Colorado Foreclosure filings, where are they and what does this mean for values? What is the number one driver of foreclosures?
Many counties in Colorado are now using an online auction program for foreclosure sales which…
I was recently looking at a property in Colorado and looked up its Zestimate (above)… it is a miracle that the Zestimate suddenly increased 300% with no changes to the property. I’ll bet 900 million that the Zestimate is not accurate. Why did the Zestimate jump so profoundly? How accurate is this number and should you rely on it?
The answer is simple, they listed the property! Whatever the list price is becomes the new Zestimate regardless of if there are comparables to support it. I have yet to see a recent example of a property where the Zestimate is radically different than the list price.
About 5 years ago, Zillow faced numerous lawsuits over its zestimates that were supposedly lower than what a property was worth, and the sellers were ultimately harmed. Although Zillow prevailed with multiple court wins, Zillow “updated” its models to better account for listing prices. I have not seen any lawsuits against Zillow the last several years as the Zestimate is for all intensive purposes “guided” by list prices.
On the particular property above, I independently pulled comparables to see what was really going on in the market and immediately saw a few big red flags:
The real value of the property was closer to the assessed value in the 150-225 range. I know this is a big range, but the property had some unique issues that would take a very unique buyer.
Even in urban areas, whatever the sales price is, this is the guiding number for the Zestimate. Remember Zillow makes its money from realtors, so it is ill advised for them to upset the apple cart of those that are driving the revenue.
A few years ago, Zillow began buying homes based on the Zestimate only in urban areas where they knew their model was most accurate. Unfortunately, this didn’t work out so well as they were paying 10-20% above market and ultimately had to exit the business. Zillow ultimately lost almost 900 million dollars.
With Denver and other markets throughout Colorado beginning to correct/cool, the Zestimate model cannot account for the swift changes in market sentiment and will continue to “overshoot” on values as they are weighting currently list prices heavily in their models. Furthermore, it takes a month or so for sales to begin reflecting the declines in values and the model is too heavily weighted on listings. To make the model even less accurate, many of the listings that are driving the Zestimate are overpriced as 58% in Denver ultimately required price cuts.
It is amazing the weight that many buyers and sellers are putting on the Zestimate. Unfortunately, this will ultimately lead to poor decisions either overpaying for properties or listing properties too high. With a changing market, these poor decisions will be exemplified. Now is the time to independently evaluate values (or find a trusted pro that can assist) to ensure you don’t overshoot on listing price and/or overpay on a purchase. Remember the past is not an indicator of future success, the last cycle has been relatively easy in real estate, the next cycle will be considerably more challenging as we are already seeing in declining markets.
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Written by Glen Weinberg, Owner Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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