As the real estate market is gearing up, it seems that sellers fear under-pricing their home and buyers don’t want to overpay. It is like a dance between the two sides, with both parties focused on the same thing: sales price. Sellers and buyers alike seek out as much information as possible when they begin the process of either selling or purchasing a home. And all of them start their research online.
The syndication, or online exposure our listings receive on websites such as Trulia and Zillow are great. The more exposure sellers receive the better. However, the valuation models on Trulia and the “Zestimates” on Zillow are HIGHLY inaccurate. Kansas and Missouri operate as “closed record” states, meaning data on sold properties is not shared with the open market. That data is only shared with the Realtor community and tax entities. In closed record states, Trulia and Zillow use tax appraisals for valuation and in our market, the tax appraisals are not accurate and do not always indicate fair market value that a buyer would pay for a home.
Think about it this way: When was the last time a Johnson County or Jackson County tax official was actually in your home? NEVER. The counties do their best to keep up with the market, but the market is a moving target.
When you think of Trulia and Zillow in our market, think of them like Web MD. If you are a bit of a hypochondriac, or if you have kids then you have more than likely “Googled” a symptom or two. And like Trulia or Zillow, you can get some good information from Web MD. But in most cases, even the slightest of symptoms, can quickly lead to a terminal illness on Web MD because they are covering all of their bases and working with the limited information that you provided them. In this comparison, Zillow and Trulia are doing the same. They are working with very limited information and although some of the info, like neighborhood stats, can be useful, the overall diagnosis (fair market value, or Zestimate, or whatever name they choose) can easily lead to an extreme outcome. And the extreme outcome could be grossly mispricing your home.
Regardless of whether we are in a seller’s market or a buyer’s market, the same real estate rules still (and always) apply. A home is only worth what a buyer will pay for it and what a seller is willing to sell it for. After that, if a mortgage is being obtained, the buyer’s lender will then appraise the home to ensure that it is worth the purchase price. In this appraisal, the appraiser will use comparable closed sales (from the last six months) and pending sales in the immediate area to establish a fair market value for the home. That value must be equal to or greater than the sales price. These closed and pending sales are the most accurate system for establishing “fair market value.”
In a lot of ways, the real estate market is like the stock market. Just as a stock can be worth a certain value one day and a different value the next, a home’s value can do the same. Sold comparables around your home can bring the value up in an inclining market, and distressed properties (short sales and foreclosures) can bring it down. It takes a full-time professional Realtor, like myself, to confidently interpret market value. You just can’t beat the first-hand experience of being in and out of homes all day.