There isn’t a week that goes by when we don’t hear, “According to Zillow, my home is worth x amount.”
As you probably know, sites like Zillow use algorithms to aggregate data and generate a property value. While in theory this should work, the valuations are largely inaccurate. This is problematic because the first place buyers and sellers go to find the value of a property are such sites, and they often use this inaccurate information to make real life decisions. Here is why you should look at these values with a healthy dose of skepticism.
THE DATA
Every year Zillow publishes their Zillow Accuracy Report by metro area. In Phoenix, the Zestimate is only within 5 percent of the sales price 73.4 percent of the time with a 2.2 percent margin of error. So over 25 percent of the time, their valuations are not even within 5 percent! Five percent of sales price may sound like a reasonable ballpark, however, if your Zestimate is $350,000, 5 percent indicates a possible swing of $17,500 on either side. That is substantial. This beats San Francisco, where the Zestimate is only within 5 percent of the sales price on 53.6 percent of transactions, or Dallas-Fort Worth, where it is only within 5 percent of the Zestimate 37.4 percent of the time. Yikes!
COMPARING APPLES TO ORANGES
Think for a moment of two homes built by the same builder, both 2,000 square feet, with the exact same floor plan and in the same subdivision next door to one another. According to an online evaluation, both homes are worth $350,000. While Zillow does not know the difference, a buyer certainly will.
House A has limited upgrades, a basic gravel backyard, and also smells of last week’s fried chicken the moment you walk through the front door. The window coverings are basic, the paint needs touching up, and the owners have done little to decorate the home. By contrast, House B looks like a model. It has white cabinets and new quartz counters, new bathroom cabinets, presents like a Pinterest page, and has a well-maintained backyard with bistro lights and a water feature.
If you are the owner of House A, you think your home should absolutely be worth the online estimate of $350,000. If you are the owner of House B, you definitely don’t think your home should be worth the same has House A. So then, whose home should be worth the online estimate? Probably neither! The real marketable value of House A may be $325,000, while House B may sell for $375,000 or more.
THE CURRENT MARKET DICTATES YOUR VALUE
The real estate market is always changing based on supply, demand, individual neighborhood characteristics, and the strength of the general marketplace. According to ARMLS, May 2019 was a peak month for home sales and as a consequence, inventory is now incredibly low.
The low inventory is increasing pricing in certain segments and the market is completely different than it was in January. When pricing your home in this ever-changing market, you really need to evaluate your property’s assets against what is available and what is in demand at the moment.
Are you the only home on the market in the area with a pool? Then maybe you can leverage this to get a higher price. On the flip side, perhaps ten homes with your same floorplan are already on the market and none are selling – you may need to price your home more aggressively.
Neighborhood news can play a role in the current market as well. Demand for an area may increase because of a new Sprouts, a better school rating, or a corporate expansion that excites buyers. On the other hand, demand for an area could also change because of a flight path change, increase in crime, or aging homes.
A home value is more than just a price per square foot data point. What a home is worth has everything to do with what buyers are valuing at the moment – and that can be impacted by everything from national politics to Pinterest.
The key is to make sure you get as much information as you can. An online valuation is just a number, and there is so much more to pricing a home or marketing it for sale. Don’t hesitate to call us any time for a free market consultation on your home. Get the real facts so you can take your next steps!
Mesa native and Las Sendas resident Natascha Ovando-Karadsheh is chair of the City of Mesa Economic Development Advisory Board, Associate Broker, owner of KOR Properties and the founder of Mesa Food Truck Fridays. A graduate of Princeton University and The French Culinary Institute, she is a member of Who’s Who in Luxury Real Estate.