In a recent Sunday Los Angeles Times, the discussion regarding the Zillow Zestimate of home values continued, as it does on Facebook and in almost every conversation that includes the question "What is my home worth?"
I love Zillow, because it embodies the essential truth of home valuation--no one really knows what a home is worth. What does Zillow know about your home? It knows the public record of its square footage, bedroom and bath count, and where it is on a map. That's about it. It doesn't know that you legally added 1500 square feet of exquisitely appointed master bedroom suite including spa bathroom and vast walk-in closet that somehow hasn't shown up on the tax records yet. It doesn't know that the house down the street that sold for $200,000 less than you think yours should was a tear-down.
Zillow is just a computer model that uses its own formula to give its "Zestimate" of value. This Zestimate changes constantly depending on what else has sold in the neighborhood.
But let's talk about home value--and let's talk about it in my neighborhood, not in a housing development consisting of three models repeated dozens of times. My neighborhood is made up of homes mostly built in the 20s, 40s, and 50s, custom built, of sizes ranging generally from 800 to about 3000 square feet. They vary in style, condition, and location. Some are right next to the freeway, some are in the hills, some are in flat areas. Some have pools, most have garages, the list goes on.
So how do we arrive at a true valuation of what this particular home at 1234 Main Street is worth? If the purpose of the valuation is a refinance, the lender has an appraiser tell us what it is. An appraiser looks at properties that have sold in the last few months that are somewhat similar to the subject property and gives an opinion of value. This is generally a conservative, static number because it is based almost entirely on historical data. If the market is quickly moving up in value, the true worth of the property will probably not be reflected.
If the property is going to be priced for sale, more numbers come into play--what the homeowner wants to make on the sale, what the Realtor believes is likely, what current properties on the market are listed at, and a very gray area of properties that are currently in escrow.
We can triangulate a point somewhere in between Zillow, recent market data, and where we think the market is going. But then there is the most important part of all--how the buying public sees the value. This is a number that is extremely hard to predict. Buyers today are primarily visually oriented, thanks to the Internet and the overwhelming influence of shows on HGTV. If your home doesn't have the open floor plan, neutral colors, marble or caesarstone counters, tile or hardwood floors that are popular today, then the buyers believe it "needs a lot of work." It might be in perfect working condition, but the idea of have to do all these "updates" is overwhelming to today's buyer. (But that could be a whole article itself.)
This buyer is also very well educated about the data that is out there about your home--again the Zestimate, among others. Also, they have access to historical data--they know what you paid for your house; and if you paid $500,000 in 2012 and want to ask $800,000 for it today, they want to know why. In fact, we all have access to so much data and opinions about home values today that we are overwhelmed and confused. What is true? What is real? What does it all mean? We need a curator to help us understand what the relevant information is.
I propose that the best curator is the real estate professional who is immersed in the market you care about and can interpret the data out there in a way that points you in the direction of what is relevant to you.
So, Homeowner, how do we help potential buyers see the true value of your home? We present your property in the best light possible and that includes how it looks and also how it is priced. As we know, the buyer sees all the data out there and knows what Zillow says your home is worth. Whether that number is high or low, we can use it for our first data point. Then we look at what other homes are priced at around you. Say there is a similarly sized home that is on the market for $900,000, and you want to sell yours for $1 million. Is yours really $100,000 better? If it is, then if you price your house near the $900,000 price and a buyer sees both of your homes, which do you think they will choose? Will more than one buyer see these two homes and find that yours is the best choice? Will they both be at the same open house and look over their shoulders at each other and realize that they need to pay more for your home if they want to get it? Let’s also look at the home that is priced at $1 million. Is it as good as yours? If yours is better and is priced lower, once again we have the scenario where buyers will see the value in yours reflected in the eyes of the other buyers in the room.
The simple question, “What is my house worth?” has a complicated answer if you are thinking about selling, doesn’t it? Welcome to the world of professional real estate. Don’t be fooled by a website with a Zestimate or even a recent sale down the street. Talk to someone who can really help you sift through all the information out there and come up with a plan to net you the most money possible on the sale of your home.
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