But Zillow says my house is worth a gazillion dollars

“But Zillow says my house is worth….”. That’s a fairly common statement, and it highlights how much the public trusts Zillow these days. I’ve written other posts comparing 10 actual appraisals with Zestimates, but today I want to show you a property in Sacramento that is over-valued on Zillow by more than 100%. While Zillow is a neat tool, let’s consider some of the important factors that go into making values accurate, and where things went wrong with this property.

zillow details

Case Study: Let’s look at 5309 Broadway in Sacramento located in the Greenfair townhouse complex. You might be thinking, “C’mon, let’s cut Zillow some slack since this is a complex of only 45 units, and sales have been sparse for two years”. But Zillow sits at the adult table, and should have access to data from previous years. Moreover, notice above that Zillow actually shows the subject property sold in 2008 for $138,000, which gives Zillow a context to measure value.

Broadway Sales vs Zillow

The Zestimate: The Zestimate for this property is $321,679. The graph above shows all sales since 1998 in the Greenfair subdivision. As you can see, there have never been any sales above $300,000 in this complex – even during the height of the housing bubble in 2005. In this case Zillow is frankly wildly off since market value looks a whole lot closer to the red trend line.

Where did Zillow go wrong?

  1. nearby so-called similar sales to the subject propertyChoosing the Wrong Comps: The image to the right shows “nearby similar sales”, but these sales are single family detached homes, and NOT attached townhouses. When there are no recent sales in a townhouse subdivision, it doesn’t mean you should borrow from the single family detached market. Either you can use VERY old townhouse sales in the same subdivision, or maybe find a competitive complex somewhere in the market area. Again, it’s easy to cut Zillow some slack here since they might not know the units are attached, but even in that case the TINY lot size and history of sales should be given much stronger weight then.
  2. Data Fail: Zillow clearly didn’t consider even its own data in this situation. Despite an understanding that this property sold in 2008 for $138,000, something in Zillow’s algorithm is obviously not crunching the numbers correctly since the market has not increased from $138K to $322K. Moreover, not considering a listing in the complex that expired at $186,000 this month is also a failure. When there are few recent sales, sometimes much older sales and expired listings can tell us about the market.
  3. Wrong Neighborhood Boundaries: Zillow is considering single family detached homes in Elmhurst and other parts of Tahoe Park as you can see by the addresses in the “similar sales” image. These areas have far higher prices compared to the Greenfair subdivision. If you use the wrong neighborhood boundaries, there’s a good chance the value might be off-base too.
  4. Problems with Less Data: When there is little data to consider, it looks to be a struggle for Zillow. To be fair, it’s relly not easy for humans to crunch numbers either when there are not many numbers to crunch. Yet data is available. It’s just a matter of seeing the numbers in their proper context.

Zillow Values in Sacramento - by Sacramento Appraisal Blog

One Buyer’s Reasons for Using Zillow: I asked a current buyer how she is using Zillow as she hunts for a home. I thought her response was interesting and insightful. What do you think?

At first, it helps me get an idea of overall neighborhood values, so it helps me know where to look or not look. Then, when we do look at specific houses, it gives me a general value of the house. I like the low-high range tool better than the “Zestimate” because it helps me get a feel for the overall values of a neighborhood. So, if a house is priced near or less than the low end, I figure it probably needs a lot of work, and if not, it might be a good deal. If it’s priced near or over the high end, I expect it to be in very good condition or have some kind of bonus features. Likewise, if we really like a house and it appears to be a good value according to Zillow, we’ll consider making an offer.

We also use Zillow to see a price and sale history of the house (our realtor can do this too, but it’s easy for us to do with Zillow rather than constantly calling her!). We can see when it first came on the market and various price changes, whether it’s a flip or not, and sometimes even if it was a rental.

One thing I don’t like is that it doesn’t have very accurate listing information. There are many houses on Metrolist and Redfin that aren’t on listed as “for sale” on Zillow. So, I find myself going back and forth between the three resources and our Realtor’s updates! If Zillow and Redfin merged, I’d be happy!

I look at Zillow as a range or estimate. I know that it doesn’t replace a person on the ground, but we can’t bring an appraiser with us to each house! 🙂 Zillow can’t see a smelly smoker’s house or a house full of old wall paper that needs to be torn down, or a crazy neighbor with three boats on the front lawn, or a dog that barks at all hours. It also can’t see a potential great neighbor with kids our kids’ ages, or a shade tree that’s perfect for a tire swing or tree house. It also doesn’t understand that I’m OVER granite countertops! Enough with the granite!

Zillow isn’t usually off by 100%, but cases like this are worth noting because they highlight some of the issues a “machine” can have when valuing a property.

Quick Advice:

  1. Take Zillow with a grain of salt.
  2. Don’t excuse Zillow when it’s wrong. If it’s off-base, call it what it is. You can look at Zillow’s own accuracy rates and be the judge whether this is reliable data or not.
  3. Home owners, realize Zillow doesn’t know neighborhood boundaries, the condition of your home, all the same listings that are in MLS, and it may not even be comparing your house to the right type of property.
  4. Agents, be sure to look up the Zestimate before listing presentations so you can be prepared to answer when your potential client says, “But Zillow says….”. Consider some of the positive reasons why consumers like Zillow (there are some for sure), but then talk about the things you know as an expert – neighborhood boundaries, the mood of the market, sales and listings in the immediate neighborhood, expired listings, how long it it taking to sell in the neighborhood, the direction of values, the condition of the house, and what buyers are willing to pay more for in the neighborhood.

I hope this was helpful.

Question: Any stories to share, or any other points you’d add?

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The drought, fake turf, and a sign project with my kids

How is the drought impacting real estate? What are you seeing neighbors do with their lawn in light of the drought? I’m seeing a combination of some brown lawns by choice, definitely more xeriscaping, fake turf on occasion, as well as some lawns that are as green as ever. Overall it seems locals are slowly beginning to scale back how much they water their lawns, which can potentially change the way a neighborhood looks if done on a large scale. This begs the question, is the drought beginning to shape what buyers want in a front yard? Are we to the point yet where buyers will pay a premium for landscaping that saves water? What do you think?

Let me share a couple photos today and then tell the story of what we did for our front yard (which ended up taking an unexpected turn).

Fake Turf: Here is an example of fake turf I saw recently in Roseville. This may be commonplace in other parts of the country, but it has definitely not been common here. I have seen fake turf also in Folsom. The owner said the “lawn” was well received by mostly every buyer beyond one prospective buyer who wondered if the turf would get too hot and burn her feet. What do you think?

fake turf - photo by sacramento appraisal blog

Xeriscaping: This is an example of xeriscaping I came across in Rancho Cordova. Xeriscaping is a “landscaping method developed especially for arid and semiarid climates that utilizes water-conserving techniques” (Merriam-Webster). This is becoming more ordinary, and if the drought persists beyond this year, I suspect we will see many more lawns go this direction.

xeriscaping example in rancho cordova

My Lawn Status & Our Sign Story: I decided to completely stop watering my lawn to conserve water. Yeah, I’m that guy. On a serious note though, after seeing how low Lake Shasta was a few weeks ago, it really made an impression on me. This is no judgment against anyone if your lawn is green, but for my household we decided it was time to let the grass die (we’ll still water our trees though). Since not everyone has a brown lawn in my neighborhood, I wanted to make a sign for the yard to help explain why our lawn is brown. This is what I came up with because I thought it would be both funny and provocative.

brown grass is sexy sign

As soon as I posted a photo of the sign on Instagram, people began telling me I should sell these signs. That definitely wasn’t anything I was thinking about, but I asked my two sons (8 and 10) if they wanted to do a little sign business for the summer. I talked to them about water conservation, and then risk, capital, hard work, potential profit, customer service, etc… and they were game. The deal was for me to be the investor, we would make the signs together, and they would keep any profit once I was paid back. We’ve been selling the signs for $15 each.



My garage has been chaos these past two weeks, but it has been so much fun watching my boys go to work, and to have some amazing conversations about business. Granted, this sign is not for everyone because of the word “sexy”. In fact, some people have complained a bit about the word, but it’s only meant to get conversation going. My hope is people will be more inspired to action rather than stuck on one word. We may do a different slogan at some point though.

brown grass in land park

Marketing a Dead Lawn: An investor friend bought one of our signs to put in the front yard of a current flip in South Land Park, and another real estate friend bought one yesterday to do the same for one of his listings. I did not expect for our sign to collide with my world in real estate, but then again, how to market a dead lawn is something on the radar in today’s real estate landscape.

Questions: How is the drought impacting neighborhoods and real estate? What do you think about fake turf? I’d love to hear your take.

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How do you know if it’s a second unit or an accessory dwelling unit?

Is it a second unit or an accessory dwelling? How do you know the difference? If the post office gives the second structure an address, that makes it a second unit, right? Or if the dwellings are separately metered, it must mean there are two units. Let’s talk through some distinctions below, and then discuss a bit of a “monkey wrench” since there is an added subjective layer when making this call.

accessory dwelling unit in sacramento - by home appraiser blog

Accessory Dwelling:

  • Not recognized by city or county as a second unit (sometimes it is though)
  • The market does NOT consider it a second unit
  • Probably does not contribute as much to value
  • Inferior to the main unit in size and location (maybe quality too)
  • Has kitchen, bathroom and sleeping area
  • May or may not be separately metered
  • May or may not have a separate address
  • May or may not be attached to the main house

Second Unit:

  • Recognized by city or county as a second unit
  • The market recognizes it as a second unit
  • Likely contributes more substantially to value
  • Zoning allows two units
  • It is probably separately metered
  • Most likely has a separate address
  • May or may not be inferior in size and location to the other unit
  • May or may not be attached to to the main unit

two houses on one lot - by home appraiser blog

The Short Answer: A second unit and an accessory dwelling might look like the same thing to a casual observer, but what matters most in determining whether a structure is a second unit or accessory dwelling is what zoning allows and whether the market perceives the structure as a second unit or not. The post office might have a separate address for an accessory dwelling, but that does not make it a legal and legitimate second unit. The utility company might have two meters on site also, but even that does not mean there are two units. The key comes down to the property being legal as two units in the eyes of the city or county, recognized by the market as a second unit, and even how the dwelling contributes to value.

Fannie Mae language on second unitsThe Monkey Wrench: Part of determining whether something is an accessory dwelling or second unit comes down to its contributory value, and the appraiser is really going to have to give this some thought. For instance, some counties might legally consider any secondary structure as a second unit despite its size or how much value it really adds. But just because a city or county declares something is a second unit does not mean it should be appraised as a duplex (2 houses on 1 lot is considered a duplex). For instance, imagine Placer County considers a property with a 4500 sq ft house and a 300 sq ft detached studio as a duplex. But are these really two units? Don’t you think the added value would be fairly minor for the 300 sq ft studio? A property like this should probably be appraised as a single family residence with an accessory dwelling instead of two separate units (a duplex). While there may be two units technically in the eyes of the county, the 300 sq ft studio is hands-down really seen as an accessory dwelling by the market. In fact, some buyers wouldn’t hardly care about the small accessory dwelling because they are purchasing the property for the main house instead of whether there there is a 300 sq ft studio or not. Imagine a different scenario where there are two houses on one lot, but one is a complete tear-down. If one unit is beyond repair, it’s probably best for this property to be appraised as a single family residence because that’s how the market would see the property (instead of as a duplex). This is where a subjective element comes into play because appraisers have to consider how much value a secondary structure adds, and how the market sees that structure.

HUD logoWhat FHA says about Accessory Dwellings: An accessory dwelling unit (ADU) is defined as a habitable living unit added to, created within, or detached from a primary single-family dwelling and contained on one lot. ADU’s are commonly understood to be a separate additional living unit, including kitchen, sleeping, and bathroom facilities. ADU’s are subordinate in size, location, and appearance to the primary home and may or may not have separate means of ingress or egress. An attached unit contained within a single-family home, also known as a “mother-in-law apartment,” or a “garage apartment” that may or may not be attached to the primary residence are the most common types of accessory dwelling unit. An accessory dwelling unit sometimes involves the renovation of a garage, basement, or a small addition to a primary residence. The determination of whether or not an ADU is a second dwelling unit is to be made by the appraiser and indicated in the site analysis section of the report where zoning, highest and best use, and legal use are addressed. The fact that an ADU is rented or generates income should not categorically result in a determination that the property contains two dwelling units.

fannie mae What Fannie Mae says about Accessory Dwellings: An accessory dwelling unit is typically an additional living area independent of the primary dwelling unit, and includes a fully functioning kitchen and bathroom. Some examples may include a living area over a garage and basement units. Whether a property is a one-unit property with an accessory unit or a two-unit property will be based on the characteristics of the property, which may include, but are not limited to, the existence of separate utilities, a unique postal address, and whether the unit is rented. The appraiser is required to provide a description of the accessory unit, and analyze any effect it has on the value or marketability of the subject property (Page 583 of Fannie Mae Seller’s Guide).

Why does this matter? If there are two units, the appraiser will be comparing your two units with other two-unit properties. If you have a house with an accessory dwelling, the appraiser will be comparing your house with other homes with accessory dwellings. Keep in mind an accessory dwelling unit is NOT considered square footage if it is separate from the main living area, so it won’t be included in the total square footage of the main house (though it can still add to the value).

NOTE on Local Requirements: There may be additional local code requirements for accessory dwelling units in terms of allowable size, parking spaces, setback, height, etc… There is not a once size fits all rule here for every state, so be sure to know your area. For instance, Sacramento County requires a 10 ft setback for accessory dwellings, one parking space for each bedroom, and a size no more than 1200 sq ft.

Questions: Any stories or insight to share? Do you think it makes a difference whether a property has a second unit or an accessory dwelling unit?

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A radio interview with a Sacramento appraiser on Money 105.5 FM

Money 105.5 in Sacramento - Interview with AppraiserI did a radio interview last week on Money 105.5 FM in Sacramento, so I wanted to share. My part of the interview is a good 30 or so minutes, so it’s perfect for some background noise while working. They asked me about how I became an appraiser, blogging, how I recovered after nearly all my clients went out of business after the real estate bust in 2005, market trends in Sacramento, overbuilt homes, low appraisals, etc… The entire interview is contained below, but my segment starts at 10:18, which is where the video will start when you push the play button. Thank you Antonio Lopez of Summit Funding for the invite. Listen below (or here). Enjoy.

Thanks for listening.

Radio interview with Antonio Lopez Ryan Lundquist Carolyn Ewing

CHALKBOARD GIVEAWAY: Remember there are just a few days left in my repurposed real estate sign giveaway. All you need to do to enter is leave a comment on this post or share the post online.

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