We’ve all been there: you get that email from Zillow telling you how much more your Boston condo is worth than what you paid for it even a few short years ago. It’s an enticing idea, to think your downtown Boston real estate has gained so much equity, and that you could profit off of that. And Zillow’s Zestimate tool, which gives you a quick estimate of your home’s value has been around for years. On top of that, the site gets a ton of traffic, and it’s generally a good idea to have your home listed there. So that must mean the Zestimate is pretty reliable, right?
Think again. While the Zestimate is undoubtedly tempting, it doesn’t tell the whole story. And Zillow made a lot of changes this year since becoming an iBuyer. It shouldn’t come as a surprise that these changes don’t necessarily favor the customer. This is a publically traded company driven by profits. Let’s take a hard look at the facts: how does the Zestimate work, and how accurate is what it advertises?
A blog reader has a question. Why are Zillow estimates for Brighton seem too low by about $30-$50K. I keep seeing that over and over again.
What Is a Zestimate and How Is It Calculated?
Zillow uses the Zestimate to give you a quick snapshot of what your home may be worth. And to their credit, they have always used a disclaimer noting that their estimate may not be accurate. The ethical question at hand is how much do they even want it to be accurate? But we’ll get there. First, let’s explain how the Zestimate comes up with their numbers.
In order to reach an initial value, Zestimate takes into account information from three main categories:
- Known Home Characteristics. This includes basics like square footage, number of bedrooms and bathrooms, and other basics. If your house is not currently on the market, this information will be taken from the last time the home was listed.
- On-Market Data. For homes that are active listings, Zestimate factors in data from the active listing. Examples include listing price, days on the market, and comparable recent sales in the listing’s area.
- Off-Market Data. Your home isn’t on the market, but you checked your Zestimate out of curiosity? How do they know then? Zillow uses off-market data such as tax records and prior sales to ballpark what your home may be worth.
Last year, Zillow made waves by joining the iBuyer game nationally. What’s an iBuyer, you might be wondering? The basic idea is when large companies offer to buy your Back Bay or Beacon Hill condo online, hassle-free. You don’t have to bother with showing your home a bunch of times, for example. But there’s no doubt – iBuyer options offer convenience at a cost, and Zillow Offers is no different. The primary goal of buying Boston condos online for these companies is not to get you the best price! Quite the opposite, in fact; they will prioritize buying your Boston Midtown condo at a lower price point so they can turn around and sell it for profit. On top of this, you’re eliminating market competition by selling directly to one buyer, rather than having a multiple offer situation. That’s not particularly advisable, especially at a time like now when historic low inventory in downtown Boston and the Boston suburbs that favors the seller.
Once Zillow launched Zillow Offers, in our opinion, their dedication to the consumer began to slip. For one thing, they changed the way their Agent Finder rankings work, burying the successful sales records of local real estate agents. And now, the introduction of Zillow Offers is affecting the Zestimate as well.
In February, Zillow announced that they would start using the Zestimate as an initial cash offer for eligible homes. That sounds too good to be true, right? That huge number they give you is suddenly cash in your pocket? Well, given everything we’ve just told you, you’re probably not that surprised by now that it isn’t that simple. So let’s say you reach out to Zillow Offers and want to use the Zestimate to sell your home. What happens next?
How Does the Zestimate Cash Offer Work, and What Will It Cost You?
The first thing that will happen once you get the ball rolling is Zillow will send someone to “appraise” your home. Don’t forget, the Zestimate is not an appraisal; it’s a guess – and it’s not in Zillow’s interest to guess too high. Likely after the appraisal, the Zestimate cash offer will go down. Then there comes the inspection period. If the inspection finds any issues with the home (and they almost always do, even if it’s something minor), watch that cash offer drop in price again.
And this is before we even get to the fees. Zillow charges a 6% commission fee. But on top of that, they, like many iBuyers, add on a separate service charge. This secondary charge starts at 2.5% but can go up to 7.9%. So you’re looking at a minimum of 8.5% in fees, and a whopping maximum of 13.9%! Compare that to our maximum commission fee of 4.5%. 13.9% of a $500,000 home is $69,500 going straight into Zillow’s pocket, even before they flip your home for more profit.
Zestimates Aren’t Very Accurate and Aren’t the Best Way to Sell Your Boston Condo
At the end of the day, an iBuyer like Zillow Offers doesn’t make the seller’s bottom line their top priority. Zillow makes its profit, its bottom line, the priority in every customer engagement. And their Zestimate tool has increasingly become a way to make consumers think they’ll be getting more money than they will.
If you really want an accurate assessment of your home’s value, trust a local Realtor that knows the area. Just looking for a quick snapshot? Try out our free online home value estimator, which we’ve found to give more useful data than Zillow’s Zestimate. And when you’re ready to take the next step, our top 1% sellers are here to make sure your home sells for what it’s worth – or more!
A blog reader has a question. Why are Zillow estimates for Brighton seem too low by about $30-$50K? I keep seeing that over and over again.
Zillow has a few problems. The estimates are based on Boston property tax records which are updated once every three years and don’t allow for current market conditions, the unique qualities of a condo or a neighborhood. Also if you don’t like your Zillow estimate you can just change it, that makes me wonder how much faith they even put in the numbers.
One last point, according to Zillow’s own website it states that their accuracy within 5% of the actual sales price for the Boston area is a low 27%. At 10% of the actual sales price, their accuracy increases but still maintains a failing grade for the Boston area of 48%.
Boston Real Estate and the Bottom Line
I think Zillow estimates zuck.
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Updated: Boston Real Estate 2021
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