Let’s talk about Zillow, specifically, about how sellers and buyers should be very careful when going on to the Zillow website to find the value of their homes.
First, we have to mention the fact that they totally—100%—screwed up this whole process they thought they had down with the iBuyer program: buying property, then selling it, making a profit, and then relying on their Zestimate to anticipate what was going to happen in the market. Yeah, that was a fiasco.
So, let’s just dive right into this one. Here are three that Yahoo! Finance says are reasons to be careful in using Zillow.
The Yahoo! Finance article is called “What the Zillow fiasco can teach homebuyers and sellers about property pricing.”
One of the first things buyers and sellers want to know is the value of a property. Most of them go online to find the value of their home, and some of them still use Zillow’s Zestimate.
“However,” according to Yahoo! Finance, “determining a home’s value is a delicate process—not something easily accomplished at the push of a button.”
Zillow’s Zestimate has a track record of being flawed and wrong, which in fact forced the company to “shut down its home-buying business and lay off a quarter of its staff,” according to the article. It also caused Zillow’s stock to plummet 80% of its peak value. This means investors have lost trust in Zillow’s Zestimate.
Fortune wrote about it in June, saying that: “Zillow’s $6 billion home flipping business was a disaster.”
A more recent Fortune article writes that Zillow economists are saying they’ve already adjusted what they think is going to be the real estate market—how it will continue to grow—over the next year. But they keep on adjusting it every month. Why? Because they don’t have a grip on what is actually happening.
It is hard to rely on something like the Zestimate to provide buyers and sellers an accurate estimate of home values, because they rely on a faulty algorithm, especially in a shifting market. And if you are looking to refinance your home, it is important that you pay attention to that too.
Yahoo! Finance breaks it down for us why Zillow is finding it hard to “accurately predict home prices.”
“In 2019, Seattle-based Zillow launched its iBuyer business, called Zillow Offers, to purchase homes directly from owners, make repairs, and put them back on the market,” Yahoo! Finance says. “Zillow was so confident in its pricing algorithm that it said its Zestimates would serve as the initial offer price on eligible homes. That didn’t last.”
If we can’t rely on Zillow’s Zestimate because it is flawed, what are the best ways to determine a home’s value?
“One lesson stands out from the Zillow fiasco: Property values can change fast. Do your homework on fair market value,” Yahoo! Finance says.
Real estate is super regional. That’s why “fair market value” varies drastically from state to state and sometimes even depends on where your neighborhood is located.
Their advice is to find a qualified real estate agent. Preferably in your local market. Someone reliable and who knows the actual situation of real estate in that local area. Since they are updated on the current stats of that area, they understand the market well and can help you better than Zestimate can.
Yahoo! Finance also tells us that it is best to get an appraisal. “While not legally required, your real estate agent will likely suggest you get an appraisal and include an appraisal contingency in your offer,” they say in the article.
I think that is great advice, especially in the market that we are in right now. Now it is becoming a more neutral market, although around 40% of homes are still selling for over the market value, so now you can keep that appraisal in there. Over a year ago, when competition for homes was so high, buyers were willing to let go of that in their offers. Now they are in a position to negotiate an appraisal.
It is also necessary, especially if you are getting a loan, but even if you are paying in cash, it is worth getting an appraisal. That way, you will understand what the home's value is.
Lastly, Yahoo! Finance tells us to look beyond computer-based valuations.
“It’s tempting to accept the prices spit out by private real estate websites—Zillow is one of many—but remember that those figures are simply estimates. Zillow even says buyers and sellers should supplement Zestimates with their own research,” Yahoo! Finance says.
Companies out there are now looking at Zillow and saying, “Hey, you know what? These guys are a joke. Let’s be careful with them.” Because not only are they kind of throwing all their money and seeing what sticks so they can rake in the profits. But most of their money—actually, their only positive cash flow—is coming from agents that are buying leads.
Everything else is negative. Because their stuff’s broken. Even Yahoo! Finance and Fortune say it.
So, for buyers and sellers, before you believe what Zillow says (their Zestimate), pay attention to the market. We know that Zillow’s made a ton of errors, and they haven’t fixed them yet.
Get somebody local. Get an appraiser. And do your own research on multiple different websites.
As for agents, I want you to come into this with your eyes wide open. Zillow provides great quality leads because they have over 200 million people visiting their website each month. But, they don’t have the agents’ best interests at heart, at least not from their actions.