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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An interview with the “Voice of Appraisal” show

I did an interview recently with Phil Crawford of the Voice of Appraisal show. This was a real honor since I love what Phil is doing for the appraisal industry. It’s nice to hear a fresh voice in a field that needs more unity and sometimes a reminder to embrace a progressive vision for business. Give the interview a listen below (or here) and let me know what you think. Phil and I talk shop for about 20 minutes, and my segment begins at 15:11. Thank you so much to anyone who came here after listening to the show too. I am truly honored.

Thoughts on Being a Local Real Estate Expert: One of the things Phil and I talked about briefly was the importance of becoming a local real estate expert. I cannot emphasize how vital it is for both appraisers and real estate agents to pay close attention to local real estate data. I know that sounds dull, but keep in mind how effective it is for business when you can speak confidently and definitely about HOW the market is moving and WHY it is moving. Being in tune with your real estate market in depth is especially helpful since consumers are trusting websites like Zillow more and more these days. Why not invite consumers to trust you instead? Why let a big company become the go-to source for real estate data and information?

knowing real estate trends

This is a slide from one of the presentations I give in real estate offices each month on seeing the current market. I unpack this slide a bit further in 3 reasons why knowing real estate trends is NOT just for data geeks.

voice of appraisal interview

Blog Tidbits: For any new subscribers, I post two times per week (sometimes only once). Most of the time I talk about issues that are relevant nationally for the real estate community, though at least twice a month I have two very hyper-local posts on the Sacramento housing market. Trends here of course often tend to echo what is happening in other places too.

Question: Any thoughts on marketing in real estate, the appraisal industry, or knowing local data? I’d love to hear your take. If you’re here for the first time too, please introduce yourself.

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Gavin Maloof sold his house in Natomas

The Maloof family is still making headlines in Sacramento. I read in last week’s Sacramento Business Journal that Gavin Maloof, one of the former owners of the Sacramento Kings, recently sold his property in the Westlake neighborhood of Natomas for $1,112,500. I wanted to give some further market context to the sale, which I thought would be interesting to locals.

Westlake Maloof House in Sacramento - by Sacramento Appraisal Blog

Measuring by Pro Sports Standards: The Maloof property is definitely on the larger side. It comes in at 5203 square feet according to public records, which is a bit larger than an NBA basketball court at 4700 square feet (94′ x 50′). Technically if this home was measured in basketball courts it would be 1.10 courts. By the way, it sounds better to use basketball court figures for measurement since this house would be 110% of a basketball court, but only 9% of an NFL field or 64% of an MLB baseball diamond.

Westlake Natomas Sales History - by Sacramento Appraisal Blog

Neighborhood Market Trends: As you can see, the Maloof property sold quite a bit above others in the neighborhood. However, there are definitely a few things to keep in mind. First of all, this graph only includes properties that sold on MLS, which means private transactions and sales directly from the builder are excluded. For instance, the Maloof home was purchased originally in 2002 directly from JTS for $1,008,000. Obviously it was one of the premium homes at the time since it sold far above others. Secondly, property values are easily somewhere in the 2002 range right now in this neighborhood and in most areas of Sacramento (sometimes we see 2003 levels, but most areas are still hovering somewhere around 2002 levels). I am not saying this house sold at market value for its most recent sale, but only that buyers have been willing to pay 2002-ish levels for many houses in Sacramento. Ultimately I’m not terribly surprised to see a higher sale for a custom home in The Shores at Westlake.

In case you are not aware, the Westlake neighborhood is located literally 2.5 miles from the arena. There are definitely multi-million dollar properties in the surrounding Sacramento area, where some of the other Kings players live (and I imagine a Maloof could have afforded), but nothing in a gated community as close to the arena as this neighborhood.

Property Tax History for Gavin Maloof Sacramento Home - by Sacramento Appraisal Blog

Property Taxes for the Maloof Home: What do you notice about the property tax history for the Maloof home in Natomas? Interestingly enough, it looks like property taxes saw an increase through 2008 despite the market showing a clear decline – especially from 2006 to 2008. Also, you may have heard property taxes can only increase by 2% each year, so why were there increases far above that level on this house? Here is how it works. The Assessor can only inflate taxes by basically 2% each year under normal circumstances, but for property owners who had previously received a reduction in assessed value under Proposition 8 (this is the tax Prop 8 – not the marriage Prop 8), their property taxes can be raised any amount each year so long as it is not increased above the original “base-year value” (also called the “Prop 13 value” – which is usually the original purchase price from years ago). Does that make sense?

By the way, these figures are all a matter of public record. Check out Zillow to get the past 9 years of taxation or the Assessor’s website for the past 2 years. If it’s relevant, you can read more here about how property taxes work in Sacramento.

I hope this was as interesting. Any questions, thoughts or insight?

Question: Would you pay a premium to own a house previously owned by a celebrity?

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The value of pricing your property correctly in today’s real estate market

Overpriced properties are part of life, but in today’s market with inventory beginning to increase, it is very important to have a reasonable list price. Yes, it is still a Seller’s market in the Sacramento area, but the trend has begun to shift over the past few months. It’s definitely no longer a “price it however high you want and you’ll get 25 offers at that price” type of market. Let’s consider two recent examples of overpriced properties and then look at some bits of advice for proper pricing.

Is it worth 170K - by Sacramento Appraisal Blog

The very highest sale in this condo subdivision in the Sacramento area is $150,000. But the subject property was marketed 13% above the highest sale. This condo has nice updates of course, but the lone sale at $150,000 was also fully renovated. Has the market appreciated by 13% over the past few months or might the price on this property be too aggressive for the current market? This graph alone helps tell a compelling value story for the neighborhood. Market data, comps and current listings simply do not support a value at $170,000.

Is this property worth 150K - by Sacramento Appraisal Blog

Does it look like this property is worth anywhere close to $150,000? In the past four years there have been zero sales at $150,000 in the neighborhood. Of course there are always properties that can sell higher than anything else because they are unique, but the subject property is very plain. In fact, after I was hired to do an appraisal for the buyer during this private sale, value was a whole lot closer to $100,000 instead of the contract price at $150,000.

Advice for Sellers When Listing a Property:

  1. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerBe realistic about your price.
  2. Be in touch with the market by looking at recent sales AND listings.
  3. Look at hyper-local neighborhood trends instead of only zip code real estate data that might not reflect your neighborhood.
  4. Remember that price per square foot can change dramatically depending on the size of the property. Smaller houses usually have a larger price per sq ft than larger homes. This means if your house is large, be careful about using price per square foot figures from a smaller model in the neighborhood to determine your list price.
  5. Forget about what Zillow says (read 10 appraisals vs. Zestimates).
  6. Remember that unless the buyer is paying cash, the buyer’s lender will want to see your property appraise for at least the contract price. If the buyer ended up making an offer at full price (and you know that price is totally unrealistic), expect to see a “low” appraisal.
  7. Ultimately if your property is overpriced, it might not sell. Moreover, if it sits on the market for too long, you can end up losing some of your bargaining power since buyers may likely offer at lower levels since they figure nobody has bitten at full price anyway.

Question: Any thoughts, stories or other bits of advice to share? Comment below.

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