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June 4, 2017 by Ryan Shaw Leave a Comment

How to value your house (and why the Zestimate sucks)

Can the Zillow Zestimate ever be reliably accurate?  Zillow sure hopes it can, and it just announced that is is putting $1 Million up for anyone (or any team) that can improve it.

Cracking the valuation code is one of the main things that stand between homeowners that sell with assistance and those that sell on their own.  Getting the price right is tough and scary–particularly when you are emotionally attached to the house

If you do decide to sell your house yourself, you likely know all about the Zestimate, but you shouldn’t rely solely on that to come up with the price.

The main reason?

The Zestimate doesn’t take into account the items within your house and more importantly, the experience within the house.  Basic details only tell part of the story.  

It can’t see improvements, sweat equity, landscaping upgrades, new paint–it’s hard for the Zestimate to take into account “soft” factors that can heavily influence price when they add up.

Even by Zillow’s admission, the top performing areas for the Zestimate (like Fort Worth, TX for example) only have around 50% of the homes that sold for within 5% of the Zestimate price.

As a homeowner, taking a 5% hit on price is pretty rough as it is.  Now imagine that only HALF even got that close.  The other 50% were even more off than that.

Nationally, the Zestimate gets within 5% around 46% of the time.  

You should not like those odds.  

That’s why you 1) can’t take the Zestimate as gospel 2) you shouldn’t be discouraged about selling just based off of the Zestimate and 3) it’s super important you have a more comprehensive approach to getting your valuation right.

These days there is a ton of data out there, that is accessible to the public, that can help you value a house.  But before we dive into any of that, we need to do a simple exercise that will help us take the emotion out of the equation.

Take out a piece of paper and a pen. Write down every single negative thing you can think of about your house. Pay special attention to the area–is there anything about it that would make it undesirable?  If you could live anywhere in your county, would you be living in your neighborhood?

Would it even make it into your top 3 choices?

What we are trying to do here is to gauge the soft factors of the house before we have time to allow our ego to mess things up.

So without thinking, write it all down.  Is there a bathroom in a weird place.  Do you only have a 1 car garage when everyone else in your neighborhood has a 2 car garage?

 If you’re not in a desirable area, that will depress your value.  If you have a weird quirk about your house that others would find annoying, that will play a role.  Most importantly, you can see if any houses that come up in your research have any of the similar quirks that your house did–and you’ll get a nice preview into how that affected the eventual sale price.

Once you’ve put together your fact sheet about the potential downsides of your house (be tough, but fair) then it’s time to actually dive into the market research phase.

A great tool to start with this is Realtor.com “recently sold” lists.

On the Realtor site you can search for recently sold houses that are similar in size, features and location as yours.

Another option for getting an estimate of your house’s value is to head over to redfin.com and type in the address for your house.  

Redfin makes the claim that they have a 1.82% error rate (Zillow was just under 5%).  Redfin is a very tech-focused company, so I would trust their estimate the most.  Enter your address and see what they come up with.  Keep in mind that Redfin does not operate in every zip code, so if it gives you an error back, check to make sure your area is actually covered by Redfin.

Be patient and gather as many comparables as you can.  As you dive in, you’ll start to notice a range develop for houses similar to your own.  Take a look at the ones at the higher end of the range, and ones at the lower end of the range.

Do you notice any trends?  What characteristics are similar for the houses that sold for more?  Does your house share any of those commonalities?

You’ll likely have a soft number in your head at this point.  Write it down.

Next we’ll try to get some historical data to see the trajectory of prices–whether they are going up or down in your market right now.

This one is harder to guage–but here is a pro-tip that will fast track you.

Talk to real estate investors in the area–they will know if the market is hot or not and where it is going.

Don’t know any investors personally?  Don’t worry, there is a forum for that.  Head over to www.biggerpockets.com and see if anyone is posting about your city / neighborhood. If needed, make a new post and ask their community of investors what they think.

If they tell you that it’s brutal to find a deal in your area right now–you’re in luck and you can probably aim for the higher end of your valuation range–knowing that the market is trending up.

If the investors are getting deals left and right, you may have to prepare yourself to price on the lower end of the range.

How to price upgrades and sweat equity

It’s always tricky to factor in the work you put into the house and the upgrades you made.  Let your research dictate this.  Take a look at your comparables–did any of the houses on the high end feature a particular upgrade that it seems like the market is willing to pay up for?

Try to find an example in real data where your upgrade yielded a greater return that would be expected.

It’s ok to proud of the condition you’ve left the house, but you can’t get too emotional or it’ll kill your chances of a sale.

Once you look at enough comparables you’ll start to get a feel for what your upgrades will bring.

If you’re up for an adventure, you can always try crowdsourcing the price by using Facebook local ads to all your neighbors.  Ask them to comment on the post what they think the house is worth.  This approach is completely experimental but can also serve as marketing.

Conclusion

Realtor.com / Zillow / Redfin all have a place when it comes to putting a value on your house.  Just make sure you understand all of their limitations.  There is no substitute for local market knowledge once you get within 10% or so of the true market value of the house–so go talk to investors and see what they think about market trajectory.  Take note of other houses that have similar upgrades and features to your house and avoid letting your emotions get in the way by creating a “drawbacks” fact sheet of your house before you start the research phase.

Good luck and take your time!  This is by far the most important factor in selling your own house.

Filed Under: Sellers

About Ryan Shaw

Ryan Shaw is the original founder of The Real Estate Witch, a site dedicated to thoughtfully answering the questions of home buyers, sellers, and real estate investors.

Ryan's work has been cited in a number of real estate and personal finance publications, including Inman, Tech Bullion, MSN, and RealTrends.

Education: BA Political Science — University of Southern California

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