One of the great things about modern technology is that we’ve never had more information at our fingertips. The issue, however, is that not all of this information is necessarily accurate.
Case in point: real estate. These days, sites like Zillow abound. You can type in any address you want and in a few quick seconds pull up information about the home, see pictures from recent listings and even find its current value… right?
Well, not necessarily.
Zillow does have a “Zestimate” feature that attempts to estimate what any given home is currently worth. However, it isn’t necessarily accurate and shouldn’t be used for appraisals for a number of reasons that are definitely worth a closer look.
At its core, a home appraisal is a process wherein a trained, licensed professional will come to a home and make a determination of its fair market value.
They’ll physically inspect the property and look at a wide range of different characteristics. These include not only the condition of both the inside and the outside of the house, but also the amount of land it sits on, certain home improvements that have been made since the time of the last sale and more.
If a home last sold five years ago but the new owner replaced every legacy window with a more energy efficient alternative, for example, that could add thousands of dollars to the price of the home. None of that would be reflected in the older listing, which is why a physical site inspection is so important.
Also throughout this process, the home appraiser will look at what are called “comparables” or “comps.” These are similar homes in the area that share certain properties with the one up for sale. They’ll go back and look at three to six months worth of records to see what homes actually sold for, comparing and contrasting neighborhood properties with the one they’re currently appraising.
After all of this, they’ll use what they’ve learned to come up with a fair market value for the home that is on the market – a value that will be the basis for the sale price, the mortgage for the buyer and beyond.
Many people confuse the process of getting a home appraisal with a home inspection, which is a mistake. A home appraisal is tasked strictly with coming up with a value for the property. A home inspector dives even deeper and looks at the functional quality. So while the fact that a home has central heating and air conditioning may give it an increase in value, a home inspector would tell you that this system would likely have to be replaced in a certain number of years.
The same is true with other qualities like the plumbing, the roof and more.
Perhaps the biggest difference between Zillow and a traditional appraisal has to do with the sheer volume of information that is available to the latter that the former lacks.
When an appraisal occurs, a trained and licensed professional physically visits a property and spends a great deal of time there. They go over everything with a fine-toothed comb – they consider functional improvements that have been made to the home, the current condition of both the inside and outside, certain features and amenities that are present and more.
Zillow, for what it’s worth, has access to none of this information. Nobody actually comes to the home to collect information. It compiles its “Zestimates” feature almost exclusively from comparable sales and publicly available data – something that presents a few different challenges in and of itself.
For starters, a computer algorithm like the one Zillow employs is only as accurate as the data you feed it. Therefore, any errors in terms of things like property taxes, tax assessments and similar factors wouldn’t be taken into consideration – all of which would impact the value listed.
Likewise, Zillow has no way of knowing about any improvements that have been made to the home over time. If someone moves into a property and immediately puts a $70,000 addition on the rear of the house, Zillow doesn’t really have a way of knowing that – thus throwing off the “Zestimate” in a rather significant fashion.
Another one of the major factors that impacts Zillow’s figures has to do with turnover rate. The more frequently a home is bought and sold, the more data is publicly available about those transactions. But if someone has been in their home for 30 years, that isn’t necessarily going to be the case. Zillow might be basing its estimates on information that is decades out-of-date – thus leading people to draw incorrect conclusions.
To Zillow’s credit, they have made a number of changes to their algorithm over the years in an attempt to make it as accurate as possible. In January of 2019, for example, they invested $1 million in a team of data scientists to help improve its accuracy. Unfortunately, there’s just some information that Zillow will never be able to know and that data absolutely has an impact on the actual fair market value of a home.
In the end, Zillow certainly has its place – particularly when you’re trying to compare comparable sales with similar homes in a particular area. It can be insightful to a certain extent, but it absolutely should not and cannot replace a traditional home appraisal.
Zillow itself has been forthcoming with the fact that its algorithm isn’t perfect, and it’s making efforts to improve it all the time. But it will never replace the level of insight and expertise that a human appraiser can provide.
If you’d like to find out more information about why it’s never a good idea to use Zillow estimates for the purposes of an appraisal, or if you’d just like to speak to someone about your own needs in a bit more detail, please don’t hesitate to contact AmeriMac Appraisal Management today.