By Chad Taylor
Question: How do I know how much my home is worth? Can Zillow, Trulia, or the county tax assessment give me an idea of value?
I have answered this question numerous times over the last few weeks. 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.
Now for those two dirty “six letter words”: Trulia and Zillow. As a Realtor, I love the syndication (online exposure) that our listings receive on websites such as Trulia and Zillow. The more exposure our sellers receive the better in my book. 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 some parts of the country, Trulia and Zillow are highly accurate — but those are areas with “open record” laws. In closed record states, Trulia and Zillow use tax appraisals for valuation. Again, in our market, the tax appraisals are inaccurate. Some are higher than market value, some are lower.
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, I want you to think of them like Web MD. If you are a bit of a hypochondriac, like me, 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 goofy 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 to confidently interpret market value. You just can’t beat the first-hand experience of being in and out of homes all day.
This weekly sponsored column is written by Chad Taylor of the Taylor-Made Team and Keller Williams Realty Key Partners, LLC. The Taylor-Made Team consistently performs in the top 3 percent of Realtors in the Heartland MLS. Please submit follow-up questions in the comments section or via email. You can find out more about the Taylor-Made Team on its website. And always feel free to call at 913-825-7540.