San Diego Real Estate: Skip The Zestimate, Why Zillow Estimates Are Wrong

I saw it on the internet so it must be true right?  I know this almost never happens (wink) but in this case the internet might just be flat out wrong.  If you are a  home buyer or potential home seller, there is no doubt you have already seen or at least heard about the website Zillow and maybe even it’s “Zestimate” function for evaluating San Diego real estate.  While not an entirely bad place to start, don’t use it for anything other than a starting place.  It’s not reliable or accurate in most cases.

Below are just several of the reasons the tool is not quite what it’s cracked up to be:

So how much is a San Diego Home Worth?  A home is only worth as much as the San Diego real estate market (home buyers) are willing to pay.  The market will derive a value from other “like” properties or what’s known as “sold comparables”:  Homes that sold recently that are similar in characteristics and location.

So let’s say you type in a San Diego home address to check the “Zestimate”.  Boom, there it goes and out pops a value.  This is where the trouble begins.  How is it that Zillow was able to create a tool that can evaluate a property’s value in seconds yet billion dollar lenders and banks still insist on the good old human or appraiser approach?  The reason is there are elements to a property that cannot be automated (not yet at least).  Upgrades and sutle differences are almost impossible to differentiate unless you are in the property physically.

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How about views?  All views are not equal and all views are not equally valuable.  Need an human being here as well.

Another issue is the selection of sold comparable properties or homes to compare the subject property to.  Zillow, Trulia, and other syndication sites a most only have approximately 80% of the homes for sale listed and included in the calculations.  That means they are missing almost 20% of the market.  Would you trust a figure that is missing 20% of the data?

Here is the primary problem I see with Zillow and their “Zestimate” functionality:  Real Estate is appraised by choosing reasonably similar sold comparable properties and assigning the specific characteristics of the subject home.  Adjustments are made to the sold price.  Then and only then is an average price derived from at least 3 sold comparables in most cases.  If Zillow could employ this algorithm into their Zestimate, they would have an unrivaled real estate market value estimation tool on their hands…  But they didn’t.

In summary, if you insist on using Zillow’s Zestimate, take it with a grain of salt otherwise you might be very disappointed when the appraiser delivers their final report.

Questions?  Comments?  Send them my way anytime.