Ever found yourself wondering where in the world Zillow’s home values ACTUALLY come from? Today, we’ll go straight to the source (Zillow itself) and explain a number that’s been a mystery to real estate investors and homeowners for years: the ZESTIMATE. I’m Carole Ellis. This is episode 27.Admit it: you love Zillow (or, you know, maybe you hate it). Either way, real estate investors have no choice but to live with and EMBRACE the online listings giant. Zillow was founded in 2005 and, in a little over a decade, managed to become the most heavily trafficked real estate website in the world with millions and millions of homes and their associated data, including the somewhat mysterious “zestimate” listed on the site.If you’ve ever made an offer to a seller only to hear “but Zillow says my house is worth…” in response, then you know the frustration and, in some cases, total disconnect with reality, that Zillow’s custom estimated value for a home can cause. Spencer Rascoff, Zillow’s CEO, has addressed the zestimate in a number of public interviews, and he tends to explain the zestimate in this way, as he did on Boston’s National Public Radio station:“It’s a very complex algorithm [that is] computer generated.” We look at the properties of the subject home and we compare it with like properties. We do it using machine learning and algorithms which are very complex. We value every home in the country, every night, and nationwide zestimates are actually quite accurate even though they’re computer generated.” Are you getting that the zestimate is complex, by the way?So Zillow generates these zestimates which, as you’ll see in a minute, they’re very adamant about calling by their proper names. And as Rascoff says and most real estate investors will agree, a zestimate is not necessarily a bad STARTING POINT for a home value because they tend to be relatively accurate, which is to say that if someone says their property is worth $400,000 and Zillow says it is worth $175,000, you can generally be sure there are some more details to uncover, good or bad.The problem that a lot of real estate professionals have with Zillow and its zestimates is that when a homeowner sees a zestimate the old “if it’s on the internet, it must be true” fallacy kicks into high gear if the homeowner likes what he or she sees. You can’t lie online, right? And, by the way, I own this bridge I’d like to sell you…Anyway, a lot of real estate professionals criticize Zillow more and less gently about their zestimates because they’re not real appraisals, and Rascoff addresses this directly and regularly as well. He has said time and again that “it’s a zestimate, not a “zappraisal” because it is not intended to take the place of the appraisal.” He routinely encourages critics to consult appraisers and real estate agents for more detailed, accurate home values. “There will always be a professional intermediary,” he has said on more than one occasion, noting that in his opinion, Zillow and zestimates have simply given consumers access to what was historically a “secret database of housing information.” That doesn’t mean, he adds, that a consumer doesn’t still need a professional’s help to interpret it.So if you’re an investor struggling with the best way to use Zillow, here are a few fast tips to make this powerful website work FOR you instead of against you when you’re working on a deal:First, don’t go in blind. I promise you, your seller looked up their zestimate. You need to know what they believe about their home so that you don’t look gobsmacked when they tell you what it’s worth, for better or for worse.Second, read the home details. They may expose the reason for a value discrepancy, if there is one. For example, I once encountered a LOVELY, HUGE home in person (five bedrooms, five bathrooms, huge porch, finished basement, the works) that was listed on Zillow as a three-bed/two-bath. Zillow’s fault? Nope! Nearly three decades earlier the homeowner had done a bunch of work to improve the home and the changes had never made it onto county property records. Because the home had never been listed on Zillow, the updates simply never got recorded. To Zillow, it looked like a starter home in the middle of a much, much posher neighborhood, and Zillow priced it accordingly. In that case, it was good news for everyone once we figured that out!Third, be pleasant. Badmouthing Zillow is just dumb, and not because they’ll call you up and ask you to stop (which they will). Zillow, like Google, has carefully aligned itself with the consumer by “exposing secret information” previously only accessible to real estate agents. That type of marketing is just one reason a lot of real estate agents don’t really like Zillow all that much. But if you bad-mouth your seller’s “teammate,” you just come off as the guy with something to hide. So be reasonable, but be nice about it as well. In most cases, your seller knows what the zestimate says and, in their heart of hearts, they know whether it’s close to accurate or not and whether their situation warrants you paying that price tag.REI Nation, Zillow is a powerful force in real estate and you can leverage that power – and the power of the zestimate – to your advantage to the good of your real estate investing business if you understand how that zestimate works. 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