I lived in the same neighborhood for over 20 years and did hundreds of loans within the area – so I knew every nuance of the area.
As a former appraiser and armed with my extensive neighborhood knowledge, I was often shocked by how wrong Zillow’s estimates were.
Here are some of the things Zillow often got ridiculously wrong – fostering “Zestimates” that were often $100,000 or more in the wrong direction.
- Appreciation/Depreciation Trends. In recent years, the area has seen as much as 3% appreciation every MONTH in some cases, and if Zillow is correlating to comps that closed 3 months prior and that went into contract 4 months prior, its Zestimates can easily be off by 10%. This same thing happened in the other direction after the 2008 meltdown, when the market was depreciating equally fast.
- Pending Sales In Excess of Listing Price. Zillow will also correlate to listing prices in many cases, but those listing prices are often much lower than the actual pending prices (in hot markets) that are not showing up on county records or in the MLS yet. My mom’s condo in AZ, for example, has a model match that is listed for $550,000 but it is pending closer to $600,000 (per the listing agent). Zillow, however, does not know this and thus estimates my mom’s condo at $550,000.
- Updating/Remodeling. My old neighborhood is comprised entirely of $1 million+ tract homes built between the 1950s and early 1970s – so updating and remodeling significantly influences value. But – Zillow is not able to recognize the recency or the extent of a property’s updating, and that can easily result in a huge miss when it comes to a Zestimate.
- Views. I had a borrower who insisted his home was worth $150,000 more than it appraised for because his friend’s nearby home had recently sold for so much more than my borrower’s appraised value. His friend’s home, however, was at the top of a small hill with a drop dead gorgeous panoramic view of the nearby mountain. And that view alone was worth $75,000. (more about this in #8 below).
- Lot Size. Most of the lots in the area are either 1/4 acre or 1/3 acre – with the 1/3 acre lots selling for a huge premium – given the price point of the neighborhood. Zillow, however, often misses those lot premiums and massively undervalues or overvalues properties as a result.
- Lot Utility. This was not too common in my old neighborhood, but it is a common Zillow mistake that I see in the Bay Area often. A home on a steeply sloping 3/4 acre lot will often be worth less than a similar home on a flat 1/4 acre lot because the 1/4 acre lot has far more “utility.” Zillow often misses this factor by a mile.
- Builders. Even after 40 years, buyers and agents still pay attention to who the builder was, interestingly, as some builders had better floorplans or built with far more quality. Zillow misses this factor entirely.
- Location/External Influences. THIS IS THE #1 FACTOR that I observed Zillow getting the most wrong – at least in my old neighborhood. Location is a huge factor in the area because there are several schools, shopping centers and very busy arterial through streets. Hence, homes that front or back to the busy streets will sell for far less than homes on quiet streets or courts. The borrower I mention above, who insisted his house was worth so much more than it was, lived on a busy through-street near a high school, while his friend, who sold the nearby comparable sale, lived at the end of a very quiet court. This factor alone caused Zillow to be off by another $75,000.
Is Zillow always wrong?
No. Zillow’s algorithm is getting better and better and sometimes Zillow nails its estimates. This is particularly the case in newer tracts where external influences and location factors are all very similar.
Do we need appraisers?
My answer is emphatically yes (at least for now), as my old neighborhood shows us exactly why machine learning and algorithms still have massive limitations.
Questions? Ask Us!
There are many factors that play a significant role in determining a property’s value, which can in turn affect the mortgage financing home buyers are able to qualify for. If you have questions about your home’s appraisal, property valuations, or mortgage rates, feel free to contact our team. Our Mortgage Analysts and Appraisal Manager are happy to answer questions and help guide you on your homebuying journey.
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