Real Estate Agents vs. Zestimates

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Have you ever wondered where the home price estimates you see on Zillow, Trulia, Redfin, and others come from? Specifically – who decides how much a home is worth, and are they right?

Robots. Computers that can only see numbers. Computers that crunch sq. ft. average values, lot size average values, garage size, bathroom count, etc.

What is the problem with that?

First of all and of primary importance, these home value estimate robots are blind! They cannot see inside the home. They cannot tell the difference between a total run down fixer and a fully remodeled property! These computers will give the same value to that run down drug house with the garbage in the overgrown front lawn as the same size house and lot across the street where the owner put in 100,000 dollars worth of upgrades. Since these robots cannot tell the difference between the two homes, it creates bad math, bad numbers, bad averages, and in large part accounts for why these estimates and Zestimates (Zillow’s version) are often so far off from the actual market value.

Second, price is not value!
As we discussed in a recent blog post, what a home is priced for and what it sells for are often different. Why? Price is not the same thing as value. A home’s value is based on tangible and intangible things, and price attempts to capture that value by translating it into dollars. However, the price one buyer pays will be different from what another buyer might pay, based on how much value they see in the home. For example, one buyer might love the color scheme. Another buyer may want to walk to their local church. Another buyer may fully appreciate the garden or the old growth trees on the property. And let me tell you, none of these automated computer generated estimates are accounting for plant life!

I mention this because it affects how real estate agents determine value. We know, for instance, that certain parts of Portland have a strong gardener’s scene and a home with an organic pesticide free, amazing mature garden will sell for a lot more than a home with a brown grass lawn. Our job is to try to capture the value that all potential buyers might see in the home. Then we look at other similar homes in the area to come up with a price.

Flashy Name vs. Dull Acronym

You might have seen the term “Zestimate”. It’s a tool that a popular real estate website uses to estimate home values. And it is definitely less yawn-inducing than “Comparative Market Analysis”, which is the tool that real estate agents use to do the same thing. Let’s take a look at the real differences, though:

  • The Zestimate is created by an algorithm – basically, it turns a subjective matter into an objective math problem. The computer robots look at what other homes in the area are selling for and they do some calculations (the details of which are not shared by Zillow, but is relatively easy to determine) to estimate out what your home would sell for. A Comparative Market Analysis is created by a human, often a real estate agent, and takes into account not only the raw data but also the real estate agent’s personal experience in selling homes in that city and neighborhood.
  • Zestimates can be very accurate in some cookie cutter neighborhoods where even the interior and exterior condition of those properties is near identical, or not accurate at all, depending on the area they are looking at. Most of Portland’s neighborhoods do not fit well into a box and so the Zestimates are most often wrong, and sometimes by a huge margin. Some homeowners do go in and enter their data into Zillow, but whether or not that information is accurate is up for grabs, and unless everyone in the neighborhood has done that, the Zestimate calculator won’t have much to go off of in those areas where homes and neighborhoods are diverse.
  • Realtors’ CMAs are more consistently accurate because the real estate agent is free to do the research themselves and will visit the property in person, inside and out. Portland real estate agents even have data that is not always available to Zillow, such as MLS withdrawn, canceled, and expired listings, local brokerage pocket listings, and more.
  • CMAs are transparent. It’s a custom made report on your home, and you can see the all the information your real estate agent used to create it. Zestimates, on the other hand, are just a number. You can’t ask a number questions, and you certainly shouldn’t take it at face value!

Talk to a home value expert

At this point, we hope you’ve decided not to trust an algorithm with your home value, and you’re ready to talk to a real estate agent about how to start the process of pricing your home right.

When I hear from a potential client who wants to know what their home might sell for, the first thing I do is set an appointment to visit the home in person. When I am in the home I take detailed notes, I also talk to the homeowner to find out what improvements have been made on the home since it last when on the market. I consider how the neighborhood has changed and what the most recent statistics are on traffic, schools and growth. How fast are homes moving? Are buyers more likely to offer the listing price, or are they looking for a bargain? All of these questions go into my recommendations when I create a Comparative Market Analysis. I always pull comparable home sale information from our MLS, but giving the right home value estimate requires more skill than simple data crunching.

What I remind my clients is that a CMA is more than just a number. It’s a treasure trove of information about what your home is worth to the buyers who are looking for homes in Portland right now, and will point you toward the best way to improve your home’s value. If, for example, the only difference between your home and one that’s valued $20,000 more is an upgraded kitchen, you might look into what it would cost to (reasonably) upgrade your own kitchen before putting your home on the market.

Sellers get their say

One of the most challenging roles of a real estate agent is to adjust seller expectations to actual market conditions. It helps to again, look at the difference between price and value. Most people would put a limitless value on their home. We raised kids there and put a lot of love and effort into making it comfortable. We also want to get a return on our investment and see our home go into the hands of buyers who care as much about the home as we do.

As a seller, your expectation of what your home should sell for might not always align with your real estate agent. It can be nerve-wracking to watch them tour the home objectively and wait for them to suggest an initial listing price. It’s a good test of how much you trust your agent – will they list it low and hope for a quick sale, or list it too high and leave it idling on the market for months?

As a listing agent, I always take the seller’s expectations into consideration. We work to agree on a price that I think is reasonable for the market and allows the seller to feel comfortable at the same time. The greatest reassurance for most sellers is that a human being – one who not only knows the Portland market but also understands the emotional place their coming from – is helping them set the price, not a robot. Zestimates may look and sound cool, but they can’t compete with a local real estate agent!

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What My Clients Are Saying

We have worked with many Realtors over the years and Stephen is by far the best we have ever met. He's very knowledgeable and gets the job done quickly. We had multiple offers after one day, not because we were under priced but because we had maximum exposure at the appropriate price!

Karen