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How accurate is Zillow estimate?

Why its data fails

How accurate is Zillow estimate?

Summary:

  • How does Zillow come up with its pricing?
  • Here’s what Zillow can’t do.
  • Why a property’s actual worth will not match the online estimate.
  • The problem with Zillow’s data/

 

At any time, we can look at our bank statements and investment portfolios online and know exactly how much money we have. Online estimates of your property provide a similar function. Zillow is the obvious one. Can it provide accuracy if you are looking to buy or sell NYC residential real estate?

The answer is no and here is why.

How does Zillow come up with its pricing?

The Zillow Zestimate is the most well-known online tool for determining a property value, but there ar eplenty. How do these portals come up with their estimates? They dig into their rich data banks and begin by pulling out the physical attributes. How many bedrooms and baths are there and what is the reported square feet?

Then they will compare that information to recent sales in the area, layering on the trends. Yet in real estate the trends lag behind real time because the market is illiquid. It takes months to buy and sell real estate, unlike a stock or bond which is instant. In New York City reported sales numbers are likely to be three months old — that’s how long it takes for the city website to report the accurate numbers.

If supply, demand or mortgage rates have changed in the interim or there has been a shocking world event, the market may have pivoted. IN short, if you are buying or selling you cannot rely solely on an online estimate. It is a good place to start — but that’s all.

What Zillow can’t do

Apart from the time lag, there are other reasons why a “zestimate” should be simply the start of how you determine a property value. It is impossible for Zillow to walk through a property to determine its condition or how it will appear to a potential buyer. Does the property need painting, decluttering or staging? When were the bathrooms and kitchen last updated? Online presentation is critical.

A buyer decides if the property is worth the asking price and if they should make an in-person appointment long before they speak with an agent. What about the facade and lobby of the building? Local Law 11 requires buildings to inspect the facade every five years for safety to identify any loose bricks or other items on the facade. If the building is deemed unsafe, a sidewalk shed and scaffolding will be erected which is always a deterrent to a sale despite the fact that every single building in NYC is required to go through the process.

What about the streetscape? How does the approach to the building appear? Are the other buildings kept up and clean? Are there any construction sites on the block? All of these physical attributes which cannot be accounted for in an online Zestimate will impact the potential sale price of a property.

What is functional obsolescence?

Functional obsolescence is a real estate term that explains why a property’s actual worth will not match the online estimate. There’s more than inherent physical qualities of bedroom and bathroom counts. For example, an outdated layout that cannot be changed can impact the desirability of a property. In many prewar buildings the kitchens are small and set apart from the living area, making it impossible to incorporate into larger open rooms for gathering friends and family.

Similarly older buildings may not have the plumbing to accommodate adding an additional bathroom or a washer and dryer. For many buyers these restrictions are deal breakers. Believe it or not, excessive size can be a problem — which is shocking, right? If it is almost impossible to carve up the space to make it usable for additional bedrooms or a home office, then it impacts the desirability and therefore the price. The media room space in a cellar is a great example. Especially in Harlem condos you will find many garden apartments with an impressive amount of square footage, but because as much as fifty percent of that space is below grade it cannot be considered a space for legal bedrooms — and many cannot accommodate a bathroom.

Building amenities

Building amenities also figure into the value and desirability of a property. The building may list a gym, outdoor space and more but what is the condition and location of these resources? Do you have to climb an additional flight of stairs to get to the outdoor roof terrace and once you arrive what condition is it in? What is the view? The same for the gym. Recently home gyms have not only gotten an upgrade in terms of the equipment they house, such as a Peloton or Interactive fitness mirrors, but also their location. Many are now located on higher floors with natural light and views to inspire your treadmill time. Have a dog? Pet spas which are essentially a room with a dog washing station have become more common.

 

The problem with Zillow’s data

Finally, the online estimates are only as good as their data — which has largely been gathered in the past decade. When pricing a townhouse for sale purchased over twenty years ago, the estimate was off by hundreds of thousands of dollars because it was almost impossible to comp without a detailed local knowledge of the property and the market. Zillow could only take the physical attributes and layer on an educated guess via the algorithm.

Needless to say, when it comes time to dig into the value of the property you are purchasing or selling you should partner with a local real estate expert. To understand a property’s value, you need data and anecdotal information to make a good decision. Zillow can’t track how we live and what buyers’ reactions are. Property involves human beings and emotions, which are not easily tracked by data.

In the past decade, technology has put a huge amount of information and data at our fingertips. We have all been led to believe that we can be our own experts, our own professionals. Yet I would argue our new world requires us to be more collaborative than ever. Working with a top NYC real estate agent will give you access to the granular local knowledge required to add the necessary nuances to the instant property value you receive online.

While technology has made our lives easier in many ways it has also made it more complicated. Partnering with local experts will help simplify your buying and selling journey by offering you a personalized strategy for your real estate success.

Julia Boland
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