March ’17 Market Stats
February ’16 Market Stats
The Zestimate – How Accurate?
Alright, this has been coming for a while. The good old Zestimate.
For those of you that are not entangled in the real estate community, and specifically Zillow, (an online platform for real estate agents to connect with the public, and for the public to search for available real estate) a Zestimate is basically in algorithm or program created by Zillow to automatically value properties based on other recent sales. Zillow describes the Zestimate as a proprietary formula to estimate market value.
Before diving into this, understand that I am not a fan of the Zestimate. Read on for my biased opinion on the program, and its “proprietary formula”…
I’m going to break this down into a few sections. How it works, the difference between a Zestimate, a CMA, and an Appraisal, why it doesn’t work (biased opinion) and in what circumstances you should use it.
How it works
To some extent, I’m speculating here. However, I do have a fair amount of experience with these programs, algorithms, and a general sense of how the digital world functions. That being said, here is how I think it works…
Zillow’s primary function is to utilize incoming information feeds from Multiple Listing Services (programs where Real Estate Agents pool listings) to provide a one-stop-shop for customers, (primarily buyers) to view all listings for sale in one location. Zillow doesn’t really make any money doing this. Zillow’s moneymaker is real estate agents. Real estate agents pay for advertisements to promote themselves on Zillow, hoping to connect with potential buyers. Zillow is also able to obtain information on sales as well, where multiple listing services and/or states allow it. There is so much data from all of these multiple listing services that Zillow has been able to create an algorithm for individual markets to automatically value properties based on their basic features. These basic features can include square footage, landscaping, acreage, bedrooms, bathrooms, recent remodels, the list goes on. For the most part, the real estate industry’s information data feed, referred to as a RETS feed, provides the same information Nationwide. Some areas might have a standardized feed to include amenities like pools, proximity to a golf course, and even information on local schools. Most multiple listing services provide the information on the nearest school, and I believe Zillow can pick up on this information to include it as part of the overall valuation. So, recent sale data comes in, and the subject property is adjusted based on its size, location, amenities, etc.
The difference between a Zestimate and an Appraisal
You will receive all sorts of disclaimers from Zillow stating that is Zestimate is not an appraisal. That is because it is not. You will receive the same disclaimer from a real estate agent when they provide a broker’s price opinion or market analysis. However, while market analyses and appraisals are similar in the way that they are prepared, I do not believe the Zestimate is. A sales appraisal is prepared by choosing similar properties and adjusting those “comparables” to obtain the value for the subject property. This method is how brokers and appraisers alike are trained in the industry.
As opposed to the above method, my assumption is that the Zestimate simply adjusts the subject property’s value based on its square footage or amenities. While this might seem similar, it does not produce the same result.
Why it doesn’t work
To be clear, I’m not saying that it is wildly inaccurate. Truthfully, I guess that means that an argument can be made that it does work, but I digress.
The biggest problems with the Zestimate, in my opinion, is lacking data and niche markets.
Lacking data – if you recall from above, Zillow relies on data entries from local multiple listing services to arrive at a value based on other sales and the amenities included with those sales. However, not all multiple listing services provide sales information publicly. In some cases, it is a non-disclosure situation. Idaho, for instance, is a non-disclosure state. In these circumstances, Zillow must rely on data entries from real estate professionals. Based on my own personal experience, I can tell you that not all, if not very few real estate professionals actually take the time to enter all of the correct data for a recent sale. In Zillow’s defense, they did have the initial list price data, features, and listing amenities.
Niche markets – this is arguably a bigger problem for Zillow, particularly in the Teton region. In my opinion, this valuation method works best when similar data is available across the board. For instance, tract housing.. These types of developments feature very similar homes, at very similar prices with quite a bit of data available. However, in our unique market, we often times find developments with home selling at nearly twice the $$ per square foot than an adjacent home. This can’t be good for an algorithm operating primarily on price per square foot.
Should you use it? Sure. Just remember that this is a rough guideline. Personally, I would imagine the Zestimate to be much more accurate in urban markets such as Idaho Falls such as opposed to Teton Valley for reasons above, but it can be used as a guideline. I would not advise that you make a decision to sell the farm based on your findings online…
Time to sell: Landlord vs Tenant
And I should have added real estate professional or Realtor into the mix…
Any of you that have a rental property, or a residence that has been converted to a rental property while waiting for this market to recover has probably had an experience with this. Now that the market has recovered, many of us whom have been waiting to sell are anxious to act, and these sellers have every right to do so, for the most part. It’s been a complicated life as a real estate professional watching this market through the recession and recovery. Many had to rent their property to offset the cost of ownership through the unexpected downturn nearly as decade ago.
This challenge comes at a time today when supply is low – hence the improving market. That supply however, unfortunately includes available rental properties as Commerce begins to grow and we begin to see a shift in population during that growth period. Now, those who have been operating their home is a rental property with tenants for the past several years are faced with a task at hand, transitioning from a rental property to a property that is for sale. This can be taxing for the tenant as well, who faces notice to vacate at a time when rental supply is so low. Throw the Realtor into the mix, and things get complicated.
Seller advise:
For the obvious reasons on behalf of the tenant, my first suggestion is to remember that it is a difficult time, and to be sensitive about certain issues. Providing notice to vacate in the middle of winter, for example, can be difficult for anyone. Next, review your lease agreement. Many leases have a provision for a 60-day notice to vacate if the property sells. If you own a property, you have every right to exercise this right, but do so in a sensitive manner as I have suggested above. If you are considering selling in the future, try to time this properly. To avoid major push-back, it might be best to wait until your lease is it month to month or in holdover status. After you review your lease, the next step would be to have an honest and straightforward conversation with your tenant or through, and with your property manager. Your tenant might be looking to vacate early, perhaps they are looking to purchase a home. There are numerous opportunities to resolve the problem before a problem develops. As a final bit of advice, once you have gone through the proper steps to make sure you are handling the process ethically and properly, remember that you are the homeowner. You have every right to sell your property, and when the time is right, don’t make the mistake of being overly sensitive to put your own interests at risk or to jeopardize a major decision. If the home isn’t kept in great condition, or the tenants are making demands about reasonable showing requests, it might be in your best interest to provide notice and market a vacant property. This could mean thousands of dollars difference in sales price. This is your home, and your investment.
Tenant advise:
As a tenant, you likely have an interest in the property, this is called a leasehold interest. Basically, this gives you the right to occupy the property. These rights are associated with the lease agreement that you have in place. I have not had very many experiences (especially with property management companies) where these agreements are written illegally. Assuming your landlord or Property Manager has taken the proper steps to provide notice or to inform you they will be listing the property, you can review your lease to see what your options are. Remember that if you are in the middle of a tenancy with months left on your agreement, there may be a clause as I described above where the owner can provide notice to vacate upon sale or transfer of the property. On the other hand, as an owner, there a certain number of rights that you do not have. One of these rights include the right to sell the property (feel free to check out a recent post on the “bundle of rights” that come along with property ownership). You may feel upset about the situation for the reasons I described at the preface of this post. It’s not a great time to be a tenant without a place to live in this area. With that said, if you are at the end of your lease, the owner has the right to give you notice to vacate the property. If the timing does not work for you, the owner may be able to market the property for sale while you still reside in the property with the owner retaining the ability to provide notice when the property goes under contract or sells. If this is a goal you wish to accomplish, the first thing you need to remember is that it may not be an option. This does not mean that your landlord is a bad person. Second, go about it the right way. Be respectful and understanding of the situation. When your landlord or property manager meets with you, show them that you are capable of keeping a show ready home in good condition. Express your concerns, but understand their concerns as well. In my experience, the best way to get what you want is to go about it with respect and understanding. Providing push back and expressing dissatisfaction during these times is a surefire way to move in the opposite direction and potentially receive notice to vacate. Finally, if you are able to work out an agreement to stay in the property during the marketing period, remember that there may even be an opportunity that the new owner of the home will retain you as a tenant for sometime. If this is also something you would like to accomplish, remember that a buyer’s first impression will make all the difference if they are considering this, and there are more of these types of buyers than you might guess. Finally, when it comes to the real estate agent involved in all of this, they represent the seller. They should, and in some cases are required to report any problems with the property to the owner. Putting on a good show for the owner but not the real estate agent involved certainly doesn’t help the situation. If a real estate agent representing a buyer feels that you have been difficult to work with or don’t keep the property in good condition, you can bet that they won’t recommend keeping you as a tenant in the event the buyer is an investor owner, or does not need to take occupancy right away. If the real estate agent representing the owner is not providing reasonable notice to show the property, entering the premises without permission, or otherwise, feel free to speak with them or the owner. Having a good relationship with the real estate professional makes for a much easier process. Finally, if you are interested in purchasing the property, have that discussion with the owner prior to the home being listed. Unless the owner has provided for an exception for you to purchase the property, speak with a real estate professional if you would like to purchase the property. Working in the shadows to manipulate a situation into getting what you might want is not the right way to handle things.
Real Estate Professional advice:
We know that our job is to represent the seller when it comes to an active listing. Our job, however, is not to harass, or take matters into our own hands when it comes to working with someone who occupies a property. If a Tenant is causing a problem, it’s a discussion you should have, and in my opinion, must have with the owner of a property. If a home is not properly maintained, this could mean thousands of dollars for the seller. Remain neutral, and show respect to any occupant while also properly representing the seller.
