But Zillow Says My House is Worth…!
by Bernice Ross, Ph.D. MCC
Owner, Teleclass4U.com, LLC and RealEstateCoach.com
Copyright © 2011
RealEstateCoach.com and Teleclass4U.com
All rights reserved in all media.
You’ve done your CMA and know the price where the property should sell. After making your case the seller pulls out their Zestimate and sells, “Well Zillow says my house is worth…! What do you do?
Today, most sellers will search for their home’s value online. One of the most popular destinations to obtain this information is Zillow. They have a great series of apps for mobile devices that allow you to see their “Zestimates” (automated valuations) simply by pointing your mobile device at a specific property.
Pricing properties in many areas is pretty straightforward. If you have comparable sales in the same subdivision with comparable amenities, the most recent comparable sales are good indicators as to what the ultimate selling price will be.
In other areas, it’s not as clear. In some areas you can have a large, beautiful new McMansion next to a 100-year old teardown. In other areas, the same floor plan can sell for 50 to 100 percent more depending upon the view, the location, or in the case of a highrise, the floor upon which it is located. The question you must face is how to cope with this issue when it comes up in a listing presentation.
What Banks Use
Recently I had a conversation with Victor Lund of WavGroup.com. Lund was doing some research about the Corelogic products when he discovered several powerful tools that agents can use to build their businesses.
What most agents don’t know is that approximately 90 percent of the banks use the CoreLogic software as their primary tool for automated valuations. Consequently, when a seller brings out a Zestimate, you can counter their price by pointing to the CoreLogic automated valuation estimate. You could also use the automated valuation tool from Chase https://www.chase.com/online/Home-Lending/home-value-estimator.htm.
The problem with automated valuations
The first thing that you must understand about any online evaluation tool is that it is based upon mathematical averages that do not take into consideration hundreds of factors that influence the value of a property. According to the CoreLogic site,
“Automated valuation models are based on mathematical assumptions and are not able to consider special factors that may make your home more valuable. Do you live on a lake? Did you refurbish your kitchen? Use this valuation estimate only as a starting point.”
Automated valuations, even though they incorporate a substantial number of accurate comparable sales information, still suffer from sizeable sources of error due to the nature of using statistics as a prediction tool.
For example, Zillow says that their Zestimates are accurate by + 7.5 percent. This means that on a $200,000 property, their prediction would be that the price would be between $170,000 and $230,000. On a $200,000 listing, most competent agents can predict the price within a $10,000 range—that’s much more accurate than a $60,000 range.
A Case Study
To illustrate the challenges with using any automated statistical model to predict prices, I used three different tools from Chase, Corelogic, and Zillow to estimate the value of a property in Southern California.
The Chase system said the property was worth $324,000. The Corelogic model said the property was worth $332,000. Zillow says the property is worth $406,000. Clearly, a seller would prefer the $406,000 price while a buyer would prefer the $324,000-$332,000.
In this case, the Zillow Zestimate is more accurate, since it takes into account sales that have closed in the last few weeks. It also allowed the owner to enter information about the property that increased the value, such as a new kitchen, new plumbing, updated electrical, and the addition of a master suite and bath. There was no way to update this information on the other two systems.
Why automated valuations matter
Even though automated valuations have numerous issues, it’s still important to take them into consideration, especially those from Corelogic. If an owner is refinancing and the lender is not going to do an actual appraisal, most lenders use the Corelogic system to establish the price. The reason is that Corelogic has aggregated the actual sales data for many years and is currently the preferred source that 90 percent of the lenders use.
Overcoming the objection
Because agents see the comparable sales and have the ability to evaluate the numerous factors that determine price, they can, in most cases, do much better than + 7.5 percent.
When a seller points to their Zestimate, you can often overcome this objection by taking out the automated valuations from Chase and Corelogic to illustrate the variations.
Once you have shared the comparable sales and any automated valuations supported by the comparable sales, close by saying,
“As you can see from the comparable sales and the automated evaluation from Corelogic that is used by 90 percent of the lenders, the price where your property will sell will be between $207,000 to $212,000. Where would you like to position your property in the marketplace?”
There are two important points to note here. First, if all three tools are relatively close, this increases the chances that the automated valuations are correct.
Second, if the comparable sales support one automated valuation and not the others, only use that automated evaluation supported by the comparable sales. Comparable sales together with an automated evaluation are usually a powerful predictor of selling price.
Great tools for agents
According to Lund, Corelogic provides some great tools for agents. The pro version of their service allows agents to give their clients access to a free property monitor and alert service, shows them how to protect their home from lien fraud, provides access to their automated evaluations, as well as updating them regularly with a list of properties in their area with foreclosure notices. The beauty of this is that all of this material is branded with the agent’s contact information.
By taking advantage of all three of these automated valuation systems and coupling them with the most recent sales, you can tell your sellers:
“I don’t give estimates—I give ‘exactiments!’”