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Can You Rely on Zillow for an Estimate of Market Value?
Part of my job is to explain market value and how an appraiser will substantiate market value to a seller, none of which are remotely connected to the website Zillow. Most of the time I’m able to make sellers understand, but as a Sacramento real estate agent, I also get those who don’t care how long a home sits on the market (and loses its desirability with each passing day), and there’s not much I can do about those attitudes but go with the flow. After all, it’s not my home. It’s not my job to make that listing my home, even though I may care deeply about whether it sells.
One of my clients shared with me recently that his accountant told him Zillow is 10% underpriced with its Zestimates. I didn’t think anything of that statement — because it’s ridiculous — until I realized that there are people who actually believe it. Not anybody in my circle of real estate agents or appraisers or other real estate professionals, but the public thinks because Zillow notes an estimate on a website, it must be true. After all, they found it on the Internet.
The basis for that statement were two homes his accountant saw that had sold for 10% more. Therefore, my seller’s accountant must have automatically leaped to that conclusion, which doesn’t say much about his accounting skills now, does it? My own home is priced $150,000 more than its worth in Zillow. That’s certainly not 10% of its value. It’s widely known that Zillow estimates are all over the map and often there is no set correlation to value. That’s because it’s a computer-generated algorithm that isn’t even as reliable as something like Realist or Metrolist comparables, which still require a human touch because square footage isn’t enough. You can’t price a home on square footage alone just like you can’t live on cans of tuna fish.
Zillow is getting better but it’s just not there yet. It’s great for looking at maps and playing around but it doesn’t have all of the homes for sale much less an accurate value.
Zillow doesn’t know if that home sits on the edge of a cliff overlooking the ocean or if it’s nestled next door to a mobile home park. It doesn’t know if the floors are marble or dirt. It doesn’t know if planes fly overhead ten times a day. It doesn’t know if the guy next door fixes motorcycles in his front yard. It doesn’t know if the plumbing has been updated or if water trickles into the sink at the rate of two drops a minute. It doesn’t know if the home is close to a desirable school or a military base. It doesn’t know if the buyer will walk in the front door and fall in love or turn around and run. Quite frankly, Zillow doesn’t know crap.
Which is why a seller will always need a professional and experienced Sacramento real estate agent, and we’ll never go out of style.
What is the Fair Market Value of Homes?
Home sellers in Sacramento often ask me how much is my home worth when that’s not really what they want to know. They want to know how much will their home sell for, and that could be two very different numbers. On the other hand, they might want to know if they can do a short sale, in which case the answer is always, without fail: the price will be market value, based on comparable sales, providing the seller qualifies.
It’s not the sellers’ fault. Sacramento real estate can be a big confusing can o’ worms. I imagine sellers hear all kinds of crap from neighbors, coworkers, relatives and others whom, even though they might have actually sold a home or two, haven’t worked with an agent who works the way the one in front of you does.
People think it’s OK to hit up an agent for a sales price. Why do they think it? Because real estate agents have encouraged them to behave in that manner. Why else, we think, would anybody ever want to talk to us unless it’s to find out how much their home is worth — its market value? We’ll give them a free Comparative Market Analysis. Free, because it’s not worth anything.
Before I was licensed, I dismissed agents from the possibility of listing my home because they lowballed me on market value. At least that’s what I thought. Because I didn’t really understand how market value is determined. You can’t just give an agent your address and expect that person to name an accurate number. Maybe a range. Not a precise sales price.
I wouldn’t even give my next-door neighbor a sales price without completing an in-depth analysis of his features and studying the past 3 months of sales as they pertain to his home, and I live next door to him. I also sell hundreds of homes. I should know, right? Because I am a Sacramento real estate agent, I keep pretty close tabs on what my own home is worth, but I couldn’t give you an exact number on my house — even if you stuck burning toothpicks under my fingernails and sang horrible 1980’s songs out loud — without an analysis.
Agents who do might short change. I’m not one of those.
If Your Home in Land Park Doesn’t Immediately Sell
It’s pretty frustrating in a seller’s market for a seller to wonder why all the houses around his house are selling but his is not. Especially a gorgeous home in Land Park, listed by a Land Park agent. There are basically 3 reasons why a house doesn’t sell:
- location
- price
- condition
If the location is questionable or of concern to a buyer, then the price needs to be adjusted accordingly. It’s difficult to get the same price for a home like that as compared to a home in a highly desirable location, but sometimes you can.
The trick is to correctly position that home among the others offered for sale. A seller might want to think like a buyer before putting his home on the market. He should look for trends in the marketplace such as how long does it take each home to be exposed to the market before it sells? This is known as Days on Market. Any Land Park agent will know the approximate days on market when asked.
But more important, the seller should examine the competition, just like his Land Park agent will do. For example, if he were a buyer looking, say, in the $350,000 to $400,000 range for a home in Land Park, what else is available for sale? What can he buy for that price? How do those homes compare to the one the seller intends to put on the market? If his listing is the only available listing, he will get a lot of action, maybe even multiple offers, even if his home is not in the best location.
I’ve seen this happen over and over. Might have a home that sits on the market for a few weeks with no offers but generating a lot of showings. Getting showings tells this Land Park agent the buyer’s agent put the Land Park home on a tour for a reason. Was it the first home or the last home? Is the buyer’s agent using that home as the bad house nobody would ever buy? Agents often show a bad house to use as comparison. We might have no offers but one day three offers show up. If I were to check MLS, it would probably tell me there was nothing left to buy. Not in Land Park, nor Curtis Park nor East Sacramento, which are three areas a Land Park buyer might look if she wants to buy in Land Park.
Sometimes, your number just comes up. But wouldn’t it be easier to just reduce the price in the first place?
If you’d like to chat with an experienced agent who lives and works in Land Park, call Elizabeth Weintraub, at Lyon RE, 916.233.6759.
Bank Pricing for Short Sales and Foreclosures
Some real estate agents wrongly believe that the price doesn’t matter in a short sale. Buyers might have adopted that attitude from their agents or perhaps they just plucked it out of thin air, but I doubt it. They tend to confuse short sales with foreclosures and bank-owned homes. My favorite is when I hear that all banks are desperate. Maybe it’s the get-rich-quick-schemes they read about that makes them so eager to believe something so wrong.
You think those guys bidding on the courthouse steps at trustee’s auctions are picking up tons of property way under market value? Market value means what the market will bear — the price a seller is willing to sell for and a buyer is willing to pay, which is generally substantiated by comparable sales. Flippers get a little bit of a discount for buying the home without guarantees and sometimes without inspections, because there is an inherent risk. They feel it’s a calculated risk. Some homes they flip for higher profit margins than others. Some require less work. But it’s not as easy as buying a home one day and turning around the next to make $100K on the deal. They generally must improve the home.
Your best deals are probably made behind closed doors at the bank. These are the bank-owned homes that the banks bundle in a bulk package and sell the entire package at one lump sum to investors. But they’re not going to make the same deal on one little house just for you and just because you asked. Not gonna happen.
Moreover, it’s not gonna happen on a short sale because the bank doesn’t own the home. The bank is simply considering allowing the home to sell at market value because they would get the same amount if it went to foreclosure. There is not a lot of incentive for a bank to authorize a short sale if the price isn’t right.
Sellers know this. Especially Sacramento short sale sellers who work with Elizabeth Weintraub, because I tell them. Every Sacramento short sale agent knows this. The bank wants market value. End of story. There is no point in submitting a lowball offer, working through 2 to 3 months of paperwork submissions only to be denied at the end because the buyer won’t move on price. Just say no to start with and get on with the short sale.
Some buyer’s agents get upset and accuse me of not working for the buyer. That’s right. When I am the listing agent, I don’t work for the buyer. I work for the seller.
Is Your Sacramento Home Listing Under Priced?
You’ve got to love this crazy seller’s market in Sacramento right now, even if you’re not a Sacramento real estate agent who sells a lot of listings like me. It challenges an agent to be her best each and every single day. Sometimes, being your best involves biting your tongue a little bit, and other times it means providing lengthy explanations to your clients so they thoroughly understand the marketplace. In my experience, an informed seller is a happy seller.
A buyer’s agent in West Sacramento told one of my sellers yesterday that her buyer would have paid almost $150,000 over list price for her home that went into escrow last week. The agent claimed the home was deliberately under priced. First, the home was in pending status, so why the agent was over there talking to the seller is beyond me. Second, it violates the Code of Ethics to discuss pricing with a seller when that seller is represented by another agent. But those are minor irritations when looking at the big picture. The big picture is that statement is a big, fat lie. Oh, man, no wonder people are confused.
This seller’s home would not have sold for more than it sold. It was not under priced. Not in a seller’s market. It’s literally impossible to sell an under-priced home in a seller’s market for less than market value. That’s because no matter how much a seller wants and asks to get, the market will dictate. Buyers are not stupid. OK, maybe some of them are a little undereducated about comparable sales and market movement, but buyers will pay about what a home is worth. Especially when facing a multiple-offer situation.
If a home was worth a hundred thousand dollars more, don’t you think a buyer somewhere, anywhere, would have offered a whole lot more for that home? Yes, they would, because that’s how multiple offers work. When buyers discover a seller has received 5, 10, or 20 offers, buyers tend to put their best offer forward. Buyers who can’t think of any other way to make their offer more attractive to a seller will tend to offer a higher sales price.
Aside from of all that, homes need to appraise at the purchase price, what an appraiser calls “at value,” if the buyer is obtaining financing. It’s pretty darn difficult to pull an appraisal out of thin air these days. A home is worth the price at which others around it of similar square footage sell. There is no magical fairy about to tap her wand and dump hundreds of thousands of dollars on a seller’s doorstep just because a buyer’s agent wishes it.
