August 2018 Blog

Why You May Want to Take “Zestimates” with a Grain of “Zalt”

As an experienced real estate professional, I long ago learned a very important lesson about pricing a home. While sellers tend to overvalue their homes based on things like sentimental attachment, over-estimating the value of improvements or not using “apples to apples” comparisons to price their homes, the real and simple truth is this: a house, any house – just like any product – is only worth what the market will bear….what someone will pay for it.

One of the challenges of working with buyers and sellers these days is helping prospective buyers and sellers interpret and properly use the information they find on websites like Zillow, Redfin and Trulia. Now, in the interests of being fair, open-minded and impartial, let me say that I appreciate the fact that these websites have educated buyers and sellers about real estate markets and the factors that go into pricing homes.

That being said, the uncomfortable truth about many of these websites is that estimates about a home’s value and possible resale amount are all too often exaggerated. These leaves the realtor and her clients with some interesting challenges.

“Well, this is the “Zestimate” on my house and this is the selling price I am going to ask!”

 

In a 2015 interview, news journalist Norah O’Donnell asked Zillow’s CEO Spencer Rascoff about the accuracy of Zestimates. After some hemming and hawing, his answer was, “They’re a good starting point.”

Zillow, in fact, states on its website that its nationwide “median error rate” is about 8 percent. While, on its face, that may seem like a low figure, think about it in real numbers: if a home is on the market for $800,000, an 8 percent disparity equals $64,000 – certainly no “chump change” for either the buyer or the seller.

What Zillow’s website disclaimer does not say is that the median error rate can vary wildly from one part of the country to another.

Other research has borne this out. For example, in places like San Francisco, LA or NYC, median error rates range from 12 percent all the way up to 25 percent.

Many savvy real estate agents have actually done their own analyses of the disparities between what Zillow et al say a home is worth and compared that number with what the homes actually sold for. In most instances, the final selling price was far lower.

Now, I’m not trying to be a “Debbie Downer” here and I don’t mean to single out Zillow as the sole culprit of disseminating sometimes overblown info. And, I do recognize the advantages of working with buyers and sellers who are more informed about their markets and about the buying and selling process.

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But I will agree with CEO Rascoff on one thing: please use these estimates as a “starting point” for further fruitful discussion with your local real estate professional about what the market will bear in your own neighborhood. I am very fond of a popular real estate saying about a house that has sat on the market for too long because it was not priced to sell from the onset. “A house is like a loaf of bread: the longer is sits on the shelf, that staler it gets!”


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