Melissa Savenko's Richmond Real Estate Review: The Zillow Rant OR Why Zillow Zucks

I wrote this e-mail yesterday in response to a perfectly legitimate inquiry from a gentleman about one of my listings, which iper the "Zestimate" is worth $465,000 but listed at $725,000. He probably thinks I'm azy-cray after the rant he got in response to his question, but this is a subject that comes up again and again, and it makes me N-U-T-S.

Let me also state this is all purely my personal opinion, based on my experience and the fact that I specialize in historic properties, in predominantly old City of Richmond neighborhoods. The home he asked about, 3607 Seminary Avenue, is on the Northside equivalent of Monument Avenue. These homes were built for the V-E-R-Y weatlhy folks who wanted a "suburban" yard, back in the early 1900s, rather than the townhouse/rowhouse feel of Downtown, the St. John's District in Church Hill, or the Historic Fan District.

But the poor guy got more than he bargained for with my response, and probably imagines me frothing at the mouth. So sorry for that. [:)]

******

Q: Zillow indicates an estimate of $465,000. Why the discrepancy?

A: Ahhh...you have asked me the question that leads to one of my favorite rants. Here's the short answer: Zillow is completely ineffective in certain real estate sub-markets. The "Zestimate" for 3607 Seminary is flat out wrong.

Here's the longer answer: Zillow may be effective in certain real estate markets and sub-markets. For example, when evaluating subdivision properties, I think Zillow is a somewhat adequate tool. However, when used on historic properties and in historic neighborhoods, the Zillow estimate is just about useless. Here are the main reasons:

1. Historic homes cannot be "comped" the same way subdivisions can, on a pure price per square foot ("PPSF") basis. The actual value of a historic home depends in large part on not just the square footage, or the lot size, but also on the level and quality of original detail and the renovation done over the years. Since many types of renovation do not require building permits, residences may have been significantly upgraded and the taxing authority may not be aware of these significant improvements. Therefore, the value of the improvements is not added to the property's tax assessed value and the tax assessment is not re-evaluated, other than the small formulaic increases applied based only on statistical models.

2. Zillow is based on a "pull" of pure public data - square footage, lot size, tax assessed value, etc. In the absence of other hard data, such as a proximate [2-3 blocks] sale of a similarly sized property, the Zillow data is primarily based on the existing tax assessed value.'

3. If you have a property like this, that has been in the hands of one owner for 20+ years, there is no other hard data for Zillow to pull. So the "Zestimate" is based almost completely on the tax assessed value.

Let me give you an example that I think will help.  A family company purchased a 3,600 square foot property in Richmond's Fan District for $515,000. The house had not transferred since the early 1960s. The house had not been updated since that time either, and was configured as a triplex. Before the purchase, the Zillow "Zestimate" was the tax-assessed value of the property, which was in the $300,000s, I believe, despite the fact that other homes on the same block were assessed at much higher levels and/or had sold recently for prices in the $700,000+ range.

The company did a gut renovation on the house, using historic tax credits.   That house was "new" in many respects, in an old house shell - new electric, new HVAC, new copper plumbing, all new kitchen, all new baths, huge deck, paver patio, off-street parking, etc.  I sold the house for $880,000. However, the "Zestimate" at the time of the sale was....$550,000. In other words, Zillow valued the property at a full $330,000 less than the Sellers received in an arms-length transaction for the sale of the property. [Although I will note the "Zestimate" was just about, and even higher, than the most recent sale price of that particular home of $515,000]. If appraisers just used Zillow, that deal would never have closed. Thank God appraisers use actual, recent sales data. The house appraised, no problem.

I just pulled the Zestimate, and Zillow currently values that property at $869,000.

SO....this is just to try to explain why Zillow's "Zestimates" [God, even the cutesy NAME annoys me!] are so daggone useless in places like Ginter Park, the Fan, the Museum District, the near West End. If you have a house that has not transferred in 10+ years, if you are in a historic neighborhood, if the tax assessed values for your locality are traditionally low - which is true of many City properties - the Zestimate is going to be worthless, IMHO.

I really could go on and on and on on this soapbox, but I don't want to bore you to tears. I hope this at least helps.  As far as 3607 Seminary goes - for the right person, who wants a mansion-style and -sized home, who wants a glorious yard and needs a lot of bedrooms, with a strong appreciation for historic architecture, and a willingness to put one's own stamp on the property by upgrading kitchens and baths - well, this house is a great value for the price. But unfortunately, in this market, "value" has become an almost worthless concept. All people care about is "price," which is a completely different animal. This leads to the scenario when buyers want a "steal, not a deal." I'm tired of it, because it wastes everyone's time.  That is only going to happen when buying distressed property, and/or when buying from a distressed seller. And from a personal standpoint, I get a lot of heartburn when buyers are kicking someone who is already down.  Beat up the banks all you want, but I don't want to help you get a "steal" from a little old lady who just lost her husband.

Another piece of advice, if you are going to navigate the real estate market on your own: Know the difference between the distressed seller, and the guy who has put his home on the market at a fair price and doesn't have to sell. You'll save yourself and everyone else a lot of time and energy. Right now I have several sellers who either (i) don't need to sell their homes, but would like to take advantage of the "deals" [NOTE: NOT "steals!"] in the move-up home price range, or (ii) who are ready to downsize into something smaller and sock some cash away, if they can get a decent price for their home. Put differently:  Most people will not entertain 20% discounts - or even 10% discounts - off list price. Don't waste your and their time by making that your starting point. You're just going to make people really, really unhappy with you. If that's what you want - the crazy under-priced purchase - then focus on bank-owned properties, or go to foreclosure sales.

Phew! This response to your very brief question about Zillow turned into an epic novel! My apologies, this is an issue that I've dealt with on more than one occasion, and it gets under my skin, clearly. Moral of the story: I know we real estate agents are almost universally reviled, and sometimes with good reason. But I think this is an example of why just having access to information, without the skill set and experience to filter and appropriately analyze the information, isn't some great revolution at all. In fact, it's a hindrance, not a help. Here's my previous blog on that specific topic.

Thanks for your inquiry, let me know if I can help you in any way with your search.