After completing an appraisal recently on Ambassador Drive in Rancho Cordova, I wanted to see what Zillow said about values in the neighborhood (for kicks). While Zillow is sometimes not too far off in typical tract neighborhoods like this, I was very surprised in this case to see Zillow had not given more weight to recent sales prices in MLS to establish their Zestimates. See three examples below with my commentary. I did not appraise any of these properties, but I do know them well since I used them as comps in an appraisal report.
Example 1 – 10703 Ambassador Drive: This property sold at $220,000 on MLS and is really the top sale in the immediate neighborhood. But to its credit it has recent upgrades, a larger than typical square footage and it backs to the American River Parkway. Zillow recognizes the sale in MLS at $220,000, but still assigns a value of $178,000 for their Zestimate, which is 19% less than the MLS sale. For reference, there were six offers on this property in 14 days when priced at $220,000.
Example 2 – 10625 Ambassador Drive: This renovated property sold at $194,000 in MLS, but Zillow assigns a Zestimate of $160,500, which is 17% less than the sales price in MLS. For reference, there were six offers on this property when priced at $189,800 in only four days of market exposure.
Example 3 – 10504 Ambassador Drive: This house sold in only 9 days of market exposure and had 9 offers total. This property sold at $187,000 in MLS, which Zillow acknowledges, yet they still assign their Zestimate as $160,500, which is 14% less than the sales price in MLS. For reference, this property sold previously as a bank-owned fixer in the past six months, and was since rehabbed throughout.
What can we learn from this situation?
- A machine can only do so much to value properties. The humans win in this case.
- Zillow doesn’t always do so great when the market is segmented like this neighborhood. There is a huge value difference between foreclosures needing fixing and renovated arms-length sales.
Kudos to Zillow for recognizing that there is a difference between sales price and value. While their values are unfortunately way off in this instance, many in the real estate community confuse sales price with value. A sales price may or may not be the same as value.- Real estate markets are complex and not easy to interpret – even for humans. The market has been changing quite a bit over the past few months as inventory has decreased in the Sacramento area. Zillow is not capturing this change for these properties at least.
- Find local real estate specialists you can trust. So many people sincerely rely on online valuation websites. “But Zillow says….” is a very frequent response to hear from home owners because they had a level of trust in the accuracy of data found there. I’d simply say to take the online sites with a grain of salt.
- Look up Zillow accuracy tables on their website and you be the judge if the margin of error is reliable enough for you. I recommend reading the definition of “median error” at the bottom of the accuracy page.
As an appraiser, I don’t have a beef with Zillow at all, and it’s not my mission in life to get others to not use them either. In fact, one of the things I like about their website is the historic graphs they provide in the data section. This was simply an FYI post for consumers.
What do you think?
If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook
Hey Ryan – Brad from Zillow here. I think you write these posts just because you like me to stop by and visit, say hi, and leave a comment. haha~
Seriously, you do a great job of breaking down the difference between a Zestimate and the Zillow endorsed local real estate appraisal. I think your comment sums it up best,”Real estate markets are complex and not easy to interpret – even for humans” which is why we are grateful to have knowledgeable local real estate professionals and appraisers like you in the local neighborhoods and communities.
With more than 106,000,000 million properties on Zillow, and even with thousands of resources and algorithms helping to determine values, data, and information, there is no replacement for an experienced and efficient local professional to help homeowners get the closest to “fair-market” value for their homes.
You’re right, Brad. I’m just hoping you stop by so we can chat. 🙂
In this case I was surprised to see how little the actual sales in MLS seemed to make a difference in Zillow’s algorithm and final Zestimate. I had not seen that before on Zillow. I guess other sales in the surrounding market weigh down the Zestimate despite recent sales nearby at much higher levels.
Hi Ryan – Jay T. from Zillow here. I was going to chime in, but I see that some Brad dude beat me to it 🙂
As you well know, appraising is part art, part science and a big chunk of professional experience. And there are things that a software algorithm can’t pick up that the expert eye of an appraiser or agent can. You said all that in fewer words, “A machine can only do so much to value properties. The humans win in this case.”
Love your blog, keep up the great work!
Thanks for stopping by, Jay. I’ve been following you on Twitter for quite a while. Congratulations on your role at Zillow now. I hope you’re enjoying Seattle. I’m heading your way for a vacation soon, so I hope it’s not raining there later this month.
You said it well that “appraising is part art, part science and a big chunk of professional experience.”
Nice following!
It sometimes takes a few missed deals, but buyer’s are beginning to understand they need to look at more information.
They are thousands(or millions) of lines of code away from modelling the market and its an ongoing process…. ask any economist!
Thanks for your insight, Jeff. You’re a great resource for your clients.
Does Zillow have any way to adjust values when you do major additions after purchase? I added 1400 sf living area and a new 1200 sf 3 car garage? My house is still valued based on how it was when I purchased it in 1994. Zillow is showing a value about half of what my insurance company estimated the cost to rebuild it.
Durwood Keller
Baton Rouge, LA
Hi Durwood. Congratulations on the addition. From what I can tell, Zillow does have a “claim your home” feature where you can verify you own the property. Then you will be able to edit your home facts as the following link discusses. http://www.zillow.com/wikipages/Edit-Your-Home-Facts/
Your comment reminds me of a general propery valuation principle. We tend to want our home values to be high for refinances and sites like Zillow, but then lower in the eyes of the Assessor. 🙂
I’m curious why it matters to you what Zillow says. Is your insurance company basing their value on Zillow?