When "CBS This Morning" co-host Norah O'Donnell asked the chief executive of Zillow recently about the accuracy of the website's automated property value estimates — known as Zestimates — she touched on one of the most sensitive perception gaps in American real estate...
Picture this…There’s an inexperienced real estate agent in your town.
- He hasn’t sold any homes yet.
- He wants to drum up some business.
- So, he climbs up onto your roof and paints what he estimates to be the value of your home.
- He feels like this could be a win-win:
- YOU get to know the value of your house, so he was helpful to you, without even having to meet with him…
- … and HE gets to show you how that he knows his stuff. Hopefully you’ll turn to him for help once you want to sell your home.
- But you’re kind of ticked off, aren’t you?
- First off, this guy painted on your roof. That’s just vandalism.
- Beyond that, he wasn’t even close to accurate! The value he painted up there is tens of thousands of dollars off.
Back to the question posed by O'Donnell: Are Zestimates accurate? And if they're off the mark, how far off? Zillow CEO Spencer Rascoff answered that they're "a good starting point" but that nationwide Zestimates have a "median error rate" of about 8%.
Whoa. That sounds high. On a $500,000 house, that would be a $40,000 disparity — a lot of money on the table — and could create problems. But here's something Rascoff was not asked about: Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. Though it's not prominently featured on the website, at the bottom of Zillow's home page in small type is the word "Zestimates." This section provides helpful background information along with valuation error rates by state and county — some of which are stunners.
From California to Seattle, Phoenix and beyond some local brokers point to Zillow being off by as much as 26%!
He didn’t even see inside your home
You notice he did the same thing to all the other houses in the area.
He seems off on the value of all of them.
It’s still kind of intriguing, thought, because you’re like, “Hmm, I always felt like Bill’s place was worth less than mine. Looks like I was right. But there’s no way Gary’s house is worth more than mine, that agent is craaaazy. Unless maybe Gary did some major remodeling inside…”
But how would the agent know? He never even went inside your neighbor’s house. Or your house. Or anyone else’s house.
He just eyeballed everyone’s house from outside, and took a quick peek at some data available to the public. Then slapped his estimate up on your roof for everyone to see.
His estimates are all over the place. Some high. Some low. Once in a while he seems to be somewhat in the ballpark.
His “value” affects your actual value
Beside the fact that this guy vandalized your roof, now you have people sizing up the value of your home based upon a number he came up with, without even seeing inside your home.
It was careless and thoughtless.
He lacked respect for your privacy, your equity, and ultimately your wealth. The value of your home can now be viewed by anyone, for whatever reason they feel.
It would be even worse if you were in the middle of trying to sell your home, and now you have buyers pulling up, seeing your painted roof, and considering his estimate when (and if) they make an offer.
Can you imagine if a real estate agent actually did this?!
You’d probably want to report him to the police, his real estate broker, the real estate commission… and all of your friends, family and neighbors.
You’d want everyone to know not to trust this guy, or give him any business.
Online valuation sites are basically doing this to you!
You’ve probably seen or heard about websites where you can look up the value of your house (or anyone else’s house) for free.
It seems great because there’s no need to even talk to a real estate agent. Just pop in the address, and voila, you get to see the value of the home.
You might figure that it’s super accurate, since they use fancy algorithms and stuff.
However, these online real estate valuation sites are all basically painting a number on your roof, without ever having gone inside, and without ever having sold a house. And they’re definitely not experts in your local market.
Unfortunately, there isn’t much you can do about it.
They’re using public data to come up with their estimates. They didn’t steal anything. They didn’t actually paint on your roof (they just hover a value over it digitally).
Plus, who would you even report them to anyway?!
Start valuing real estate agents’ values
The thing is, these sites exist because people tend to like them, and look at them. They wouldn’t exist if people didn’t continue to click on them. But people do.
They certainly are convenient, and entertaining, even if they are not accurate.
Many people just don’t want to deal with real estate agents, until and unless they have to.
But that’s actually what you should be doing if you want an accurate value of your home.
Great real estate agents take a lot of time and pride in estimating the value of a home. This is not something you can do remotely, or just driven by public data and algorithms.
In order to be accurate, even a local real estate agent needs to see inside of your home.
So, instead of encouraging these online valuation sites to exist, by visiting their sites and clicking around…
…click on a local real estate agent’s site, and invite him or her in to take a look at your house, and come up with an accurate value.
Don’t rely on an online valuation.
And, whenever possible, spread the word about the inaccuracy of these online valuations because they can affect the perceived value of your home… and beyond. And they will exist as long as people continue to pay them any attention.
Pay attention to real estate agents instead.
- As a layperson, you don't know what you don't know when it comes to handling the single largest transaction you'll likely make in your life.
- A real estate agent serves as a ninja negotiator to achieve the best price and terms that the market will bear while protecting your interests.
- Knowledge is not power - A little knowledge can be a dangerous thing when it comes to real estate. At the click of a mouse or a tap on your phone, you can get an instant valuation of your property. Is that value realistic? On which properties is it based? What did those properties have that yours does or does not? What were the dates and details of those sales?
That valuation could be significantly more or less than what your property is actually worth. Just like using the internet to self-diagnose a medical issue is not the best idea, the same applies to real estate.
Trusted advice and an available point person are a seller’s best friend!
A good real estate agent is your trusted adviser every step of the way, and unlike your attorney or accountant, you won’t get charged for every phone call or email.
Who else can you unload your qualms, fears and worries upon regarding the buying and selling process? When your peanut gallery of friends, family and co-workers are giving you confusing advice, who can you trust for objective information to make the best possible decision?
Don’t go into the buying and selling process blind. Let a real estate professional be your guide so that you can celebrate this incredible milestone without worry, knowing that the heavy lifting and problem-solving was done for you.
The Cascade Team Real Estate is a company like no other because of the marketing, service and home seller savings we provide. We understand that in today’s real estate & home selling environment, we need to provide a high level of real estate service and wide spread marketing of the home for sale, utilize technology to keep our home seller clients in the communication loop and provide added value to both buyers and home sellers in the real estate transaction. The effective use of technology tools allows our local Seattle & San Diego real estate agents to focus more of their time on servicing our clients and finding buyers for your home, all the while providing the most comprehensive real estate marketing program available. In the end, you get the perfect combination of online real estate tools and personal service in the home selling process.