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zEstimate

An open letter to home sellers in a crazy market

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Dear Sellers,

How are things? I hope all is well. The housing market is so chaotic right now, so I wanted to share some thoughts and advice that I figured might help. This is coming from a good place and it’s based on observations and conversations with the real estate community. I hope this helps.

HousingWire Podcast: By the way, here’s a podcast I did last week with HousingWire to talk about appraisals in a hot market.

THINGS TO KEEP IN MIND ABOUT TODAY’S MARKET:

1) Don’t price for the unicorn: Every area has the idea of unicorn buyers who swoop in to pay way more than anyone else. That’s the dream, but fixating on an outlier buyer can be a huge mistake that means you sit instead of sell. My advice? Price for the market that actually exists and rejoice if you get bid up.

2) Don’t expect cash: Selling to a cash buyer could happen, but how many cash transactions are happening in your area? In Sacramento so many sellers dream of greenbacks, but only 14.4% of all sales have been cash this year. Remember, the vast bulk of the market is financed, so buyers using financing CAN get it done.

3) Be realistic about timelines: Nearly every real estate vendor is slammed, so if you counter the buyer, be realistic about longer turn-times. You don’t want to be like, “You have 8 days to get everything done” when that might not be enough time (especially for the appraisal).

4) Be careful of greed: The obvious goal is to net as much money as possible, but helping a deal also feel like a win for the buyer can help a transaction close. Yes, buyers are willing to pay more today, but they also want to feel like they’re paying a mostly reasonable price without being taken advantage of.

5) Apples and oranges: Pricing an apple according to an orange is a classic real estate mistake. Too many sellers want to price based on a sale or listing that is superior in quality, condition, location, or some other feature. Here’s the strategy. Price according to similar homes – not dissimilar ones.

6) The Zestimate: Um, yeah, don’t get distracted by Zillow’s value.

7) Get inspections first: This might seem odd, but many real estate agents in today’s market actually recommend getting a home inspection and pest inspection up front so buyers can know exactly what is going on with the house before making an offer (this can at times help buyers remove the appraisal contingency too). Not everyone agrees with this strategy and it won’t be relevant in every market, but it’s something to maybe talk about with your agent.

8) Know if the market slows: At this time of year we usually start to see seasonal slowing, so as you list in coming weeks and months be realistic about the market if it does change. Look, right now things are ultra hot and the verdict is still out on what type of season we’ll have for the summer and fall. It usually softens, but we’ll see what happens this year. All I’m saying is the temptation is to price according to the hottest moments from a few months ago, but if you’re late to the spring party be sure to price according to however the market feels at the moment.

9) Listen to lower offers: I talked with a seller recently who had four offers and wanted to hold out for something higher. Look, if buyers are coming in lower, it’s time to listen to the market. Don’t get so infatuated with hot headlines that you aren’t listening to actual buyers trying to purchase your home. And if you’re not getting any offers, maybe the market is trying to say something…

10) Expose yourself: Okay, keep your clothes on, but be sure your home gets adequate exposure to buyers. Honestly, you really only need a weekend in today’s market. I’m just saying you may not want to sell within the first few hours. Having at least a few days gives more buyers a chance and it’s actually helpful for those who offered to have a little bit of space to be sure they don’t have remorse about offering.

11) Other: Real estate professionals, what other advice would you give? Please comment below. Thanks to so many real estate friends who shared bits of wisdom on Instagram and Facebook too for this post.

I hope this was helpful.

Sincerely,

Ryan Lundquist
Certified Appraiser / Housing Market Analyst
Sacramento Appraisal Blog

p.s.  Thanks for picking up the dog crap before the appraiser shows up

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Two things to understand about Zillow’s accuracy rate

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How does Zillow’s accuracy rate work? Let’s talk about two important points. I’m not writing because I’m angry, but only because the public places enormous trust in this brand, and I see this accuracy rate quoted everywhere. Well, let’s at least know the fine print so we can have informed conversations.

Two quick points on Zillow’s accuracy rate:

1) Median makes all the difference: Zillow says their median error rate is 5% for the United States. That sounds impressive, but we have to realize this is a MEDIAN error rate, which means the Zestimate is within 5% of the purchase price only half the time. So Zillow’s slogan could be, “We’re within 5% half the time.” But that doesn’t sound as polished as “Our median error rate is 5%”.

2) Zillow uses the most recent Zestimate: This is such an important point – even if it feels a little technical. I have an example to help show what I mean too. Zillow states “Zestimate accuracy is computed by comparing the final sale price to the Zestimate on or before the sale date.” Let me show you why this matters.

An example: Imagine a property listed for $380,000 and the Zestimate was also $380,000. But then after a series of price reductions, the home sold for $350,000. That would be 8 percent lower than the original Zestimate. That’s not very good, right? Well, now imagine as the list price was reduced, so was the Zestimate, and the most recent Zestimate was $353,000, which is only 1 percent higher than what the property sold for. Here’s the kicker: The home may have sold for 8 percent below the original Zestimate, but for its accuracy rate Zillow can claim 1 percent because it uses the most recent Zestimate instead of the original one.

In short, the most accurate stat here would be 8%. After all, the home literally sold 8% lower than what Zillow said it was worth. Thus when Zillow uses the most recent Zestimate instead, it’s a clever way to get much sexier stats. 

One more thing.

Chasing the List Price & Fixer Upper TV show: What sort of effect does the list price have on the Zestimate? In other words, does the list price actually change Zillow’s value? This might not happen in all cases, but here’s a glaring example of the “shotgun” house from the TV show Fixer Upper. It’s a one-bedroom that was listed for $950,000 and didn’t end up selling.

In this example the list price was outrageously high, but Zillow’s algorithm looks to have simply matched the Zestimate to the list price. This might not happen in all cases, but it certainly did here.

I hope that was interesting or helpful.

Article I wrote: Here’s a piece I wrote about online valuation sites for Comstock’s Magazine last month.

CLASS I’M TEACHING: I’m doing my favorite class at SAR on May 28th from 9am-12pm called “How to Think Like an Appraiser.” Sign up here.

Questions: What do you think? Anything else to add?

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Is the public trusting Zillow too much?

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I don’t have an axe to grind. I’m not angry. And I’m not worried about Zillow replacing my job. I am concerned about the public trusting Zillow way too much though, so I wanted to share an eye-opening “Zestimate” example to help create conversation. Please give it a read and let’s talk in the comments.

Here’s the Zestimate history of a single family home in Carmichael, CA. I’ve been following this property for the past two months.

1) OVERPRICED: This home was originally overpriced in MLS at $380,000 and the Zestimate happened to be $380,414 when the home listed for sale.

2) PRICE & ZESTIMATE REDUCTION: The price was reduced to $335,000 in MLS and very soon after the Zestimate was changed to $346,364. Seeing this definitely gave me pause and made me wonder how much weight Zillow’s algorithm gives to the list price. Does it usually match the list price when a property is first listed? How much do price changes affect the Zestimate? These are reasonable questions. By the way, I shared about this house on Twitter and Inman News included it in a story.

3) ZILLOW DIDN’T GIVE MUCH WEIGHT TO THE SALES PRICE: The property sold at $350,000 eventually, but then Zillow’s estimate said the property was worth $327,960 after the property recorded at $350,000. So it looks like Zillow’s algorithm did not automatically give strong weight to the actual sales price.

4) ZESTIMATE DECLINES 8% IN 30 DAYS: Despite selling at $350,000 one month ago, Zillow now says this property is worth $301,972, which is a whopping 14% less than it actually sold for last month. Moreover, in just 30 days Zillow states the value of this home has gone from $327,960 to $301,972, which is an 8% loss in value. Did the market really decline by 8% this past month?

ZILLOW’S TRENDS ARE OUT OF SYNC: I can’t speak for every property listed on Zillow, but the Zestimate history in this case is definitely out of sync with the market in Carmichael. Values are certainly softening for the season like I talked about last week, but a decline of 8% in 30 days is simply not accurate. Look at the trend line in my graph that shows the market balancing out, and then look at the Zestimate connected by dots. That’s a huge difference in direction, right? Obviously Zillow hasn’t been inside this house, so we can give grace to an algorithm not knowing the full picture of value for an individual property, but to say the market has dropped by 8% is just inaccurate (and you don’t need to go inside a house to know that).

QUICK STUFF ON MY MIND:

1) It’s not just a “ballpark” for consumers: Despite Zillow touting itself as a “ballpark” valuation or starting point for consumers, many people treat it like a definitive value. Bottom line.

2) Blind trust: I find many consumers trust Zillow without thinking too much about accuracy. I don’t say this to be insulting, but there is a deep trust with this brand right now without many questions being asked. My advice? Think critically about examples like I showed above before you trust with all your heart.

3) Pricing according to Zillow: Many sellers are growing disconnected from the real market lately and they’re prone to overprice. Having sensational real estate headlines for six years is definitely one of the reasons why this is happening, but I think some of it comes down to consumers having more information than ever about prices and value. The struggle is when sellers feel so strongly that a Zestimate is legitimate that they aren’t willing to price below it or hear pricing suggestions from others. My advice? Listen to the market around you as well as real estate professionals. Don’t get so caught up in a Zestimate that you cannot see anything else.

4) Feeling stressed: I had a friend who used to get stressed out when his Zestimate would dip. He has since passed away, but I can only imagine how he’d feel about an 8% price decline in 30 days if that’s what Zillow said about his home. He’d be freaking out, and the truth is he wouldn’t be alone because there are lots of people who think of Zillow as way more than just a “ballpark”. In short, I recommend being careful about letting a website’s value claim affect your mood or even your real estate decisions. By the way, the New York Time’s wrote a piece last week called Why Zillow Addicts Can’t Look Away.

I hope that was interesting or helpful.

SPEAKING GIGS: By the way, if you’re around, I’ll be speaking at the Appraisal Institute’s 2018 Fall Conference in San Francisco on October 19th and AppraiserFest in San Antonio on Nov 1-3. I’m also doing a real estate blogging class locally on October 11th at SAR. Just a heads-up.

Questions: What do you think of Zillow? Is the public trusting this website and brand too much? Any stories to share?

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10 Appraisals vs. Zillow

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I have a friend who loves Zillow. He checks it regularly because it helps him feel like he is staying up on market trends in the neighborhood. Based on the following comparison between appraisals I completed recently and Zillow value estimates, what advice might you give to my friend? The parenthesis below indicate the percentage by which Zillow differed from my appraisal.

  1. Lincoln home: Appraisal: $255,000;  Zillow: $262,000 (+2.7%)?
  2. Sacramento condo: Appraisal: $105,000;  Zillow: $159,900 (+52.3%)
  3. Rancho Cordova condo: Appraisal: $40,000;  Zillow: $48,100 (+20%)
  4. Elk Grove home:  Appraisal: $215,000;  Zillow $180,000 (-16.3%)
  5. Rancho Cordova home: Appraisal: $143,000; Zillow: $161,600 (+13.0%)
  6. Roseville home: Appraisal: $285,000; Zillow: $278,000 (-2.4%)
  7. Curtis Park home: Appraisal: $550,000; Zillow: $705,400 (+28.3%)
  8. Citrus Heights home: Appraisal: $135,000; Zillow: $151,800 (+12.4%)
  9. Sacramento home: Appraisal: $101,000; Zillow: $105,000 (+3.9%)
  10. Carmichael home: Appraisal: $280,000; Zillow: $322,000 (+15.0%)

My conclusion? It’s really hit and miss with Zillow. I wouldn’t recommend relying upon Zillow for any concrete decisions, but it is still a useful tool. Zillow is often a good place to start for neighborhood information, historical graphs and to get a general idea of what other houses have sold for recently. I would just be very cautious to give strong weight to Zillow’s value conclusion.

What do you use Zillow for? What advice would you give to someone about relying upon Zillow estimates?

If you have any real estate appraisal, consulting, or property tax appeal needs in the Greater Sacramento Region, contact me at 916.595.3735, by email, on our appraiser website or via Facebook.