Zestimate is 50% of asking price. Can I use zestimate to make an offer?

17 Replies

I am looking at a property where the zestimate is almost 50% of the asking price (517K vs. 995K).  I understand zestimate is perhaps the result of some robotic formula calculation; but it has to be based on something right?  If I make an offer based on the zestimate price (meaning close to that price), will the seller/selling agent get offended?  I really would love to get it at 517K..... =)

If the Zestimate is the only reason you are offering half price, then yes they might get offended because a Zestimate is usually wrong.  Sometimes close, and sometimes crazy out of your mind ridiculously wrong.  Zillow does not know anything about the house except for what is in public record.  That fantastic $100,000 kitchen???  Zillow doesn't care.  New roof??? So what.  Basement is now finished with a media room and indoor pool??? Zillow doesn't know it exists.

I suggest you pull comps for the house in question.  Are they close to the asking price?

It would be very possible that the agent/seller would get offended and not respond, if the price they are offering the home at is reasonable.  I never use Zestimates as they are in no way accurate.  I would look at the Zillow completed sales and other sites to get an idea of prices.  If there are no houses very close to the size/quality that you are looking at then find similar sold homes and determine a good price per square foot for those homes and multiply that number times the square footage for the home you are looking at.  That will give you a reasonable price range for the home.

Good luck,

David

Hi Robert,

Zestimate is so off, sometimes I feel like they literally pull these numbers out of their ______(feel free to fill in the blank, Sorry). If the property your looking at either an SFR or small unit multifamily (duplex, triplex, fourplex) learn to find out how to appraise it. Look at recent sales that are comparables in the past 3,6 and 9 months to this property (similar bedrooms/bathrooms, square footage, lot size, and then amenities such as central AC, connected sewer instead of septic, granite countertops, tile instead of lanolium flooring...etc). This is how the bank will appraise your property, and if they're asking pricing is way higher than what they're selling for then no bank will finance any buyers for this property, unless the buyer decides to pay the difference in cash, or be an all cash offer. If you lowball them with the offer, present to them an explanation why the offer is low, it could be that they are personally attached to this property and they feel emotionally that its worth more.

 If the property price is similar to recently sold properties in the area, then you can try to submit a lower offer of 10-15% less of asking and go from there.  But with any offer make sure the number works for you.  Good luck!

Ha this is great. Please offer $517k and let us know what happens. If it works I'm buying some zillow stock based on their spectacular zestimate algorithm. But, In all seriousness that zestimate is typically way off because of inaccurate home stats, lack of comp info, etc.

Nope! I wrote a whole article on how zillow estimate should never be used.On another note, Did you do your own market evaluation? Does it support the asking price? I always have my agent to a market comperasitive. So if you don't normally (which i highly suggest you do), than such an off z-estimate can symbolize the need to look at actual numbers.

One thing I noticed about zestimate, is every 3-5 days the number drops by about 0.15%.  That points to a "the longer a property sits unsold, the more likely price is too high (therefore unsold)".  I think there is some market insight to that.  Not saying this positive-proves zestimate, just one little thing I noticed and seems to make sense.  What are said above about the flaws of zestimate also make sense.

My real estate agent just pulled some comps in the past two years, there are 7 sales; all sold for below asking price (I'm buying in a "2nd home" area, so not a hot RE market like SF or NY).   I did some compilation on Excel, these are the discounts from the asking price.  And I assume it's the FINAL asking price, which might have been reduced from a higher original asking price.  So it seems typical in that market that people ask for more but settle for less.  I just have not seen a 50% differential. 

2%
37%
35%
28%
3%
3%
14%
18%

If you have no idea what the property is worth, why would you "love to get it at 517K"?  What if Zillow is wrong the other way, and it's only worth half the Zestimate?  Even if it is accurate, and the property is worth $517k, why would you pay almost full price?

If you're going to use Zillow for anything, and it does have value, why don't you use it for recent solds and form your own comps? These tend not to be as up-to-date as the MLS, but they are accurate on their own and will put you in the ballpark.

I am going to take a little different approach in my response.  Nothing has been posted (other than Zillow) to indicate why this deal makes any sense.  Investing means you buy something that you hope will have a greater value now or in the future!  Nothing posted says that analysis has even happened.

I don't mean to sound rude, so please don't take my comments that way.  You are about to make a serious (and expensive) rookie mistake that may prevent or discourage you from ever investing again.  I am saying something to try to help, not offend.

When looking at ANY investment, you need to determine 1) present value and 2) future value.  You also need to determine 3) what factors are involved in realizing the future value.

In your example, you need to determine what it is worth today to a ready willing and able buyer.  Zillow is not going to give you that.  An experienced professional can give you a reasonable guess, but even that is not a guarantee.  At least using a human you get the opportunity to ask why they gave the opinion they gave.

You then need to determine the future value.  Basically, how will you make money on the deal.  Too many scenarios exist, so I will leave it at that.

Finally, you need to determine what you need to do to realize your gain.  Do you fix something and sell it for more than the cost of repairs?  Do you sit on it and wait for a big developer to buy it to tear down and build a mall?  Do you sit back and collect rent for the next 20 years?  A combination of the above?

My best advice to you would be to learn how to answer these basic questions before writing any offers.  You are looking at some pretty hefty numbers if you make a mistake.  Again, none of my comments are intended to be offensive.

Good luck, happy investing!

Originally posted by @Adam Johnson :

When looking at ANY investment, you need to determine 1) present value and 2) future value.  You also need to determine 3) what factors are involved in realizing the future value.

Hi, no offense taken.  Thank you for taking the time to discuss.

What I am buying is a "2nd home" for now and also for my retirement spot maybe 15 years later.  The area is near Mendocino, CA, a very scenic place.  I'm only looking at ocean-front properties with 3+ acres of land.  Because of this objective, I'm not looking to flip and make a quick profit; and I have even accepted that home value in this area will grow more slowly than the red hot SF bay area where I live and can easily invest in.  In another word, future value is not a big concern to me.  But I surely don't want to pay more buying it if I can pay less.  

So what is the present value?  Prices in this "2nd home" area is very volatile.  All homes I have seen -- and that include comps and current listings -- start with a high price then come down.  Below is one example.  Seems to me people will always start with peak era price levels.  So the question to me is, how much do I shave off that asking price and with what justification.  50% seems a bit excessive just from a statistical perspective, but may not be totally ridiculous.  Some of the comps have as much as 35% discount from the last asking price; I would not be surprised if they are about 50% off the original asking prices.

I look at Zillow only because this site makes available to common investors more information available than other sites.  I will gladly look at any other publicly available site and ask my RE agent.  I will add one thing about zestimate, though, it does not always come down.  As the 2nd image shows, zestimate can also pop up for reasons unknown to me (perhaps someone makes an offer?).  So I won't accuse zestimate as only trying to bring down the price.

I will definitely be asking my agent the question of "what would be a price that will get a buyer today" on any property I want to make an offer on, and factor that best guess into the offer.

Asking price changes:

Zestimate price pop:

If I were the listing agent, I would show the offer to the seller as required by law, then we would toss your offer in the garbage.

If I were the buying agent, I wouldnt even write the offer for you. Id suggest that maybe you should use a different agent.

I invest in Mendocino and know the market pretty well. I'd be happy to offer an opinion Inge place. Pm me if you want. I'm not investing in ocean front yet, so no potential for competition or what not.

Cheers

@Robert Fisher - my first thought is that your total approach is flawed.  Your approach seems to be using the asking price as the starting point, then trying to come up with a statistic that says how much below asking price you should offer.  Huge mistake.  That assumes that the seller has priced the property correctly, using comparable sales and NO emotion whatsoever.  This doesn't happen very often.  If you had a $ 100,000 property and somebody offered you $ 150,000, would you take it?  Sure you would.  Much the same, many sellers, as you know, start at a "dream" price and look at the offers that come in, then decide if they can live with that offer.  Some sellers are well-advised when they list, listen to the advice given, and price it appropriately from day one.  As a BUYER, it is your job, along with your BUYER'S AGENT if you are using one, to determine if the seller and their agent if applicable have priced it properly in the first place.

I have offered full asking price for properties before.  I have also offered 1/3 of the asking price before.  Believe it or not, the property that I off 1/3 of the asking price was accepted at around 40% of the asking price.  This was a combination of improper pricing, along with strong justification on my side for my offer.  It also helped that the selling agent was willing to listen to why I offered what I did and the situation made sense to close that deal.

I have presented offers that are crazy compared to the asking price.  I always can back up my numbers with justification.  Sometimes I tick people off with what I offer.  I have had sellers walk out of the room screaming at me, I have been asked to leave and quit wasting their time, you name it.  I have also closed a fair number of deals.  I am a ready, willing, and able buyer prepared to close the deal.  I know my numbers and do my homework (I don't use Zillow) ahead of time and I can back up every figure that I use to determine my opinion of value.  I don't write offers on emotion (other than my personal residence), it is all about good numbers.

In my earlier post, I stated that you have to determine what the property is worth today in order to make an informed decision.  I never use the asking price in any part of my formula for what to offer, EVER.  Use your own numbers ALWAYS.  Part of your purchase is emotional due to your long term plan for this property.  That will very likely reduce the investment quality for this particular property because emotion will come into play.  What you describe is partially speculation too, which makes it tough to pin down a value.

I am not familiar with the market nor the type of property.  My opinion is merely how I look at all investment properties.   It's a numbers game.  If you use good numbers, you get ahead.  If you use bad numbers, you don't.

Hope that helps.

As a new investor, I had the same experience and was using Zillow including other free websites to determine home values or rental rates. As our fellow BP members mentioned, it is so way off based on my experience.

Currently, I ask assistance from my agent about getting CMA including connecting with your local broker (within your network) to get this numbers. In terms of rental rates, I am getting info from local property management companies, craigslist and RE agents as well. Every time I submit crazy low offers, my agent will submit it but will let me know straight up if will just get rejected.