Real estate pricing explained: Getting beyond the Zestimate

I go into the office, The Grubb Company in Oakland, California, every Saturday to do floor. I get to see my quiet mentor, write my columns, answer questions from callers and walk-ins, and get a feel for what’s going on. And what’s going on lately has been a lot of questions about pricing and automated valuation models (AVM).

Let me preface this next part by saying: I have been so broke at times over the years that I would work with anyone and any type of property. 

Toot toot (that’s my own horn). I have a lot of experience pricing property of all kinds: cell phone tower space, every type of residential property imaginable, commercial buildings, dirt, whatever. 

But the first thing I do — even before I check who owns it — when I get the call about a potential residential listing is look it up on Zillow. I want to know what the client thinks their property is worth. I want to know what the client thinks about the square footage, bed and bath counts and garage space.

Before the initial appointment — before I put together a listing presentation — I do my own pricing. 

The AVM and I aren’t usually on the same plane of reality, but the one thing we have in common at that point is that neither I nor the AVM have physically inspected the property.

What I do have is a range of what the property is worth. Some of the time the AVM number is someplace on that plane. But how are my and the AVM’s numbers determined?

So we’ll do both here: how the algorithm arrives at its number and how a human being arrives at a better one.

This week started with a question I overheard when I was doing floor:

Question: Zillow says my house is worth $1 million, but Redfin says it’s worth $1.1 million. Why is it different?

Answer: Because neither Zillow nor Redfin has walked through your house.

Both companies use automated valuation models, or AVMs, to estimate value using public records, recent sales, listing data, property characteristics, and their own models. They don’t use the same data or the same formula, so different answers are common. 

Both Zillow and Redfin acknowledge that their online estimates aren’t appraisals. The $100,000 difference between the two is to be expected.

Question: What’s an easy way to get comps for a property fast?

Answer: I worked selling REO properties for a lender during The Troubles. They had a very particular way they wanted properties priced, and I feel grateful I had the opportunity to learn it.

• Determine the subject property’s square footage, bed and bath count per the assessor’s office or tax record.
• Start with a half-mile radius around the subject property. 
• Select all “Active,” “Pending,” “Sold,” “Expired,” “Withdrawn” and “Cancelled” properties.
• Select all the same type of property as the subject. (If the subject is a condo, choose EVERY condo regardless of square footage, bed/bath count) 
• You’re looking for two to three of each APSC
• Find the sold price per square foot and look at four numbers. Low, average, median, high.
• Multiply the recorded square footage by the low, average, and median numbers

This is going to provide you with a range of where the property could sell based on recent comparable sold properties.

The best comps share the same neighborhood, location, influences, legal characteristics, condition and appeal, but do what you gotta do — this is supposed to be quick.

When I get to the property, I can better determine the potential value and work with the client to help them get the highest realistic price possible when they sell.

Question: Should I ever quote a Zestimate in my marketing materials?

Answer: My short answer is no. 

Though it’s way better than asking Claude or ChatGPT for a number, a Zestimate is an automated estimate built from real estate data and statistical modeling. It is not an appraisal, an inspection, or a comparative market analysis, but it uses relevant data.

Put “Zestimate $1.2 million” in your marketing, and plenty of consumers will think it’s your professional opinion or a statement of market value. And now you own a number you didn’t produce and can’t defend. 

California advertising must be truthful and not misleading, and “the algorithm said it” is not a defense.

Privately, it’s a different conversation. “Zillow estimates the property at this number. That’s not how I would price it. Let’s compare it to recent sales, current competition, condition and buyer demand.”

If a seller insists, get your broker’s written permission, check the trademark rules, label it as Zillow’s estimate and never present it as fact.

Each week in America Answers, Inman contributor America Foy answers questions from the industry at large and offers advice on how to handle the situation.