Does Zillow Really Know How Much Your Home is Worth?
Are automated real estate valuation systems like Zillow accurate?
The answer isn't so simple. Real estate websites, including mine, use proprietary algorithms to make an educated guess about your home's value based on a large number of variables. According to Investopedia, Zillow can be off by as much as 10% when estimating your home's value. Based on a $400k home, that would be a $40,000 error…wow!
How do they do it?
Real estate is all about location, right? Well, it's also about the comps! Within a reasonable radius around the subject property, the computer will pull comparable properties that have similar attributes (location, size, does it have a pool, etc.), determine an average price per square foot, then multiply by the number of square feet in the subject property. This is a very simplified explanation but this is essentially the process. More information is available here.
Why is Zillow/Redfin wrong in certain instances?
Because their computer can't see your house! No two real estate transactions are the same and, generally speaking, neither are any two homes. Despite having identical floor plans, two houses located across the street from each other, and appearing very similar on the outside, can be valued at tens of thousands of dollars apart. One home may have been renovated with beautiful upgrades such as granite counters, hardwood floors, tile showers, and modern energy-efficient appliances and fixtures while the other house hasn't been improved in the 30 years since it was built. We don't know until we go physically look at the subject property to determine its condition and compare it to the other homes in the neighborhood. Zillow basically agrees, read here for more.
But aren't computers smarter than people?
Computers are great for some jobs but when it comes to evaluating home values, a qualified real estate professional wins almost every time. A realtor can examine the surrounding area and take into consideration important factors that go beyond numbers and averages. For example, homes on the edge of the neighborhood that back up to busy and noisy roads will be valued less than homes located in the quieter interior area of the neighborhood. What if the comparable properties sold in the last six months are all in terrible shape and the subject property is gorgeous? These are just a couple scenarios to consider but there are many more, all of which a competent real estate agent can keep in mind when evaluating the data.
Who should I contact for a "comparative market analysis" and value of my home?
Start with an experienced realtor who you trust. If you don't know a real estate agent, you can ask friends for referrals and ask them to share their experience from when they bought or sold a home. There is an option to request information through Zillow but they will simply forward your info to a random agent who pays them for doing so, as Zillow doesn't have their own agents and they make their money by selling client leads (which is you) to real estate professionals. My recommendation is to ask around and do whatever you think works best for you and your situation.
Are companies like Zillow and Redfin bad?
Nope! They can be a great resource but you should know their limitations, strengths, and weaknesses when utilizing their services, plus they all get their listing info from the multiple listing system (MLS) just like your realtor does.
For those of you who like to get your info directly from the source:
Your agent can actually set you up with a portal directly into the MLS where you can keep tabs on your neighborhood by running your own searches and subscribing to immediate notifications when new properties come on the market. Super cool! Sometimes the big websites will let a "sold" property slip through the cracks and it will show up as if it's still on the market, which can lead to frustration and keep you from using it as a comp.
Let me know if you have any questions, I'm here to help! Contact me for a free consultation.