Zillow has data that can be very helpful. I know, I know… In previous articles, I have exposed the lack of accuracy with their Zestimates. However, when it comes to a data source, I do find that Zillow offers great information for the public. When appraising a property, I usually look to see if there is any information on Zillow about the property I am appraising. By the way, here’s a pro tip for those looking for vacant land sales… I have found that Zillow often picks up land sales that MLS doesn’t always see. When I’m struggling to find land sales, I have found it to be a good resource.
While Zillow does offer some great data, occasionally, some of my clients point out home sales that they found on Zillow, that appear to be comparable to their property. They inquire as to why I didn’t use them. I welcome these kinds of questions. Because sometimes as appraisers, we miss comparable sales.
In most cases, my clients looked at sales on Zillow and were of the opinion that my opinion of their property’s market value was too high. Especially when I am appraising homes for the purpose of a divorce or tax appeal. So, I wanted to discuss some things to keep in mind when looking at sales on Zillow to try and figure out a property’s market value.
To my client’s credit, they did not go by the Zestimate. Good thinking! But they did make a mistake. They searched for homes that appeared to offer similar square footage in Zillow. What’s wrong with this? Nothing at all! However, Zillow’s square footage totals include finished basement areas. They report the “total interior livable area”, which includes all finished and heated areas.
When I considered all of the sales that my clients gave me to look at, every home was considerably smaller than the property I appraised. Therefore, my opinion of the market value of their homes was not too high. It’s just that the sales they were looking at were inferior in terms of size. Once I pointed out to them that Zillow includes the finished basement areas in their square foot totals, it all made sense to them, including my opinion of the market value of their home.
ABOVE & BELOW GROUND FINISHED SQUARE FOOTAGE
Why is it important to understand what Zillow includes in its reported finished square footage? The simple fact is that in most cases, the contributory value of finished basement square footage is usually considerably less than that of finished square footage that is above the ground. Many argue this point. But when we really take a close look at most sales, the data reflects this. Even if the property has a walk-out basement.
When people try to come up with a price per square foot using Zillow’s reported square footage, and the home they are looking at as a possible comparable sale has a finished basement, the price per square foot is probably going to be less than the market is really paying per square foot. This is why my clients thought that their home’s market value was less than I did. By the way, this may be one of many reasons why Zillow’s Zestimates can be so off, and in many cases low, at least in my experience.
Let me show you a few examples of what I’m talking about.
THREE EXAMPLES
Example 1
7932 Elmhurst Dr, Broadview Heights, OH. Zillow reports the total finished square footage to be 3,224 square feet. The MLS reflects the above-grade finished square footage to be 1,992 square feet. This property sold for $315,000 in September of this year. If we use Zillow’s finished square foot total, we would have a price per square foot of $98. If we use the above-grade living area square footage, we have a price per square foot of $158.
Example 2
5109 W. Mill Road in Broadview Heights, OH. Zillow reflects the finished square footage as being 3,235 square feet. The MLS reflects the finished above-ground square footage to be 2,835 square feet. This home sold for $357,000 in May of this year. The price per square foot using Zillow’s square footage is $110 per square foot. The price per square foot using the above-ground finished square footage is $126.
Example 3
3439 Jasmine Drive, Independence, OH. Zillow reflects its finished square footage to be 3,114 square feet. The MLS reports the above-ground square footage to be 2,326 square feet. This home sold for $333,823 in August of this year. The price per square foot using Zillow’s square footage is $107. The price per square foot using the above-ground finished square footage is $144.
The fact of the matter is that when the finished basement area is included in the total square footage, it waters down the price per square foot which often leads to a lower value than what the market is really paying. Especially since in most markets, the contributory value per square foot is less in below-grade areas.
MY TAKEAWAYS
If someone wants to price their home based on sales they see online, they must also understand what the data in those online resources is really reflecting.
My hat’s off to folks who don’t rely on Zillow Zestimates for making serious decisions where a credible value is needed. However, even when trying to figure value out by looking at what seem to be comparable sales found online requires caution.
If you ask appraisers, we will tell you that pricing a home based solely on square footage is not usually a good idea. You may get into the ballpark, but usually, the number is going to be off. I wrote an article on this subject entitled, “If You Price Your Home Like Fro-Yo, You’re Gonna Get Licked”. There is some additional information that may be worth considering on the topic.
With several of my clients who shared Zillow sales with me, a couple of them were hoping for lower values. It does make me wonder if they had been looking for higher values, would they have looked more closely at the data? It’s hard to know. I’m not saying their motivations were improper. But clearly were not unbiased. Food for thought.
Here’s something else to think about. In every case where my clients were comparing their homes to the homes on Zillow, they only used the finished above-grade square footage of their homes, despite having nicely finished basements. It didn’t occur to them to include their finished basement square footage in their comparisons. Why? In my view, this may be a little indicator that homeowners really do value above-grade finished square footage differently than below-grade finished square footage, even if it’s subconsciously. And this can be seen in residential sales data that I look at all of the time!
If you need to know the value of your home, why not hire a state-licensed or certified appraiser with years of experience, who is unbiased and skilled at valuing property? Spending a little money upfront may help you make more money later!
Well, that’s all I have to say on this subject, for now anyway. I’ll let you get back to searching Zillow for cool and weird homes. At least, that’s what I’ll be doing. Let me get you started with this video.
Cover photo from unsplash
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Here are some links to other articles I think you might also enjoy…
To Go Forward With Housing, We Must Back Up – Housing Notes by Jonathan Miller
Writing a Letter To Yourself – The Appraiser Coach Podcast with Dustin Harris
What is External Obsolescence? – Birmingham Appraisal Blog
Top Three Electrifying Tips – The Folson Group Blog
Mortgage Rates Impacting Housing – September Newsletter – DW Slater Appraisal Blog
Home prices are close to dipping below last year – Sacramento Appraisal Blog
NAR Appraisal Survey 2022 – APPRAISAL TODAY
Are Listings Important? – The Appraiser’s Advocate Podcast
Why is Data Science Used by Big Business? – George Dell’s Analog Blog
For my readers in the CLE area… here are some articles related to news in our local area that you may enjoy…
Cleveland Municipal Airport: Before it was Hopkins, this airport was leading the way in aviation – Tom Matowitz of Fresh Water Cleveland
First Look: Jaja, Opening at Intro in Ohio City on Wednesday, October 12 – Doug Trattner of Cleveland Scene Magazine
Great stuff as always Jamie. I will try your suggestion to check Zillow on a couple of land appraisals on my desk. I’m so happy to work in an area with few basements.
Thanks Joe! I hope you find Zillow to be useful for finding land sales. Yeah, basements are great, but they can be problematic when appraising.