An old adage in real estate sales is “your home is worth what someone is willing to buy it for.” This suggests that there are many different factors, some arbitrary that go into the valuing of a home.
In today’s internet-savvy world, many look to industry leader Zillow for information. But the question is, “Should I Trust Zillow to Determine My House Value in Raleigh-Durham?”
The short answer is no, BUT we need to understand what is being asked.
There are many types of value when we’re talking about real estate. For example, resale value, tax value, insurance value (what it will cost to replace if damaged by fire), as-is value, and after-repair value.
Maybe we should rephrase the question..
Should I Trust Zillow to Determine My Homes Market Value in Raleigh-Durham?
When many homeowners think of the value of their home they think about what they could sell it for. This is referred to as market value, sometimes as resale value.
What is “As-Is” Value?
This is an industry-specific term used by investors that usually applies to houses that need work. This can be cosmetic work, the repairing of broken or defective systems, or homes that are outdated.
What Is “After Repair Value?”
What will the house be worth after everything is fixed and it is in prime selling condition? This can be after punch list items are repaired and new paint and carpet are installed. Or it can be after a full renovation and reconfiguration of the floor plan is done (common with older homes).
Zillow’s Margin for Error
I want to start by saying that Zillow is a great website as well as a great tool for searching and evaluating properties for sale, or rent. As well as a great provider of market data. I use Zillow to research comparable sales, and rents, on a weekly basis when evaluating properties.
When Zillow publishes their “Zestimate” which is an estimate of a home’s value based on their proprietary algorithm, there is a margin of error that is built into that number. On average that margin can be anywhere from 5 to 20 percent higher or lower in-home estimates. Home sellers need to take this into account when they are doing their research. Also, there are other websites such as Redfin, and Realtor.com that publish their own estimate of a home’s value. The value estimation amount these t providers is often very different.
The median sales price of a home in Wake County as of May 2020 is $328,000. So, a deviation of 20% can be as high as $65,600. Based on my observation of the local market I have seen closer to a 5% to 10% deviation, but that can still be $15,000 – $30,000, which is a substantial sum.
Can An Inflated Estimate Discourage Buyers From Buying My Property?
Buyers who are working with an agent will be informed not to rely on estimates, but on the comparable data that they provide. If you are a for sale by owner be sure to have your comparable data on hand. This will help you build credibility with the buyer.
The biggest challenge is that homeowners expect too high a price for their home, which was the case long before Zillow was around, then they see the price on Zillow and think that is the starting point for their home.
How Does Zillow Create Estimates?
Zillow calls its proprietary estimating tool a “Zestimate.” Even with all the pricing factors placed into the formula, there is still a high margin of error because the condition of the interior is unknown.
The proprietary formula looks at the market trends in the area, size of the home, age, beds and baths, size of the lot, and so forth. However, even Zillow will say this is a starting point for a true valuation of your home and should not be considered an appraisal or true value.
Part of the reason is that their website will pull a lot of data from public records, such as tax records, which is not as accurate as MLS data. Even in the Triangle NC, the difference between the quality and accessibility of data between counties is far from comparable. The Wake County Tax Records, are far more accurate, and user-friendly than neighboring counties.
Another challenge is that many homes have deferred maintenance which is unknowable to any large data provider. An accurate estimate of the condition of a home requires a home inspection, and even then some items will be limited. It’s not reasonable to expect an internet company to determine the current condition of every home in America.
The More Accurate Model
Any professional agent will tell you that pricing a home to sell requires a full understanding of the home itself, the location, and current market trends in that area. Also, you need someone who spends regular time with homebuyers to observe their tastes and preferences.
An agent will take a look at comparable home sales in the local area, pulling data from a small radius, ideally a quarter-mile, rather than an entire zip code. They will then compare your home based on size, features, and upgrades to those homes that were recently sold, ideally in the last 3 to 6 months but not older than 12 months.
They will then compare this information to existing homes on the market, looking at how your home compares to what else buyers are seeing on the market. After all, if yours is a well-kept home being sold next to a completely remodeled home, you might not be able to get the same price per square foot at the other.
Additionally, agents will consider whether it is a buyer’s or seller’s market. If you want to create a frenzy with a lot of eyes on your property in a seller’s market, you can underprice the home and let the bidding begin. This tactic works in many markets including Raleigh.