Zillow, Schmillow - Free Online Home Appraisals

Category: Finance

When buying or selling a home, it’s important to seek independent opinions of the property’s value. Historically, buyers and sellers relied on real estate agents, “the neighborhood professionals” who have years of experience with local markets. But today, online real estate price estimators such as Zillow are considered by many to be more objective and honest than the appraisals of realtors. But who is right? Read on to learn why computerized home valuations are not always on the mark...

Are Online Home Price Estimates Reliable?

The thinking is that a realtor has a conflict of interest. He or she wants to close a deal and earn a commission, and that generally means persuading a buyer to bid more and a seller to ask less. It’s just common sense that a disinterested party will come up with a fairer market valuation. But "disinterested" does not always mean "fully informed."

Zillow has become “the Google of real estate” by promoting that rationale. Founded in 2006, the company received 73 million online queries in December, 2015. The site allows users to enter an address or zip code to retrieve listings of homes that are on the market with asking prices. It also provides “Zestimates” of the market value of listed homes and surrounding homes that are not on the market. Key details are included, such as square footage, lot size, number of bedrooms and baths, photos, taxes, school district, etc.

Sellers and shoppers rely heavily on Zestimates, and that makes life difficult for realtors. Zestimates “are the bane of my existence,” said an anonymous realtor the industry blog ActiveRain. People tend to take Zestimates as gospel, and argue with the realtor’s valuation of a property. Such disputes are killing a lot of deals, say some realtors.

Online house value estimators

Zestimates “are a good starting point,” according to Zillow CEO Spencer Racoff. He admits to the LA Times that Zestimates have a nationwide “median error rate” of 8%. On a home worth $500,000, that’s a $40,000 disparity! If that’s the median error, then half of Zestimates are off by more and half are off by less.

The median Zestimate error rate gets much worse as we look at local markets. In Manhattan, it’s 19.9%. In San Francisco, it’s over 11% - an error of more than $110,000 on a $1 million home. In some rural California counties, Zestimates are off by as much as 26%. In Somerset County, MD, it’s an astounding 42%! Sounds like a “good starting point” for an unproductive negotiation, to me.

A Real Estate Distortion Field?

Apple is so good at marketing their products that some people have joked that they use a "reality distortion field" to persuade consumers that there is no alternative to their brand. In similar fashion, the popularity of Zillow may be creating a real estate distortion field.

Realtors all over the country have done their own studies comparing Zestimates to actual sale prices. One realtor found Zillow underestimated the final selling price up to 70% of the time, by as much as $70,000. In 25% of sales, the Zestimate was higher than the contract price. (So 5% of the time, Zillow got it right.) In another ZIP code, Zestimates were off 100% of the time, by as much as $190,000.

On the flip side, Zillow's home price estimates seem to reflect reality pretty well in my town. That could be because it's a very active real estate market, so there's a lot of current data (actual sales prices) on which to base estimates. If you want to estimate what a home is worth right now, you need to look at recent sales of comparable nearby homes. That is what realtors do every day.

Zillow does provide an interactive map which shows nearby homes that are sold, or listed for sale. But it's very difficult for a computer program to understand which of those homes are truly comparable to yours, or the one in which you are interested. Matching up homes with similar square footage, number of bedrooms, etc., may not take into account the fact that one home had a recent kitchen remodel, a new roof, or other important factors in determining the value. The moral is that Zillow estimates should be just one factor in determining the value of a home.

Zillow does let you login and claim your home, so you can update any information that's not correct. I did just that when preparing to sell my home last year. Zillow had the number of bedrooms and square footage wrong, so when I changed those numbers, the Zestimate jumped up accordingly. You can also list your home as "for sale by owner," upload photos, and set a price you think is fair, given current market conditions. I'm certain that helped me get a top dollar offer, in just two days, without needing a real estate agent.

Other Home Value Estimators

There are other online real estate price estimators, including Eppraisal, Trulia, Redfin, and the Chase Home Value Estimator. They all rely on data pulled from local government records, which are often outdated, incomplete, or inaccurate.

But they must use other factors as well, because if you query each one of them, you'll get four different estimates for any given property. The good news is that most of them allow you to login, claim your home, and update the details if they're not correct.

Have you checked the estimated value of your home using one or more of these tools? Your thoughts on this topic are welcome. Post your comment or question below...

 
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Most recent comments on "Zillow, Schmillow - Free Online Home Appraisals"

Posted by:

clyde
24 Mar 2017

yes Zillow will not let you change any info that is wrong did get to change a little brought the Zillow up 30% still not the worth as most can not change I want to know how to take mine off or force them to correct it to reflect the true worth


Posted by:

Darryl Malcolm
24 Mar 2017

As a realtor, I do view Zestimates as highly inaccurate. I understand that Zillow even misreported the sale price of their CEO's home. The National Association of Realtors has a utility called RPR which does the Zillow type gathering of information, but it is through a realtor and the realtor can make some adjustments when errors are detected or an unlike property is included in the comparables. No matter how good artificial intelligence ever gets, God help us if we eliminate human intuition, intellect and translation of data. Yes, some realtors will be in it to get the seller to list as low as possible or the buyer to pay as high as possible, but that is the minority. Most of us have the buyers' and sellers' best interests in mind and are there to truly find a meeting of the minds where all benefit. Not everything can be quantified by statistics - buying a home is still a human experience.


Posted by:

Kathleen Sumida
24 Mar 2017

Those "RE estimate" sites are totally useless for any properties that are in any way "unusual". I was trying to get an estimate for a 40 acre ranch (with a house) I had inherited-- all I could get were estimates based on the same size houses that were in a town about 40 miles away, none of which even had much of a yard.


Posted by:

artm
24 Mar 2017

If you want to know what your home is worth, ask a realtor. Often they will do that for no-charge in the hopes of getting your listing some day in the future. Others may charge a nominal fee, but you will get a valid estimate either way. (BTW, I'm not a realtor)


Posted by:

Reg
24 Mar 2017

A real estate agent or broker does not perform an appraisal. He/she performs a market analysis. If you want an appraisal you should contact a licensed appraiser. There are federal rules governing the education requirements for licensed appraisers and for the methodology for completing an appraisal. The online sites are best characterized as AVMs which perform automated valuation estimates. As you point out they are far from accurate as they are just computer programs that rely on algorithms that don't take enough factors into account and data that is often outdated, inaccurate or just plain wrong.


Posted by:

Press
24 Mar 2017

There should be a another property professional in this equation. This professional is an Appraiser. The mortgage institutions rely on the appraiser to set a "Market Value" on your property to protect their interests in a mortgage. The appraisers fee is not based on any market value, rather it is on a fee quote basis. In most areas this fee would be less than $500.00 for a single family home (sorry San Francisco).
Yes, sometimes the RE Agents listing price is optimistic, but it is always easier to drop a price than raise it and I am sure that one would not complain if the agent set a listed price above a "Zillow Price".


Posted by:

Ken Mitchell
24 Mar 2017

Zillow's estimated home values are based on past sales, but in a volatile market, values are always changing. The goal of a realtor is to get AHEAD of the market - which then CREATES the market. So when prices are going up, Zestimates will always be low. And when prices were falling - as in 2008/9 - Zestimates are unrealistically HIGH.


Posted by:

Rick Hamrick
24 Mar 2017

I appreciate the suggestion others made regarding appraisals. One important point: the appraisal will tend to lean in the direction the person paying for the appraisal wants it to go.

In my specific case, the owner of the house we wanted to buy paid for an appraisal. It came in about 10% above what we were willing to pay.

After negotiations, we bought the house for what we considered to be a fair price (and, 10% under the appraised value).

When we were going through the mortgage process, we were required to pay for a new appraisal. This time, the appraiser valued the house at just over our purchase price.

In other words, our appraisal was about 9% different than the one done by the seller. The difference, not surprisingly, was in the seller's favor when he paid, and at a lower price (in our favor) when we paid.

When I asked our attorney about this, she pointed out that both appraisals were legally valid. She also said it is common for seller-financed appraisals to be 5% or more above lender-financed appraisals.


Posted by:

Duane
24 Mar 2017

Zillow has no way of knowing when a basement is finished that doubles livable sq ft, adds bathrooms, bedrooms, etc., especially if the local building dept gives you a pass on permits.


Posted by:

Monte Crooks
24 Mar 2017

I knew We (the People) were in trouble the day a realtor responded to my terminology "Guesstimate" by saying, "that word is not spoken in the Real Estate industry!"

I have yet to see a change in various property value "guesstimates" in which I've been involved; so, I'm still using it!!


Posted by:

Daniel Wiener
24 Mar 2017

I'm curious to track the estimated value of my house, even though I have no intention of selling it. Also, we've made major additions to our home which don't show up in Zillow, and I see no reason to try to "correct" Zillow's information. So instead I use the appraisal on our home from when we refinanced five years ago (which I'll brag was at 3.25% fixed 30-years), and then use Zillow's percentage difference in all home prices in our zip code between then and now to apply to that appraisal value. That seems like a reasonable estimation method.


Posted by:

Paul S
24 Mar 2017

Just ran two residences through the services reviewed. R-1 ranged from $110K-$134K. R-2 ranged from $458K-$829K. In both cases I'd say Redfin provided the best estimates. Trulia would not provide estimates because the site rejected my email address. Their site Help provided a 404 Error - not inspiring much confidence. Another Trulia oddity -- the wrong picture was provided for R-2.


Posted by:

Granville Alley
24 Mar 2017

I would agree that Zillow is no more accurate than others, including Real Estate Agents, Brokers or Appraisers. My wife and I recently purchased a home which had a current Appraisal or $329,900, had been marked down 4 times to $299,900 and which we offered $219,000. We eventually came to an agreement at $245,000.

The Real Estate Agent had helped the sellers price the house at $329,900, the Appraiser (who was an FHA Certified Appraiser) had valued the home at $329,900 and Zillow had the house originally at $302,000 and after the owners reduced the listing price to $299,900 had it at $291,000.

When I looked at asking vs. selling prices in the area I found there was at least a 15% variation on the downside and in many cases a 25% variation down. The price we paid was Approximately $55,000 less than the latest asking price and $85,000 less than the original asking price or the Appraisal.

There were several factors that I considered when we made our offer.
1. We did not need financing to purchase the house.
2. We did not have an existing home to sell to buy the house so our offer was not contingent except for inspection, etc.
3. We could close quickly.
4. Many local sales failed due to financing failures.
5. Although many are optimistic about the direction of the economy and the real estate market in particular, many of the tax law changes under consideration include such items as the elimination or limitation on the mortgage deduction which will substantially depress real estate markets.
6. We have been looking for a real uptick in the real estate market for 8-10 years now and it has yet to really have occurred. Home financing remains a significant problem as a significant proportion of buyers have no ability to get a mortgage and those that have the qualifications find the process slow, cumbersome and difficult.
7. There is still an enormous overhang of homes that people have been putting on and taking off the market for years now and every time the news talks of rising prices, people stuck with houses that they cannot (or will not) sell at current depressed prices push these homes back on the market and supply and demand move back to a buyers market. This overhang of existing homes will continue to depress house prices for perhaps years unless fundamental changes in the mortgage markets occur or the economy really takes off.
8. Until wages start to rise substantially home prices will not really rise except in odd cases (such as the Washington D.C. area where government workers did not face the pain of the recession or in local markets where there are special circumstances or local shortages of inventory (i.e. Bay Area, Silicon Valley, Beach Front Communities with real limitations on construction, etc.).

All of these factors will continue to depress markets for the near term.


Posted by:

Granville Alley
24 Mar 2017

@Rick Hemrick,

You should note that the very fact you and seller had come to agreement at a price 10% below the seller's appraisal meant the new Appraisal had to come in at or near that price as the best evidence of value is the price agreed by a willing buyer and willing seller. Our Appraisal for purchase came in a couple of thousand dollars over our purchase price of $245,000 vs the recent $329,000 Appraisal ( a 27.25% reduction from $329,000 or looked at the other way 329,900 is 36.69% above the selling price). Appraisers have no more magic than anyone else and their process is very much desired results driven.

In a depressed market which in most of the country is still the case where existing homes can be bought for prices below replacement costs (in other words the costs to rebuild the home to the same quality level) appraisals are almost meaningless in reality.


Posted by:

Ed
25 Mar 2017

Where I live in Los Angeles the Zillow est. are very close to the flyers the real estate agents throw on every bodies porch showing the prices the houses in the area sold for.


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