As a top real estate agent in South Pasadena, I often encounter clients who reference the Zillow Zestimate prior to selling or buying a property.
If the client is a seller they usually say: “My home is worth way more than that Zestimate!”.
If the client is a buyer they usually say: “Well the Zestimate is $1.5 million – so I shouldn’t pay any more than that for this house!”.
In nearly all of the cases such as the above South Pasadena seller and buyer – the seller is right 99% of the time. The buyer is wrong about 90% of the time.
In this piece I will explain the following important facts about Zillow’s Zestimates for properties in 91030 (South Pasadena, CA):
· What exactly is a Zestimate?
· Why a Zestimate doesn’t always portray an accurate picture of your South Pasadena home’s value prior to placing it on the market.
· Why a Zestimate is literally no better than the listing price of a home when determining a buyer’s offer price.
· Why the Zillow “Estimated Sales Range” is so broad as to make it practically useless in making selling or purchase decisions.
What is Zillow’s Zestimate?
According to the Zillow website a Zestimate is as follows:
“The Zestimate home valuation is Zillow’s estimated market value for a home, computed using a proprietary formula. It is a starting point in determining a home’s value and is not an official appraisal.”
“Zestimates are intended as a useful starting point to help you determine an independent and unbiased assessment of what your home might be worth in today’s market. Comparing your home to recently sold properties can also help you understand what your home is worth. Additionally, your real estate agent or appraiser will physically inspect the home and take into account special features, location and market conditions.”
And most importantly, “The Zestimate is a good starting point and historical reference, but should not be used for the final pricing of a home.”
South Pasadena Home Value Using Zillow’s Zestimate
In a word – “No”. Let me put that another way – if you rely on the Zestimate to determine what you should use as the list price for your home when selling – you could be discounting the true value of your home by up to 93%. Data gathered by the Multiple Listing Service (MLS) for homes recently listed for sale in South Pasadena are compared with the Zillow Zestimates in the table below.
| Address | Zestimate One Month Prior to Listing | Listing Date | Zestimate on Listing Date | Listed Price | Difference from 1 month Prior | ||
|---|---|---|---|---|---|---|---|
| 252 Saint Albans | $1,400,000 | 06/27/2020 | $2,698,178 | $2,700,000 | $1,298,178 | ||
| 528 Hermosa | $3,100,000 | 06/25/2020 | $5,840,338 | $5,999,000 | $2,740,338 | ||
| 343 Alta Vista | $1,700,000 | 06/02/2020 | $1,988,018 | $1,988,000 | $288,018 | ||
| 1818 Diamond | $1,100,000 | 05/27/2020 | $1,668,636 | $1,648,000 | $568,636 |
Looking at the first entry – 252 Saint Albans Avenue – one can see the discrepancy between the Zestimate algorithm and the MLS listing price. In this case Zillow estimated the home’s value to be about $1.4 million a few weeks prior to the home being offered for sale. Once the home was listed in the MLS as being for sale – the Zestimate jumped immediately to a number quite close to the listing price.
Having a Zestimate valuation close to the listing price makes sense – since a professional realtor will carefully estimate what the current market price is likely to be for a particular property based on other recent sales in close proximity. Both the seller and the real estate agent know that a home priced too far away from the true market value will create confusion in the buyer’s minds and could lead to spurious offers. Therefore, the listing price of a property as presented to the marketplace will need to be relatively accurate for best sales results.
In our example of 252 Saint Albans Avenue – the difference between the Zillow Zestimate about 1 month prior to sale and the listing price in the MLS is nearly $1.3 million. If the seller had relied on the Zestimate to determine a listing price – they could have listed the property dramatically below the actual market value.
There are other recent examples listed in the table to establish this pattern: the Zillow Zestimate for South Pasadena homes just prior to being listed for sale can be dramatically lower than the actual listing price when presented to the market. This is not always the case. However, the fact that a brief search of recent data shows vast differences in these home value estimates should raise concern for home sellers who may be relying on the Zillow Zestimate to convey accurate home valuations in South Pasadena.
Should I Use a Zestimate to Determine My South Pasadena Offering Price?
That answer is again – “No”. We have seen that for homes listed for sale in South Pasadena the Zillow Zestimate algorithm can sometimes be way too low prior to the home being listed for sale. What about the Zestimate for the value after the home has been listed – but prior to knowing the actual sales price?
Here is another data set looking at the Zillow Zestimate after a home has been listed for sale – and comparing the Zestimate to the listing price.
| Address | Zestimate One Month Prior to Sale | Listing Price | |||||
|---|---|---|---|---|---|---|---|
| 822 Orange Grove Pl | $833,000 | $799,000 | |||||
| 214 Beacon Ave | $1,100,000 | $1,100,000 | |||||
| 704 Meridian Ave | $1,100,000 | $1,100,000 | |||||
| 606 Camino Verde | $1,700,000 | $1,738,000 | |||||
| 832 Garfield Ave | $1,600,000 | $1,650,000 |
As we have already seen in the top table of data – no matter what the Zestimate algorithm originally estimated for a home value – it adjusts to a number quite close to the listing price once that has been published. So in the data table above we see that indeed the Zestimate is very close to the listing price for these properties.
The buyers that I work with in South Pasadena will sometimes look at the Zillow Zestimate and presume that this is an indication of what the home will actually sell for. This is nearly identical to thinking that the listing price for a South Pasadena home is the sales price. It is not.
When pricing a home for sale some agents and sellers will opt to either under-price the home or over-price it. In the case of under-pricing a home the thinking is that more buyers will be attracted to a “great deal” and commence a bidding war to drive the price up much higher. Over-pricing a home is usually accompanied by the logic that “It only takes 1 buyer to pay my price”. While this is true – a capable realtor will guide a buyer to understanding the true market value of the home. If it is over-priced the other sold properties in the area will indicate the property as an outlier.
Now let’s look at the full set of data for these recently sold properties. That is – someone actually bought the home South Pasadena and paid real money for the home. This is how realtors (and appraisers) establish market value for a property. The table below includes homes that have sold in 91030 earlier this year.
| Address | Zestimate One Month Prior to Sale | Listing Date | Sold Date | Sold Price | Difference from Zestimate | Percent Difference |
|---|---|---|---|---|---|---|
| 822 Orange Grove Pl | $833,000 | 02/13/2020 | 03/06/2020 | $1,125,000 | $292,000 | 35% |
| 214 Beacon Ave | $1,100,000 | 12/05/2019 | 01/15/2020 | $1,225,000 | $125,000 | 11% |
| 704 Meridian Ave | $1,100,000 | 01/31/2020 | 03/09/2020 | $1,400,000 | $300,000 | 27% |
| 606 Camino Verde | $1,700,000 | 02/06/2020 | 03/20/2020 | $2,400,000 | $700,000 | 41% |
| 832 Garfield Ave | $1,600,000 | 10/12/2019 | 04/07/2020 | $1,400,000 | $-200,000 | -12% |
This data shows that one month prior to sale the properties were valued by the Zillow Zestimate at an amount roughly equivalent to the listing price of the property. If we then reference the “Sold Price” in the table above – we can see that the final sales price for these properties was distinctly higher or lower than the listing price or Zillow Zestimate.
For example – 606 Camino Verde in the data had a Zestimate of $1,700,000 one month prior to sale. The final selling price turned out to be $2,400,000. If a potential buyer were to rely on the Zestimate to formulate their offer for the home – that buyer would have been around $700,000 too low with their offer. Alternatively if a buyer were to say: “I’m not going to pay any more than the Zestimate for this property” – they would have literally no chance of purchasing 606 Camino Verde.
832 Garfield is an example of the listing price and therefore the Zestimate being overly aggressive. In addition to the property sitting on the market for nearly 6 months, the final sales price came in $200,000 below the Zestimate. If a buyer used the Zestimate as a strong indicator of value – they could potentially paid $200,000 over the true market value of the property.
Does Zillow’s “Estimated Sales Range” Work for South Pasadena Homes?
No – not really. The “Estimated Sales Range” is often so broad as to make figuring out the true market value of a property nearly impossible. This is because when you sell or buy a property in South Pasadena – you have to come up with an exact amount you are willing to transact for. In other words – if you are making an offer for a home in 91030 you need to complete a Residential Purchase Offer Agreement with a specific dollar amount that you will pay the seller for the home. You can’t give a price range. So what does the Zillow “Estimated Sales Range” tell you? Let’s reference our data in the table below.
| Address | Listed Price | Listing Date | Zestimate on Listing Date | Zillow Estimate Sales Range | Difference from High to Low Estimate | |
|---|---|---|---|---|---|---|
| 252 Saint Albans | $2,700,000 | 06/27/2020 | $2,698,178 | $2.54 - $2.81 million | $270,000 | |
| 528 Hermosa | $5,999,000 | 06/25/2020 | $5,840,338 | $5.57 - $6.61 million | $910,000 | |
| 343 Alta Vista | $1,988,000 | 06/02/2020 | $1,988,018 | $1.7 - $1.88 million | $180,000 | |
| 1818 Diamond | $1,648,000 | 05/27/2020 | $1,668,636 | $1.60 - $1.78 million | $180,000 |
As is illustrated from our recently listed properties in our data table, the Zestimate is very similar to the listing price for the properties. The “Estimated Sales Range” provided by Zillow looks to be a range a bit higher than the listing price on the high end of the range – and a bit lower than the listing price on the low end of the range. That makes sense. One would expect that if a home is listed somewhere near the true market value – it would sell somewhere near the listing price. The challenge for sellers and buyers is that this range is between roughly 10% and 20% of the estimated property value.
So you can maybe get within 10% of the true market value (provided that the listing price is based on similar previously sold properties) – however it’s imperative that buyers and sellers arrive at an exact price.
It’s clear that in the case of the properties in the data table above – there will be much more analysis needed to arrive at a viable transaction price.
Closing Thoughts on Using a Zestimate in South Pasadena
I want to point out that I am a fan of Zillow in many ways. It is a great site for getting a look at what is currently on the market and also the relative popularity of properties. You can set up alerts on Zillow for homes that may interest you – and also get most of the information that is listed in the MLS in a timely manner.
However, after carefully analyzing properties in South Pasadena (91030) and their relative values as expressed by the Zillow Zestimate, I would agree strongly with Zillow’s own statement regarding the Zestimate:
“It is a starting point in determining a home’s value… your real estate agent or appraiser will physically inspect the home and take into account special features, location and market conditions.”
If you are selling or buying a home in South Pasadena – sure, take a look at Zillow and the Zestimate. Then speak with a trusted real estate professional who has deep knowledge of the local market conditions. Your realtor can then generate a valuation analysis based on previously sold properties which are similar to yours and within close geographic proximity. Then you will have a better idea of the true market price of a South Pasadena property.
If you need any help with buying or selling property in South Pasadena or the surrounding communities – it would be my pleasure to help you out. Just reach out with email, text or a phone call anytime.
Wishing you the best of luck for a smooth and profitable transaction!
Your Real Estate Friend,
Derek
