Unraveling Why Zillow's Numbers Don’t Add Up!

• How does Zillow calculate my home's value?

  That's the million dollar question (literally). Zillow actually had a contest awarding $1M to whoever can improve their algorithm. Here's an exact quote on how they explain their calculations.

  "We use proprietary automated valuation models that apply advanced algorithms to analyze our data to identify relationships within a specific geographic area, between this home-related data and actual sales prices." 

  -Zillow.com

  Confusing, right? We get it. Getting an "instant" home value is appealing. Not having to talk to someone is appealing, but there's a cost to that approach. Instant doesn't mean accurate. When something is as important as the value of your home, accuracy matters more.

• So, how do you determine my home's value?

  There are hundreds of factors that we take into consideration when estimating your home's value, and no two reports are the same.

  We first take a look at your address. This allows us to see how much neighboring homes have sold for, the desirability of the neighborhood you live in, unique features of your home and the surrounding geographical area, and many more factors.

  After we have a good idea of what that looks like, we then go more in-depth with our research, including checking the condition of your home, taking into consideration any updates you've made that could make it worth more than your neighbor's.

  All of this is done by a human being. None of our home value reports run on an algorithm, and this information isn't available to us or you at the push of a button.

• Shouldn't we overprice my home at the beginning to create a bidding war?

  Many agents will take an approach like this to get the listing. The reason is, if you’re like most people that we meet with, you think that the longer your home stays on the market, the more offers will come in, creating competition around your home, which ends up resulting in the highest offer possible. 

  It’s basically like an auction, right? Wrong. The longer your home stays on the market, the less likely it will sell for asking price (or above). 

  Why? Well, if you go to an auction, the bidding price is set, and offers go up as time goes on. But your home isn’t a rare piece of art. Amongst a sea of other homes for sale, yours will quickly become stale and buyers will wonder why it hasn’t sold yet.

  According to a study by Zillow, homes that were on the market for about two months sold at 5% below asking price, and homes that were on the market for the longest amount of time (eleven months on average) sold at 12% below list price. 

  Meanwhile, the homes that ended up selling at or above listing price sold right away.