If you are a potential home buyer or home seller, how would you start going about conducting research on the process? Would we go to the library and borrow some books? Maybe. Would we go to Barnes and Noble and pick up some real estate magazines? Possibly. How else might we start? Ok, lets stop kidding ourselves. When we have a question or want to dig up more information on a particular topic, whether it be real estate, automobiles, or the best new digital camera out there, we usually begin our research on Ol' Faithful, the trusty Internet, right?We all know that the Internet isn't always the most accurate source of information. After all, most of what is on the web is generated by humans. To err is human, right? So we should take all information gathered on the Internet with a grain of salt. What percentage of the online contents that we encounter are accurate? 50 percent? 70 percent? How big of a percentage would we need to feel that we are working with very accurate information? 90 percent sounds pretty good, doesn't it?
Zillow.com is the Internets premier web based home valuation website. Buyers and Sellers come to this website to get estimates (Zestimates) on home values in particular neighborhoods. The estimates are based on tax records and multiple listing service data. It seems to have gotten so popular and seemingly credible that clients will argue with their agent about what a home's fair market value is based on information that they gathered from Zillow.com. These buyers and sellers may have valid arguments IF their data was based on accurate information. The truth is that Zillow has some very misleading information.
Did you know that in Monroe county 31% of these Zestimates are within 5% of the sale price? That means that 69% of Zestimates in Monroe county are at least 5% off from the actual sale price (the true market value indicator). Or even worse, in NY State only 18% of Zestimates are within 5% of the sale price! 25% within 5% on the national level. Where did I get these statistics? Zillow.com! Specifically:
http://www.zillow.com/howto/DataCoverageZestimateAccuracyNY.htm
If this site is so grossly inaccurate, then why do so many buyers and sellers count on it to get information related to buying their largest and most important asset? The most accurate way to calculate a home's value is a comparative market analysis or (CMA) completed by a local real estate professional, and in most cases it's free. If you are a seller, get a CMA completed by a few real estate brokers. This will give you the best representation of market value range. But take caution. There are some unethical tricks that some brokers perform.
Some agents will come in on their CMAs with an artificially high number. As sellers, we all know that we want to get the most money for our homes. Agents will take advantage of this desire and intentionally give you a high price that is not reflective of market value. They do this in order to get you, the home seller to list with them and not the competition (the ones with the more realistic estimates). This practice is so notorious in the real estate community that they have a name for it. It's called "buying the listing." After they get you to sign the contract with them for the inflated price, they beat you up on the price a week or two later to get it down to a more realistic level.
On the opposite side of the scale, there is the agent who will intentionally try to under price your listing. That sounds counter intuitive, doesn't it? If the agent wants to get more commission, wouldn't he want the house to sell for more money? The fact is that getting more money for a client's house involves more marketing; more advertising, greater exposure. Advertising is an expense on our income statement. Some people in our profession believe that expense... any expense is a bad thing; it hurts profits. So some agents will doctor a CMA to come in with an artificially low number, then under price your house so it sells in a couple of days. When it sells that quickly, they collect commission and do not have to advertise their clients property. But do not believe for a second that the agent doesn't believe in advertising, because this style of broker will usually spend the money that he/she saved by not advertising your house and invest it in self promotion advertising.
On another note, the home buyer should rely on their local buyer's agent to run CMAs on homes that may be of interest to them to come up with a reasonable purchase offer price. In any event, just remember that the most accurate real estate information is going to come from a local real estate practitioner, not a website proposing to give accurate data relating to home values. Home values cannot be calculated using tax records, satellite photos, or any other static metric or algorithm. For instance, would you watch a national weather syndicate to get your local up-to-the-minute weather? That's why local news and weather remain in business. Real Estate is a local phenomena, so you must rely on local people for the best information.
1 comment:
Could not have said it better. Total buyer exposure is only obtained through extensive marketing. More marketing , more exposure, more buyers aware of the property, more offers. When agents overprice, underprice or discount their fees to obtain a listing they only have one thing in mind. Usually it is to pay the next months expenses. A listing properly priced, in great condition and location and marketed to all buyers will always bring the highest price for the seller. Don't be fooled by the keep it a secret until Sunday agents, they have only one thing in mind, their fee and most of the time it is double because they keep all other agents out so they can sell it themselves. Your Zillow comments ring true having checked my own homes value only to find the Zestimate price to be very high. Maybe Zillow will buy it? If a seller used this number the listing would have cobwebs or the Days on Market may have to be 5 plus years.
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