Don’t Trust Your Zillow.com Home Value Estimate – Could Be Off by $50,000 or More!

Zestimate^®: $969,249 

Zestimate Range  $853,000 - $1.05M

Zillow Says They've Improved - Now Only 6% Wrong

Ed Jones (not a real person) was ready to move to a nicer home. Like millions of homeowners, he went to Zillow to see what their Zestimate of his home’s value would show. He was pleased to see that his house was worth $750,000.  After expenses, he figured he’d have $200,000 to invest in his dream home. 

Zillow showed homes like the one he was hoping to purchase to sell for around $1,000,000.

Ed called a real estate agent. The agent did some serious research on the value of Ed’s property, and recommended setting a price of $695,000. Ed wasn’t happy. His entire plan was based on getting $750,000 like Zillow showed. He insisted on listing at that price.

Much to the agent’s surprise, a buyer made an offer right at $750,000, and Ed eagerly accepted. They began the escrow process and Ed quickly found a great house and signed the contract. Ten days later, Ed’s excitement turned to despair. The appraisal came in at $705,000. The buyer said he couldn’t afford the $45k increase in the down payment, and Ed didn’t want to come down to the appraised price, which wasn’t enough to fund his plan. The deal fell apart and Ed had to back out of his contract.

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Zillow actually states that their Zestimates are off, on average, by 6%. That is 6% in either direction. That means that on average your $750,000 Zillow Zestimate could really mean your home is worth $705,000 to $795,000. Of course, it could be off by more than that, since Zillow says that this is how much they are off, “on average.” 

There is no intent in this post to disparage Zillow. They are providing a fine service, and they are constantly working to improve their methods. They compare final sale prices with the presale Zestimate to determine their average error, and they have improved their system from an average of 8% off down to just 6% off at this time.

The real point of this post is that you don’t want to rely on Zillow or any other system that is deriving an estimated value on your home using algorithms. You need to have the advice of a seasoned professional to determine the current market price of your home. Getting this number right will dramatically effect how much traffic you generate to look at your home, which will correlate directly with how many offers you get. The more competition, the higher the final deal.

Whit Prouty has the kind of experience that will help you arrive at the best offering price for your home. There is no cost involved when you meet with Whit to go over the options and approaches that Whit uses to sell a home. Whit only gets paid when your home sells, and the higher the price, the greater the commission. So Whit has only your best interest at heart when he helps you market your home. Call Whit today at 310-962-6942.

Los Angeles Housing Bubble Is Nonsense – Even When You Include Climbing Interest Rates

 Proof in four charts

The headlines scream: “Housing Prices Unaffordable in Los Angeles” or “When Will the Bubble Burst in LA Real Estate.” A quick survey of major national economic journal articles about housing in the US, and especially in the popular urban centers, will reveal a consistent tone of fear.

The argument is something like this. Prices are almost back to 2006/7 levels that were unsustainable and resulted in a crash. Interest rates are likely to be continuing up under pro-growth Trump economy, and combined with super high prices, residential real estate is bound to head straight down.

But, there are serious problems with this logic. The following four charts should be all you need to debunk the fear mongers.

1.    The real (inflation adjusted) price of homes is not near the top in 2006/7.  The chart below shows the average prices for the US and Los Angeles over the last 30 years.

2.    The affordability issue is answered by this chart. Here you have a comparison of price to income. Substantially lower than 2016/7.

3.    Finally, we have the buy vs rent chart. If you can afford the rent, you can afford the house. Moreover, the rental value compared to the cost of the underlying property value drives investors to buy. As can be seen in this chart, there is a very long way to go to 2006/7 levels.

4.    This one is a bit more complicated; however, all of the pricing issues above are based on current interest rates. Thus, if interest rates go up, affordability goes down. What is shown in the next chart is that the last bubble had interest rates (30 year fixed) of around 6%.  Therefore the purchases during the bubble were at those levels, not current levels of around 4%. While affordability will be a factor as prices go up and interest rates go up, both can go up and still not create the kind of bubble we saw in 2006/7 any time soon.

 While there is no realistic way to incorporate all of this information into some real number that would represent a certain top in the market, it is pretty clear that prices can increase more than 20% even if interest rates increase to 6% without hitting the unsustainable levels of 2006/7.

Final note – Prices and wages are expected to go up 3% per year in the next couple of years. So housing prices can go up 3% per year from these levels in addition to the 20% slack identified above.

Caveat – Housing prices may go down next month or next year due to known reasons or reasons that will only be visible in the rear view mirror. This article only intends to demonstrate that the home buying public is not yet stretched to the extent that they were in 2006/7.

If you are in the market to purchase a home, need to sell an existing residential property, or both, please call Whit Prouty to discuss current market conditions in the area of your interest. The consultation costs you nothing. Call Whit at 310-962-6942