I received an email from a home buyer client of ours recently, and I thought it would make for a great blog post, because he asked a question we field often. So often, in fact, you may have asked yourself the same question once before, too.
Our client and his wife are in the midst of a contract negotiation with Fannie Mae, and asked me this question below:
“Joshua, how are you? I’ve been doing some research and maybe you can help me. Zillow.com has the house valued at 139k. It seems that the offer we made of 139,500 was pretty close. Any thoughts on this?”
Before I go any further, it may help you to know the home our clients are hoping to purchase and move into is priced at $153,500. To help them come to a decision about the value of the property, I prepared for them what we call a Competitive Market Analysis, which showed an average home sale price in the subdivision over the last six months of $150,250. And, since we all agreed this home was in the best condition of any other home we had seen together, Fannie Mae probably felt they had priced the home correctly.
Now, here is how I responded to our concerned client:
Zillow’s Zestimates® are one way of a gauging a home’s value, but they are rarely as accurate as a Market Analysis prepared by a licensed REALTOR®. Here’s why. In Zillow’s own words, “a Zestimate home valuation is Zillow’s estimated market value. It is not an appraisal. Use it as a starting point to determine a home’s value.” To illustrate this point, Zillow even tracks the accuracy of their Zestimates by comparing the final sales prices of homes to the Zestimates given on or before the sale date. In Phoenix, only 33.3% of Zestimates came in within 5% of the final sales price, while the majority (78%) of Zestimates came in within 20% of their homes’ final sales prices. Click here for the full report.
Using this success rate, the final sales price could fall anywhere between $111,200 and $166,800, and Zillow could still say their Zestimate came within 20% of it! But that’s a $55,000 swing! In practice, “within 20%” is far too dramatic of a range to be considered reliable.
Can you imagine if you were flying to Phoenix today and wanted to know what to pack in your suitcase, so I told you the high temperature was going to be somewhere between 56 and 84 degrees? That kind of advice is virtually useless. There’s too much variability in it. You’d have to pack everything from sweaters to bathing suits!
Getting back to the point, we believe a more accurate way to gauge a home’s value is to look at a Competitive Market Analysis, and assess how the homes listed on it compare to the home you’d like to buy. A REALTOR® can help you do this by assigning values to the different amenities of each property: fireplaces, private pools, 3 car garages, etc.
Nevertheless, we represent you and your interests, and are happy to submit whatever offer you feel comfortable with.
What do you think? Have you relied on a Zillow Zestimate before?
Image Credit: lumaxart on Flickr. CC Licensed.