Are you familiar with the Zestimate? Many times I hear a seller say “on Zillow it says my house is worth x amount” or a buyer customer will say “well… Zillow says that this house is only worth x dollars”.
The idea behind Zillow is great – a useful tool for tech savvy home buyers and sellers. So many home buyers are using the Internet to preview homes these days – a whopping 90% used the Internet as an information source for their home purchase!(1) The only problem is that in many areas the “Zestimate” is not very accurate. This can be misleading to buyers and sellers. Lately I have even heard a few lenders referring to Zillow as if this is an accurate read of the Orlando real estate market.
It seems that Zillow is pulling data and averaging similar homes based on tax rolls or MLS listing criteria. This is similar to the way an agent or appraiser would begin to value a home. However, many times the tax rolls have not been updated to show a home’s true features and/or size if it has been renovated. On top of that, there are many nuances in homes near the Downtown Orlando area that cannot be determined without physically walking into a property.
For example, location is a factor that Zillow can’t possibly take into consideration. For example, a home on a quiet street in Colonialtown North with 2 bedrooms, 1 bath, new kitchen and bath will sell for much more than a very similar home located on Virginia. In fact, it will likely sell for much more. Imagine a home that has been added onto so much that you walk through a bedroom to get to another bedroom. Do you think this home will sell for the same as a similar home without this weird feature? Definitely not.
Another problem is the existence of so many distressed properties. Distressed homes are those that have been foreclosed or are currently short sales. In a lot of circumstances, the banks will drop off their properties for much less than market value or the home is in disrepair and sold to an investor. These properties are thrown in just like the rest and if it is in the same area with similar features – it will be factored in to the value. An appraiser would actually drive by the home and view photos to determine if it is in fact a true comparable home. A similar size home with the same number of bedrooms and baths does not make a “comparable” property if it is not in similar condition.
But don’t take my word for it, look at the Zillow accuracy ratings for the Orlando area. Would you want a buyer determining the value of your home based on a 36.4% median error? What is the value in that?
(1) Source: 2009 National Association of REALTORS® Profile of Home Buyers and Sellers