With HVCC in effect for Fannie and Freddie loans, be careful when choosing a tool to establish property values.

By
Mortgage and Lending with Loan Protector Insurance Services

The ability to determine a property's value in structuring a real estate transaction has always been important. In today's market, it's more important than ever. Zillow.com, Trulia.com and other online resources are helpful, but make sure you're using multiple data sets to establish the preliminary figures. I was reminded of this when speaking with Marney Kirk, a Keller Williams Realtor who I recently met. With her permission, I am reblogging her latest encounter with Zillow.

 

Misleading Towson Zillow Zestimates Explained Further

May 21, 2009 by Marney Kirk  
Filed under Baltimore, Blog, Buying Tips, Featured, Selling Tips

As I wrote March 2, Towson Zillow Zestimates in general, are statistically off by a large amount.

Last week I had a client call me because his HELOC was reduced by a large amount right in the middle of construction to improve his home. He could not understand how the bank could make the determination that his Towson house value had dropped over $200,000 in the past 18 months since he opened his HELOC.

Upon speaking to the bank, the representative pulls up Zillow, and proceeds to tell him this is how they discovered the value change.

"Is this true? Has my value really dropped by THIS much? I knew we were in a depressed market, but did not think it was THIS bad," he asked me.

Based on a true market analysis, his value has really only dropped by $25-50,000. So how is Zillow off this much?

Enter the powers of social media!

I was able to find both the COO & the Director of Community Relations for Zillow on Twitter.

I contacted COO Spencer Rascoff and he tweeted back:

"Lenders shouldn't rely on Zestimates. Use an appraisal." "We have "a Zestimate is not an appraisal" language all over the site. http://twurl.nl/7lj6mc "

He then emailed me directly because he wanted to get to the bottom as to why they are so far off.

Director of Community Relations David Gibbons tweeted:

 "...it may not change outcome by he {sic} can't reduce heloc based on Zestimate alone." "Lenders are supposed to use commercially licensed AVMs & appraisals, not Zestimates!"

While they are both correct, and I agree with them wholeheartedly, lenders ARE using their site, and if the site's purpose is to provide real estate information, then the site should be more accurate.

Through emails and more discussion, I was able to find out more about how the Zestimate values are determined.

David direct messaged me that it: "looks like your purchase price and taxes have the biggest impact on your Zestimate..."

I asked what that had to do with a current value of a home, because there is no correlation whatsoever in the real estate market from what you paid for it and what it is worth now.

His answer: "homes only sell on average once every seven years so when figuring out what a home is worth its last price is important - though 2002 is...we count past sales in less and less over time ... a sale last year would have much greater impact."

NO WONDER the values are off so dramatically. And if Zestimates continue to be calculated in this respect, then we should be looking for values to be tremendously off in 2013-2014 in the other direction. So my client can be assured that in 3 years his Zestimate should be approximately $200,000 OVER true value!

Please be aware that the Zillow Zestimates, at least in the Towson market area, may have no relationship to the true value of any home.

This reiterates the point that REAL ESTATE IS LOCAL and, as COO Rascoff wrote: "a Zestimate is not a replacement for a real estate agent. Far from it."

 

Ultimately, the figures that we use to structure a transaction will be provided by a full appraisal from a licensed appraiser who knows the local market. Just be cautious when using online information and the homeowner's perceived value in putting your deal together. In this market, more information and data points are more important than ever.

Comments (5)

Chip Jefferson
Gibbs Realty and Auction Company - Columbia, SC

The zestimates aren't really never that close. I do think I would have to go to my bank and demand some satisfaction. Crazy!

May 21, 2009 11:13 PM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

The Zestimates may not be an appraisal, but the mere fact that such estimates are published give the consumer the impression that an authority says this is the value. 

They don't have to say this is an appraisal.  They merely have to publish an estimated value and the consumers believes it to be what it purports to be.

I'm not shocked that a bank would be so unprofessional to use a resource such as Zillow to estimate value. 

Banks have been discredited in just about everything they try to do related to real estate.

 

May 21, 2009 11:21 PM
Fernando Herboso - Associate Broker MD, & VA
Maxus Realty Group of Samson Properties - Clarksburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

I see lenders use it all the time to determine if a loan can be refi. . .it is just another tool. . 

May 21, 2009 11:25 PM
Harry F. D'Elia III
RentVest - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

We have a tool in our MLS called tax database. I simply do comparables for the last 90 days. This gives me a pretty conservative estimate on the value of the house. Try it

May 22, 2009 12:00 AM
Cheryl Johnson
Highland Park, CA

Greg Swann made this point a long time ago in a different context, but I still think it is good:

"If you can understand the difference between going online to WebMD and making a appointment with a medical doctor, you should be able to understand the difference between using Zillow and hiring an appraiser."  :-)

May 22, 2009 12:01 AM