The Truth about Zillow's "Zestimates" & "Preforclosures"
Zillow's website isn't useless. But unless you know what it can be used for you could find yourself frustrated, poorer, and wasting time.
Zillow’s website provides information on home prices. Or at least they try. They tell you what Zillow thinks a home should sell for (a “Zestimate”) as well as whether a home is in “Pre-foreclosure” and should be a better deal as a result. Zillow’s great for a buyer or seller to scan what's for sale (even if the status is not always current), but there are a few things you should know about Zestimates and Pre-foreclosure listings.
According to Zillow’s CEO on “CBS This Morning”, Zillow’s price guesses have a nationwide “median error rate" of about 8%. That means that most of the time their estimates are off by $40,000 either way on a $500,000 home. Sometimes it is off by as much as 69%! And “Zestimates” end up not being the final sale price over 95% of the time. That doesn’t mean a Zestimate is useless – but its uncertainty does mean you probably should not use it as a true guide to a home’s value. Either your own or one you have your eye on.
Zillow recognizes the limitations in its guesses and is honest about its confidence in them. Their site says you should also do “other research such as: Getting a comparative market analysis (CMA) from a real estate agent; Getting an appraisal from a professional appraiser; Visiting the house (whenever possible).” In other words, talk to a Realtor.
Pre-foreclosures are homes with late mortgage payments or similar issues, Zillow gets its info on them through automatic feeds from public records databases – sometimes incorrect or not up-to-date. The issue could be with a 1st, 2nd, or 3rd mortgage, a Home Equity loan, or even HOA proceedings. It doesn’t really mean the house is for sale or auction, that the noted value of the outstanding loan is the price of the house, or that it will ever go on sale. It just means something derogatory has been found in a public record.
Zillow cautions that “most experts agree [pre-foreclosure] is the most difficult stage during which to purchase a distressed home. The owner may be working to cure the default . . . .” Stated differently, even if the information is correct that the owner is having troubles, the owner may actively resist a sale for months while negotiating with the lender (and/or filing for bankruptcy). So at heart, Pre-foreclosure listings sound good but usually are not quite the great and quick deal for buyers they first appear to be.