Bob Blumberg, Owner-Broker, Red Oak Realty, Inc

PRESTO, WHAT'S MY HOUSE WORTH?

"Market Value" is often defined as the price a willing buyer pays a willing seller for a product in an arm's length transaction, where neither party is under undo pressure. Professional appraisers go through a series of courses to learn how to determine the market value of real estate. What they study essentially boils down to three methods: the comparable sales or market approach, the income approach (generally used with multiple units or commercial property), and the cost-replacement approach. For single-family residential real estate, the comparable sales or market method is generally considered to be the most reliable, although all three methods may be used.

Only one problem: it doesn’t work.

No perfect scientific method has been created to determine an exact market value. Accurate appraising results from a combination of science and art. The reason: there is no such thing as a true "comparable". No two houses are exactly alike. Even in housing developments where each house is "the same", there are differences. What relative values do you assign to a south-facing garden vs. a view of the mountains? A remodeled kitchen vs. an extra bedroom? And here's the clincher: even granting "identical" houses, the ultimate sale price depends on which buyer happens to come along this week or this month. As a result, although real estate professionals don't like to admit it, the truth is that no one can precisely predict the market value of your home before it sells. 

But wait! Zillow.com to the rescue! For those who are not familiar with Zillow.com (henceforth "Zillow"), it is a web site that purports to provide instant valuations for real estate with just a few clicks. The home page suggests the site can be used by buyers ("To compare values to avoid overpaying"), sellers ("Use our tools to help set a price")', and owners ("Track your most important asset").

A seductive idea indeed.

Before I go any further, I want to say that Zillow is a fun site. It provides an estimate of value for millions of properties, using an automated algorithm loosely based on the comparable sales method described above. A valuable feature is its comparable sales section providing recent sales data. I recommend you play with it.

But...(you knew that was coming, didn't you?)

I'll let the figures speak for themselves. Below is a list of ten October 2006 closed local sales pulled at random from our East Bay Multiple Listing Service:

As you can see, Zillow's estimates can be very close (property 6 above is nearly dead on), or they can be wildly off (i.e., properties 3 and 9). Had any buyer or seller relied exclusively on the Zillow estimate, disastrous consequences could have resulted. Having compared numerous Zillow estimates with final sale prices, I can report that the above sample is typical. Recently the National Community Reinvestment Coalition, a consumer watchdog group, filed a consumer protection complaint to the Federal Trade Commission, alleging that Zillow is misleading consumers, real estate professionals and financial service providers in on-line home valuations, and calling Zillow's automated valuation model "highly inaccurate and misleading". 

I believe most people will exercise caution and are smart enough to take Zillow's automated estimates with a grain of salt. My advice: check it out, play with it, have fun, but don't take Zillow's estimates too literally. There are so many variables in real estate valuation that even professionals struggle with each and every one. Yet even though no one can predict exactly what your home is worth, your best shot is a careful evaluation by a trusted and knowledgeable real estate professional who combines the "scientific" method with a finely-honed intuitive sense of the market.