Should You Use Zillow Home Values When Pricing Your Investment Property? (2023)

FAQs

Is Zillow accurate for home values? ›

How accurate is the Zestimate? The nationwide median error rate for the Zestimate for on-market homes is 2.4%, while the Zestimate for off-market homes has a median error rate of 7.49%. The Zestimate's accuracy depends on the availability of data in a home's area.

Zillow is one of the most sought-after platforms for real estate investors looking for properties and market data. In today's post, we look at Zillow market data, what it offers, and how accurate it is. We'll also look at a better option that comes in where Zillow falls short. Let's start with the basics.

A Realtor estimate, or a Comparative Market Analysis, should be more accurate and more detailed than an online valuation tool like a Zestimate. There are several reasons for this. First, real estate agents who know a particular area will be intimately familiar with the comparable sales.

The Zestimate is often less accurate than your Realtor's estimate and can be thousands of dollars off. According to Zillow's Zestimate page, “The nationwide median error rate for the Zestimate for on-market homes is 1.9%, while the Zestimate for off-market homes has a median error rate of 7.5%.

If your home has more value-factors (bigger square footage, better condition, more amenities, etc) than the comparables that are pulled, then your Zestimate is likely to be lower than actual value.

For core listing services, Realtor.com is their biggest competitor. What site is better than Zillow? Zillow's real estate offerings are some of the most comprehensive, but Redfin and Realtor.com offer some comparable services, especially in terms of home valuation.

Real estate listing websites like Realtor.com, Redfin, Trulia, Zillow, and ZipRealty are good resources for finding both MLS and for sale by owner (FSBO) listings. Investors can search for homes using a variety of criteria, and all of the websites have apps for iOS and Android.

Competitive advantage

' Zillow's database at the core gives it an upper hand over its competitors. It has accumulated its data by scraping it through Multiple Listings Service (MLS). MLS is a local association of realtors which keeps their real estate data in one place.

Redfin's home value estimator is more accurate than Zillow's when it comes to pinpointing the sales price. According to Redfin, its estimates are approximately 74% accurate within 5% of the sales price for listed homes. By comparison, Zillow is only 67% accurate within 5% of the sale price for listed homes.

Does Zillow overestimate or underestimate? ›

The good thing though is that Zillow never claims to be 100% accurate. The tool has an accuracy of about 80% in all areas. This is because there are no specific variances to throw it off. However, in some home value estimate cases (especially in older neighborhoods), the Zillow estimate won't be close at all.

The capitalization rate is a key metric for valuing an income-producing property. Net operating income (NOI) measures an income-producing property's profitability before adding costs for financing and taxes. The two key real estate valuation methods include discounting future NOI and the gross income multiplier model.

Its aggressive buying algorithms led to the company overpaying for properties, Velsey says, while materials shortages and price spikes made renovations more expensive.

Zestimates are only as up to date as the data behind them, meaning they may be outdated or incorrect. Zestimates may not reflect improvements, mistakes in property taxes paid, or exceptions to tax assessments.

Zillow values homes based on an algorithm. When the algorithm changes, your estimate will likely change too. Zillow changes its algorithm frequently, with consistent small updates and occasional major updates.

Zillow's Zestimate has been found to have a nationwide error rate of 1.9 percent for on-market homes. When it comes to estimating home values for off-market housing, the error rate jumps to 6.9 percent. Overall, Zestimate accuracy is between 95% and 96%, so it's pretty accurate in most cases.

Zillow's algorithm only takes into account tax records and user-submitted data. As a result, Zestimates are typically off by 10% to 20%. Just like you wouldn't expect WebMD to diagnose your health problems, you shouldn't expect Zillow to accurately price your home.

By spring of 2021, the market had overheated to a point where Zillow's much-lauded algorithm, the backbone of its home-flipping strategy, was struggling to make accurate pricing predictions. Believing its own inflated numbers, say analysts, the company began overpaying for homes all across the country.

It's not what you think – it involves consumers and keystrokes. If your company maintains a website – whether offering financial products or just selling pet stairs – you now need to be familiar with state and federal wiretapping laws.

Zillow, facing big losses, quits flipping houses and will lay off a quarter of its staff. The real estate website had been relying on its algorithm that estimates home values to buy and resell homes. That part of its business lost about $420 million in three months.

Why did Zillow homes fail? ›

The company took its algorithmic-driven home-flipping business off the market last November when the tech platform failed to precisely forecast changes in home prices.

Multiply the value of the home by 5%, then divide that number by 12 to get your breakeven point. If the monthly rent on a comparable home is below the breakeven point, it makes financial sense to rent. If the monthly rent is higher than the breakeven point, it makes financial sense to buy.

When it comes to commercial real estate investment strategies, there are four main approaches: core, core plus, value added, and opportunistic. These investment strategies are not fundamentally different from each other–in all cases, investors buy properties with the goal of generating returns.

Real estate investments can occur in four basic forms: private equity (direct ownership), publicly traded equity (indirect ownership claim), private debt (direct mortgage lending), and publicly traded debt (securitized mortgages). Many motivations exist for investing in real estate income property.

But many projects like Zillow Offers go terribly wrong, and experts estimate failure rates that vary from 60% to 85%.

 Question: What type of property appreciates faster – condo, townhouse, or single-family? Answer: Since 2012, the data is clear – single-family homes appreciate the fastest, followed by townhouses/duplexes, and then condos. Since 2012, the average single-family home has appreciated 69% compared to 27% for condos.

If you are able to view the MLS in your area online directly, you will only see properties that are currently active on the market. This makes the MLS more accurate than Zillow, which frequently keeps properties listed as available long after they have been taken off the market.

In fact, Zillow's online pricing estimates are so unreliable, even Zillow doesn't trust its Zestimates! Starting in November 2021, Zillow announced it would write-off $500+ million in losses and shut down its iBuying business. The reason? They admitted their Zestimates were unreliable.

Yes you can manipulate Zillow values. I make edits to a property every time I sell a property to bring the Zestimate up.

The Sales Comparison Approach

It is the method most widely used by appraisers and real estate agents when they evaluate properties. This approach is simply a comparison of similar homes that have sold or rented locally over a given time period.

How do you value an investment property? ›

The value of a rental property using the cost approach is based on the following formula: Value of Property = Cost – Depreciation + Land Value.

Buffett follows the Benjamin Graham school of value investing. Value investors look for securities with prices that are unjustifiably low based on their intrinsic worth. There isn't a universally accepted way to determine intrinsic worth, but it's most often estimated by analyzing a company's fundamentals.

However, there are some agents who deliberately overvalue, and there is a pragmatic reason for this; If the valuation is substantially higher than anyone else's, customers are more likely to go with that estate agent. The estate agent gets the house on the market, and they collect their commission.

You scare off potential buyers

They (and their real estate agents) have a strong sense of what homes like yours are worth. A high price tag gives a buyer the impression that you have an unrealistic view of the home's value.

You may negotiate a three percent price reduction when an agent working for you could have gotten you five. Or you may not negotiate for any seller-paid closing costs when the current market standard is at least half. Whether or not you work with an agent, it's smart to research the property and the market.

After you've claimed your home, you'll be able to edit the information that Zillow uses to create a Zestimate by navigating to your home's page on Zillow and toggling over to the home view. They include: Home type (single family, duplex, etc.) Number of bedrooms.

No, but you can update your home facts and fix any incorrect or incomplete information to ensure that your Zestimate is as accurate as possible.

The Zestimate is not an appraisal and it should be used as a starting point. We encourage buyers, sellers and homeowners to supplement the Zestimate with other research such as visiting the home, getting a professional appraisal of the home, or requesting a comparative market analysis (CMA) from a real estate agent.”

'” Zillow's estimate of a residential property's “fair market value” which the lawsuit states they know “to be inaccurate,” have allowed “only select brokers to conceal the display of Zestimates on their listings to the exclusion of the general public.”

Visit FINRA BrokerCheck or call FINRA at (800) 289-9999. Or, visit the SEC's Investment Adviser Public Disclosure (IAPD) website. Also, contact your state securities regulator. Check SEC Action Lookup tool for formal actions that the SEC has brought against individuals.

Does everyone use Zillow? ›

No, not all listings are on Zillow. There could be a lag between when a house goes on the market and when Zillow's feed pulls it in. If the agent is doing well, they may not sign up for Zillow's services or upload their listings.

Zillow has been around for years, and it's become a trusted source for buyers, sellers, and real estate professionals. As a result, Zillow is one of the most popular sites for listing a home for sale or rent.

One popular formula to help you decide if a property is good investment is the 1 percent rule, which advises that the property's monthly rent should be no less than 1 percent of the upfront cost, including any initial renovations and the purchase price.

The 1% rule of real estate investing measures the price of the investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or no less than 1% of the purchase price.

The tool has an accuracy of about 80% in all areas. This is because there are no specific variances to throw it off. However, in some home value estimate cases (especially in older neighborhoods), the Zillow estimate won't be close at all.

Your State's MLS

If you are able to view the MLS in your area online directly, you will only see properties that are currently active on the market. This makes the MLS more accurate than Zillow, which frequently keeps properties listed as available long after they have been taken off the market.

The 19 analysts offering 12-month price forecasts for Zillow Group Inc have a median target of 38.00, with a high estimate of 52.00 and a low estimate of 24.00. The median estimate represents a -19.44% decrease from the last price of 47.17.