You’ve done your comparative market analysis (CMA) and know the price where the property should sell. After making your case the seller pulls out a Zestimate for the property and says, "Well, Zillow says my house is worth …!" What do you do?

Today, most sellers will search for their home’s value online. One of the most popular destinations to obtain this information is Zillow, which has a great series of apps for mobile devices that allow you to see its "Zestimates" (automated valuations) simply by pointing your mobile device at a specific property.

Pricing properties in many areas is pretty straightforward. If you have comparable sales in the same subdivision with comparable amenities, the most recent comparable sales are good indicators as to what the ultimate selling price will be.

In other areas, it’s not as clear. In some areas you can have a large, new McMansion next to a 100-year-old teardown. In other areas, the same floor plan can sell for 50 to 100 percent more depending upon the view, the location, or in the case of a high-rise, the floor upon which it is located. The question you must face is how to cope with this issue when it comes up in a listing presentation.

You’ve done your comparative market analysis (CMA) and know the price where the property should sell. After making your case the seller pulls out a Zestimate for the property and says, "Well, Zillow says my house is worth …!" What do you do?

Today, most sellers will search for their home’s value online. One of the most popular destinations to obtain this information is Zillow, which has a great series of apps for mobile devices that allow you to see its "Zestimates" (automated valuations) simply by pointing your mobile device at a specific property.

Pricing properties in many areas is pretty straightforward. If you have comparable sales in the same subdivision with comparable amenities, the most recent comparable sales are good indicators as to what the ultimate selling price will be.

In other areas, it’s not as clear. In some areas you can have a large, new McMansion next to a 100-year-old teardown. In other areas, the same floor plan can sell for 50 to 100 percent more depending upon the view, the location, or in the case of a high-rise, the floor upon which it is located. The question you must face is how to cope with this issue when it comes up in a listing presentation.

What banks use

Recently, I had a conversation with real estate consultant Victor Lund of WavGroup.com, who was conducting research related to real estate valuations.

When a seller brings out a Zestimate, you can counter their price by pointing to valuations offered from other sources.

The problem with automated valuations

The first thing that you must understand about any online valuation tool is that it is based upon mathematical averages that do not take into consideration some factors that can influence the value of a property.

According to the CoreLogic site: "Automated valuation models are based on mathematical assumptions and are not able to consider special factors that may make your home more valuable. Do you live on a lake? Did you refurbish your kitchen? Use this valuation estimate only as a starting point."

Automated valuations, even though they incorporate a substantial number of accurate comparable sales information, still suffer from sizeable sources of error due to the nature of using statistics as a prediction tool.

On a national basis, Zillow estimates that 67 percent of Zestimates are accurate within 20 percent of a home’s selling price, with a margin of error of 12.3 percent, according to Zillow.com. Because agents see the comparable sales and have the ability to evaluate the numerous factors that determine price, I’d bet that they can better gauge value, in most cases.

To illustrate the challenges with using any automated statistical model to predict prices, I used three different tools — from Chase, CoreLogic and Zillow — to estimate the value of a property in Southern California.

The Chase system said the property was worth $324,000. The CoreLogic model said the property was worth $332,000. Zillow says the property is worth $406,000. Clearly, a seller would prefer the $406,000 price, while a buyer would prefer the $324,000-$332,000 price range.

In this case, the Zillow Zestimate takes into account sales that have closed in the last few weeks. It also allowed the owner to enter information about the property that increased the value, such as a new kitchen, new plumbing, updated electrical, and the addition of a master suite and bath. There was no way to update this information on the other two systems.

CoreLogic has aggregated sales data for many years, and if an owner is refinancing and the lender is not performing an appraisal, some lenders choose to use CoreLogic valuations.

Overcoming the objection

When a seller points to his or her Zestimate, you can often overcome this objection to pricing recommendations by comparing automated vlauations from other sources to illustrate the variations.

Once you have shared the comparable sales and any automated valuations supported by the comparable sales, close by saying: "As you can see from the comparable sales and the automated valuations from several sources, the price where your property will sell may be between $207,000 and $212,000. Where would you like to position your property in the marketplace?"

There are two important points to note here. First, if all three tools are relatively close, this increases the chances that the automated valuations are correct.

Second, if the comparable sales support one automated valuation and not the others, only use that automated valuation supported by the comparable sales. Comparable sales, together with an automated valuation, are usually a powerful predictor of selling price.

By tapping into a variety automated valuation systems and coupling them with the most recent sales data, you can tell your sellers: "I don’t give estimates — I give ‘exactiments!’ "

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of Realtors’ No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice’s five-minute daily real estate show, just named "new and notable" by iTunes, at www.RealEstateCoachRadio.com. You can contact her at Bernice@RealEstateCoach.com or @BRoss on Twitter.

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