We have been tracking an interesting development with the 'Zestimate' function of Zillow. You can find an article here by Kenneth Harney in the Washington Post and another here by Rachel Koning Beals of Market Watch. To briefly summarize Zillow.com uses a feature involving a proprietary algorithm that pulls sales data and other factors (again we aren't sure what these factors are exactly) and produces an estimate on the price of the property. From Zillow's own definition found on their website "The Zestimate® home value is Zillow's estimated market value for an individual home and is calculated for about 100 million homes nationwide. It is a starting point in determining a home's value and is not an official appraisal. The Zestimate is automatically computed daily based on millions of public and user-submitted data points."
Currently a class action lawsuit has been filed in Cook County, Illinois that claims the Zestimates® look too much like official appraisals and are misleading consumers. In addition the suit points out that no consent is given by the homeowner for an estimate to be posted online.
Our take? In the absolute simplest terms real estate is a market like any other and the market determines the price (not Zillow, not your neighbor and not even your real estate agent). Take this example, a house lists at $400,000, five buyers appear on the first day and each offer full price for the house. The seller allows for the 5 buyers to present their final and best offer which turns out to be $420,000. In this case the high demand allowed for a higher sale price. If the house appraised at $400K it likely would still have sold for $420K because the MARKET demand was so high. The alternative: a house lists for $400,000 and is appraised for the same. However, in this hypothetical market there are lots of houses just like this one for sale. The house is eventually sold after a very long time for $375,000 because the high supply of similar homes and low demand from buyers influenced the price for the home - the MARKET dictated the sale price.
Do we think we know about writing a sophisticated algorithm that analyses millions of data points and synthesizes the result into an estimate of value? Absolutely not. Do we know if the new town zoning law restricting improvements to land adjacent to a salt marsh affects the price of your undeveloped land? You bet.
Why don't you give us a call and see if three decades of experience and two generations of tradition can help you in the real estate market here on Cape Cod. For a professional home valuation done by local agents click here.