Why Zillow Has No Idea What Your Home Is Worth.

Trying to decipher the value of a property to most people is a mystery, to an appraiser it is a science based on data and to Zillow.com it must be a random number generator operated by a monkey...

What's your home worth? This guy knows about as much as Zillow.com

Now this wouldn't be a big deal if it weren't for the fact that homeowners seem to unanimously refer to Zillow to determine the value of their property. Sure it takes a professional appraiser, the person trusted by your lender, agent and attorney several hours at a minimum why shouldn't a website be able to magically compute this instantly at the same accuracy? Suddenly I think my point might be getting across to you.

I'm not going to say I know how Zillow does determine these values. I will however say that it is inaccurate, misleading and likely based on sales of properties that have very little in common with the subject property.

So, let’s take a look at an example. The property in question here was viewed on Redfin and Zillow and while Redfin does not offer an actual value on the property it does show you recent sold comps of similar properties in size, location & age which is what an appraiser uses to determine value (what a novel idea). This is a nice example as you have identical properties that have recently sold to help you see very quickly the average home sells for roughly $575,000 in this neighborhood.

Recent Comps Of Subject Property

So let's see what Zillow thinks it is worth... Great news Mr. Homeowner, thanks to a flawed algorithm you're a millionaire! Ignore the fact every house in your cul-de-sac has recently sold for just under $600,000

Zillow's Take On Values

I even tried to give Zillowa break, maybe it just has a hard time determining values of properties when they haven't been sold recently. I looked to see what Zillow thought about my neighbors recently sold home. It had closed less than a month ago (July 1st, 2014) at $465,000.

Zillow Just Can't Get It Right

$532,472 was the value Zillow had placed on this home, it literally was appraised at $465,000 and sold in this month and Zillow still cannot get it right. It is $65,000 off the value and has THIS EXACT property to use as a comparable sale, seriously?

In some cases Zillow can be good for a "rough idea" but in general it gives inflated values based on a dollar per square foot value that gives homeowners a false hope of the value of their property. They now have unrealistic hopes on the value they can sell their home for, placing the burden of breaking the bad news to them on the agent, appraiser or lender.

But as a seller why wouldn't you accept this data, you're suddenly richer because of it. Except for one important fact. No one will buy your home at this price. If you have no intention to sell and it makes you feel better about your home purchasing abilities then good for you! If you are looking to sell your home then it is best not to get your hopes up on inaccurate and inflated values offered by a website. Sold comps of like properties of similar size, location and condition will quickly determine the value of your home.

In my next post I'll cover how to properly determine this value and explain some of the tricks us investors use to do this quickly, thanks for reading.