How many times have I heard some version of that statement? Too many to count. I am often asked by both sellers and buyers about the "zestimate" on the public real estate website Zillow. I think it's a good idea to try to demystify what goes into the Zillow zestimate - what a catchy marketing name - whoever came up with surely got a big fat raise! If you read the fine print on the Zillow website, even Zillow tells you that you should not rely on the zestimate as an actual appraised value of any property - at least that's what they say in so many words basically. The zestimate is the product of an algorithym derived from several real estate data sources.
The online real estate estimates of property value are just that, estimates. The only way to find out what your home may be worth today is to speak with an active real estate professional in your area which can prepare what is typically referred to as a "CMA" or comparable market analysis of recently sold properties in your area.
I see comments on the public websites like Zillow and Trulia where it appears that homeowners get really upset about their zestimate or the square footage or number of bedrooms listed incorrectly on these websites when it comes to their home. Let it be known to all that nobody is going to rely on any website to determine the fair market value of your home. There have been just a couple of times when the online estimate of value is about the same as the CMA that I prepare but it's rare.
Here are a few tips for homeowners and potential buyers when it comes to property valuation:
- you cannot rely on any "computer generated" value for real property because there is no way to define the exact basis of that valuation.
- if you are buying a home your real estate professional will do the research real time and help you to determine the fair market value range of a property so that you can make a reasonable offer
- if you are selling a home, your real estate professional will do the research real time and help you in determining the fair market value range of your property at that time. If your home is unique, on acreage, not in a subdivision, anything that makes it a much more subjective process for the appraisers, your real estate professional will likely recommend that you hire an appraiser in the area to do a pre-list appraisal. I do that often because I would rather be certain that the range of value that I come up with is a reasonable expectation for myself and my sellers. It's tough to prepare for and keep a home ready for showing. If the likely sales price range is way off of the sellers expectation better to find out BEFORE listing the property.
- Appraisers prepare their reports based on guidelines that are published by Fannie Mae typically. This is because the lender's underwriter almost always requires that these guidelines be followed so that the loan that is being underwritten will qualify to be sold and/o the lender protected in case of default. However, there are portions of the property evaluation that are subjective. Adjustments for example. A local appraisal expert will know how much of an adjustment should be made for a particular area with regard to a different school, age of property, square footage, etc. A appraiser who primarily works outside the area of the subject property could make totally different or inappropriate adjustments.
- Your real estate professional can refer you to an appraisal in the area for the pre-list appraisal. I am often contacted by local appraisers asking about my recent sales in an area, i.e., what was the level or quality of finish in the basement? Was it a build out comparable to the main living areas above grade? Appraisers can't go into closed sales/occupied properties in order to preview them for comparable features so they will often contact one of the agents involved in the sale to help them better define the property condition as it compares to the property being appraised. That contact helps me understand which appraisers are doing most of the business in my area so that I can refer my clients to them if a pre-list appraisal is appropriate or suggested.
- When your home is listed the listing service typically wants to see the same square footage listed as in the public record. If you know it is inaccurate, and have a recent appraisal with the accurate square footage listed, we can provide the listing service or broker with a copy of that record and use the accurate SF for the listing.
- The value or likely sales price of your home should be determined by the most recent and closest comparable properties. An appraiser would not skip over a comparable property low sales price in your neighborhood in order to use a higher sale in a neighborhood down the road.
- Unfortunately short sales and foreclosures do affect your value on par with regular resales. That could change in the future but in recent years those sales were predominant and viewed as equal indicators of market value because they were market makers, i.e., changing the market as it relates to true property values. In years past, before the big crash in real estate, an appraiser could overlook a foreclosure or bank owned sale if there were other regular sales available for valuation purposes. Hopefully we will get back to that again one day but for now, it's the same yard stick for everyone's property - all market sales are considered if comparable. That doesn't mean that adjustments won't often be used for distressed sales.
- Sales are used as comparable going back for a period of one year but the most recent sales are more appropriate for appraisal purposes generally.
If you are selling in the near future, speak to a successful real estate professional in your area and don't be too concerned about what you read online when it comes to, well, just about anything really, but in particular, real estate values.
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