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Truth About Zestimates & Online Evaluations

Zestimates and Online Home Evaluations

We get this everyday “Zillow says my home is worth $________.” Sometimes people think it’s good, sometimes they think it’s bad. The truth is online evaluators are handicaped in many ways. To find the true market value of your home, you need a Comparitive Market Analysis or an Appraisal – period!

But, why?

How they Estimate What Your Home is Worth

While no one but Zillow (and the valuation sites) knows exactly what’s in their algorithms for computing a homes’ value, we do know they use the following information:

  • Information from MLS’s
  • Public Tax Records
  • User Submitted Information
  • Maps
  • Location/Neighborhood information

While these are important factors in estimating a homes’ value, there is a lot more to getting an accurate estimate of value.

Zillow and the other sites caveat their estimators saying they should be used as a “…starting point.” Actually, Zestimates for homes that are currently on the market are usually better than those that haven’t sold in a long time. This is probably because Zillow can use the up to date MLS information to help with their estimate.

Still, there are things they don’t take into account…

Why are CMA’s More Accurate?

A REALTOR will use a CMA to estimate your homes’ value. These are typically more accurate because we know the areas and local markets we work, very well. Real Estate is a completely local industry. While we can watch and learn from national trends, they don’t always apply to our local markets.

We are in and out of homes in our areas daily and that adds to our local market knowledge. For value to be accurate, you also need to know the condition of a property and other properties in the area.

Additionally, we look at the local market’s Active, Pending and Sold listings. This gives us trends as well as facts. Markets are ever changing and staying on top of the current market is essential to valuation.

We also work with buyers everyday. We know what they look for, value and are willing to pay for homes in our local area. We know what amenities and improvements they want (and expect at different price points) in a home and, overall, what they will pay for homes in different physical conditions.

Zillow and other valuation sites rely on tax records to tell them about any improvements so the value can be adjusted. However, not all improvements are registered with the county. County tax records are also notoriously incorrect or out of date. This handicaps the online valuation system a lot!

There is absolutely no replacement for actual, local market knowledge. This is the main reason online valuations are normally “off.” No computer algorithm can substitute for seeing things first hand.

Appraisers have the Final Say

Mortgage Lenders do NOT use Zestimates, Realtor.com valuations or any other online home evaluation tool to find out what a home is worth. The ONLY way they do this is through an Appraisal.

If a home is financed, it will have an appraisal to ensure the purchase price is in line with the actual home value.

Appraisers use the same information REALTORS use for CMAs, which is why they are more likely to be in line with each other. The appraisal report will include:

  • Local Market Conditions – Seller’s Market, Buyer’s Market, Neutral Market, Multiple Offers, Low/High Days on Market, etc…
  • Comparable Home Sales within the last 90 to 365 days – this tells them what the current market will bear or supports in pricing through actual sold transactions
  • Condition of the Home – appraisers typically go inside the home to evaluate this
  • Cost to Build –  What it would cost to build a home that is comparable to the subject property

These along with other required information by regulatory agencies, help an appraiser determine value of a home.

Lenders will not lend the full agreed upon purchase price of the home to a buyer if the appraisal does not equal or exceed the appraised value. This is how they protect their investment. They need to be sure – at the time of the loan – that the property is worth the loan amount or more.

Bottom Line for Online Valuations

If you keep in mind any online valuation of your home is just a “starting point,” you will be better off. They simply cannot replace intimate knowledge of the local market.

Contacting The Real Estate Pros to do in depth research and a CMA is the best way to find out what your home is worth and they are FREE!!! You’ve got nothing to lose!