The Difference Between A Zestimate and What A REALTOR Does

Zestimate vs Human Realtor

If you have recently started the process of looking for a home in Wilmington, it would be almost impossible to not have stumbled across the website Zillow.  Over the last few years, Zillow has become a dominate real estate search portal on a nation-wide scope. 

For many home buyers, this may lead you to believe that if you are looking for listings, home prices and general real estate information, Zillow would be a good place to start. 

Truth is, regardless of their marketing budget, when trying to find out what your Wilmington property may sell for on the open market,  Zillow + Wilmington doesn't give you all of the information that you need.

What is a Zestimate?

One of the major tools that Zillow rolled out when attempting to take over the real estate landscape on the web was their Zestimate.  The Zestimate is an AVM - or Automated Valuation Model that uses a computer algorithm to come up with a properties value.  Although AVMs have been around for years, Zillow was very successful in creating a buzz on their take on technology. 

Prior to the Zestimate, most of the AVMs that were in use were used by Insurance Companies, Mortgage Companies and other industries that touch real estate.  Zillow was the first real estate website to successfully bring an AVM to the general public. 

Many believe that the Zestimate was the single most important factor in Zillow gaining enough traction to go public - which in turn has made The Zillow Group the bohemouth they are today.  Still, at the end of the day, their AVM still uses a computer to look at data points pulled from their listing and sold property database to come up with a property value.

How Do Real Estate Agents Assess a Property?

When a real estate agent assesses what a property might sell for, they go through a very different process than simply putting an address in a computer.  The process that a REALTOR goes through to obtain a true idea of what a home would sell for on the open market is much more laborious. 

There are different terms that is used when a REALTOR comes up with what a home should sell for - some may call it a BPO -- which stands for Broker Price Opinion, some call it a CMA - Comparative Market Analysis.  The only time that an opinion of value is called an "appraisal", is when the process is completed by a licensed appraiser.

For a REALTOR - the process starts by getting all of the pertinent data on a home. When obtaining this information, the property in question is called the Subject Property.  This will consist of the living and total size, total number of rooms, number of bedrooms and baths, size of the lot and the homes amenities.

Real estate agents will also review past listings of the property to see what it may have sold for previously.  Once the general information has been obtained on the subject property - the next step is to look for comparable properties - which are called "comps".

Comparable Properties

Using comparable properties to come up with what a home might sell for on today's open market is based upon the Principle of Substitution.

The principle of substitution is defined as:

 A principle of appraisal holding that the maximum price of a property is set by how much it would cost to obtain another property that is equally desirable, assuming that there would not be a long delay or significant incidental expenses involved in obtaining the substitute.

One of the tenants of price states that value can be attributed by figuring out what has been payed for extremely similar items.  For this reason, REALTORS will find other properties, that are very similar to the subject property, to asses its price. 

Because a home can be listed at any price and we are looking to see what others have paid for similar properties, real estate practitioners generally look at sold properties for comps.  Active homes can be considered and in many instances are used in a CMA or BPO - but primary to look at what the competition will be when the home hits the market. 

As a general rule - three comparable properties are used when completing a CMA.  Because is is very unusual to find identical properties recently sold and in the same area, to properly complete a CMA the REALTOR will make "adjustments" to the comparable homes.

What are Adjustments?

Once similar. recently sold homes have been chosen, the next step in the process is to bring the comps as close to the subject property as close as possible.  Because the homes in question will almost always have some types of differences, a dollar amount is assigned to the comp (for those differences) to bring it as close to the subject property as possible. 

For instance, if the subject property has 2 1/2 bathrooms -- and one of the compatible properties only has two bathrooms, a dollar amount will be added to the comp to the tune of the estimated price of the extra 1/2 bath.  For example, if a 1/2 bath is priced at $7,500 - then $7,500 would be added to the price of the comp. 

This brings the final sales price (of the comparable property) more in-line with the subject property.  Adjustments may be made for age, size of the property, amenities or anything else that may justify a price difference.  

Getting The Final Price

Once the agent has found the comparable and made adjustments to the comparable to bring them in line with the subject property - the next step is to look at all of the adjusted prices of the sold comparable properties. 

Usually, the closest "comp" will be weighted at 1/2 and the other two sold comps (after adjustments) will be given the other half.  Lastly, once a dollar amount has been assigned to the subject, it will get reviewed against the active properties in the same Wilmington Neighborhood. 

When comparing to the active homes for sale, many REALTORS will look at the sales price to list price ratio within that particular area.  This real estate statistic shows how far off, on average, homes in that particular area sell off of the list price.  

Once all of the statistics have been reviewed - the REALTOR can usually pin-point at what price a home will sell for, within a pretty tight margin.  

The Difference

As you can see -- there is a lot of work involved in finding out what a particular home will sell for.  To know how to properly assign pricing to the adjustments takes years of experience working in Wilmington real estate. 

Although a Zestimate may be a decent place to start - if you really want to find out what your home would bring on the open market, it is critical that you refer to a real estate professional.