the new house? Did you put your shoes on a table at some point in the years you lived here? How can you turn around the bad karma and get your house sold?
Perhaps you can undo the bad luck by using the popular superstition of burying a Saint Joesph Statue in the front yard, facing the street, upside down. That should do it, right? Or someone told you if you see a pure white horse, your house would sell. But in England and Germany, if you dream of a white horse it is a death omen. Death.
Maybe time to bust out a little Feng Shui. Flowering plants along your walkway is said to boost wealth. And they look so nice for the curb appeal. Now you’re onto something! This actually makes sense. In the Chinese culture the number 8 is considered to be lucky. You may consider putting the number 8 somewhere in the price. But…the number 4 is unlucky. What if your house is priced in the $400,000s? Or your house number is 1444! Now what can you do?
Probably best to stick to the good old common sense formula. A clean, well-kept home in a desirable location priced to sell will move to the head of the class! My next blog we will lay out some little tricks to help sell that house, and the two different “comps” in selling Real Estate.
Informal dining outdoors doesn’t have to be uncomfortable
Back patio at sunset
Staging your home for sale? In the Verdes our outdoor space needs to be staged as well. We are fortunate to have comfortable low humidity and bug free evenings, so outdoor living areas are a vital part of your property. Buyers moving here want to see themselves not only in your house, but on your back patio as well!
You don’t have to have a knockout view or a pool to have an inviting outdoor space: Continue reading