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Why You Shouldn’t Trust Online Real Estate Price Estimates

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The latest news making headlines throughout the real estate industry is the lawsuit against Zillow and their notorious “Zestimate” forecasting feature. It may sound engaging to quickly determine what your home (or your neighbor’s or colleague’s home) is worth, but these sorts of online appraisals — as the results have shown — can often times be misleading.

Take Illinois real estate lawyer, Barbara Andersen, for example. Barbara purchased her 3 bedroom town home in 2009 for $630,000. In consideration of the home’s floorplan and finishes, she is confident that hers home was of greater value than nearby units. When Barbara felt that her home was undervalued by $100,000 on Zillow’s Zestimate component, she took it up with the company. Zillow responded that Barbara should “go in and change her home facts.” Frustrated that the company had missed her point, Barbara’s concern is that Zillow should not be making estimates of home values at all. Her suit against the company alleges that, despite the company’s denial that Zestimates are considered “appraisals,” the fact that they offer market-value estimates and are promoted as a tool for buyers to assess a property’s value shows that they meet the definition of an appraisal under Illinois state law. Therefore, the company should be seeking and obtaining the consent of the homeowner before publicly releasing such estimates.

Homeowners, real estate agents and professional home appraisers have been sharply critical of Zestimates and other free appraisal tools for years. Estimates are often times 20 to 30 percent too low or too high. Zestimate error rates are off by 10 percent of the selling price roughly one quarter of the time. The prices are off by 20 percent more than one tenth of the time. Several homeowners have even noted that their rental properties skyrocketed in the wake of the housing collapse. These errors can risk tens- or hundreds of thousands of dollars, misleading buyers and creating roadblocks for sellers.

The main issue with Zillow’s estimates is that they are based off of comparable sales. In the economic downturn, volume decreased, which made real-time comparable hard to find. Pulling up home price estimates around an entire neighborhood can be helpful, but if there are only a few sales in the past few months, the statistics are going to be unreliable. If Zillow keeps its Zestimate feature, they should be encouraged to figure out what the seller paid for their home and when. This will provide more reliable information than delivering a stab in the dark based off of comparable sales.

Instead of relying on outdated pricing information, ensure that you are being delivered proper information with a CMA from a real estate professional. Real estate agents are trained to administer the comps on what similar properties have sold for recently. This will justify any validity in your potential pricing strategies. Our team at Bushari is made up of accomplished real estate professionals who are knowledgeable market analysts, clear communicators, skilled negotiators, creative marketers and are fully dedicated to exceptional customer service. Get to know them and browse through our current featured listings at BostonRealEstate.com.

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