Ah, the infamous Zillow. Unless you’ve been living under a rock that Zillow hasn’t been able to obtain data on, then you’ve heard of the website and its popular “Zestimate” feature. If you own a house, you’ve probably checked Zillow to see what they estimate the market value to be. If you’re thinking of buying a house, then I am certain you have spent copious hours browsing the website in every price range imaginable. And if we’re really honest, sometimes Zillow is just plain fun to search on! In college I was neither a home owner nor was I looking to buy a house and I spent an absurd amount of time looking at homes… Often in states I’m not even interested in living in!

I think we can all agree Zillow is a ton of fun and a super useful tool to find houses on. It can also inspire the interior designer within all of us that seems to come alive as we delve into the dated homes ready for a little TLC. But what about their Zestimate? Where does that come in to play?

If you aren’t familiar with this feature, this is what Zillow uses to evaluate the estimated value of the home. It’s generally listed right under the photos section. This is Zillow’s own algorithm that takes into account various characteristics of the house and the surrounding homes (i.e. the comparables or “comps” as we say in the industry). They consider things like: the number of bedrooms & bathrooms, amount of square footage, recent sales in the area.

While that’s all fine and dandy, there is still a bigger question at hand – how accurate is Zestimate?

Appraised Value vs Salability

First and foremost, we need to distinguish between two very different items that often become intermingled in our minds when we decide to sell our home or when we want to buy one. Every home has two types of value – an appraised value and some measure of salability. It’s important to understand the difference.

An appraised value is determined by a third party professional – an appraiser. This person has gone through training, testing and has received a license to act as an appraiser. They undergo continuing education to keep up on changing trends, technologies, laws, etc. This is the value of a home in terms of dollars. An appraised value is the amount of money a home should reasonably sell for in the current market.

After you go under contract with a home, you will need to order an appraisal as a part of the mortgage process. If an appraiser goes out to the house and determines that the home is only worth $200,000 rather than the $250,000 you went under contract for, your real estate agent and loan officer are both going to have some work to do. Your agent is going to have to become the bearer of bad news to the listing side (no one ever wants to hear their home is not worth what they hoped for). Hopefully your agent is able to re-negotiate the sales price with the sellers. Your loan officer will need to re-structure your mortgage to accommodate the lowered sales price. Alternatively, your soon-to-be home could appraiser HIGHER than the sales price which means you got a great deal with built in equity you don’t have to mortgage or put a down payment on. Now that’s every home buyers dream!

Okay, so an appraised value can be summed up as the market value of a home. So what’s salability? And why does that matter? Salability is what makes you want to buy a house outside of the purchase price. The salability draws potential buyers into a house, helps them to see a house as their home. What salability does not do, is add money to the appraised value. But it does create engagement and generate interest in a home. Having a high salability means there is something about the house that is keeping your agent busy with accepting new showing requests. Open houses are probably super popular and draw lots of potential buyers in.

Why does this matter? Salability is a great thing. You want your house to appeal to others to generate offers. This traffic doesn’t always translate to lots of offers if the house is listed too high. Where we run into issues is when the salable factors get mixed with the appraisable factors. Just because you have a beautifully redesigned kitchen that cost you $17,000, does NOT mean your home is now worth $17,000 more from an appraisal stand point. Whether it’s a refinance or purchase – this is the sticking point I find most clients struggle with if the appraisal comes back lower than they wanted.

How is Salability Different?

At this point you might be a little confused on what then, goes into the salability of a home. Well let me tell you!

Salability is less tangible. I would describe it as the features of a house that make it appear “shiny”. Maybe it feels inexplicably cozy as you walk in. Or perhaps the home has a beautiful garden that creates the desire to skip around and sing to the birds. I don’t know how these features will impact you personally, but I can help break down what you might be seeing that’s creating these more emotion based reactions.

Salability comes from the beautiful crown moldings your wife falls in love with. The perfect shade of lilac paint in the bathroom that creates a feeling of serenity. It can be found in the re-designed man cave that makes you want to grab a cold one and flop down on the couch to relax. Perhaps there is an awesome decked out garage that you can re-model cars in and escape to after a long day at work. Or maybe there’s a beautiful chandelier cascading down the foyer that makes your jaw drop. There could be the perfect cubbies in the mudroom that makes your mild OCD sing with joy over the thought of organizing every shoe and miscellaneous item you just can’t find a home for now.

All of these items could potentially makes you want to visit a house. They may even be the deciding factors in why you decide to turn that house into your home. BUT these factors do NOT always add more monetary value to the home. If an appraiser tells you that your home is not worth what you thought it was, it doesn’t mean they don’t like your home or that it isn’t beautiful. You should find your own value in different parts of your home – that’s what makes it special to you!

But what does all this have to do with Zestimations?

Okay, so now let’s loop back to how all of this factors into a Zestimation. As the name implies, and Zillow states (see here: What is a Zestimate?), this is an ESTIMATION of what a house MIGHT appraise for based on a handful of data pieces Zillow is able to access. Their estimation is NOT all encompassing. It does not account for every item an appraiser is looking for. And this isn’t because Zillow is trying to trick you, it’s because they literally cannot access all those bits and pieces. As they explain, most of what they are using is publicly available information. Such as the assessed tax value, recent sales in the area and the number of bedrooms in a house. Their algorithm doesn’t have the capacity to replace a human appraiser who goes on site and compares every detail to the surrounding homes. There is just so much information every home holds that can’t be found online.

Do’s & Don’ts

  • Do use this as a ballpark estimate for where a home MIGHT land with an appraised value.
  • Don’t rely solely on Zillow when choosing a listing price or when determining the offer you would like to place on a house.
  • Do use Zillow for tax amounts – they do an awesome job of updating these.
  • Do use Zillow for window shopping if you aren’t ready to see homes – this is a great way to start getting a feel for what you want in a home.

Ending Thoughts

Zillow is such a good resource and can make shopping for a home a ton of fun! Their Zestimate tool does not replace an official appraisal and it isn’t always accurate. Zillow does offer information on the expected accuracy of their estimations on their website if you want to learn more about it – What is a Zestimation?

All in all, it comes down to managing expectations. You can hope for a certain appraisal value but don’t expect you’ll receive the exact amount Zestimate offers. At the end of the day, I have seen appraisals come below AND above the suggested Zestimate.

Thanks for reading!

If you need a prequalification letter, or want to know about how to start the mortgage process – Let us know! We would love to connect with you.