Page 3 - Leo Rising - June 2019

“Localized median error rates on Zestimates sometimes far by a computer, and in public records, is not an accurate or
exceed the national median, which raises the odds that sell- comprehensive analysis.
ers and buyers will have conflicts over pricing. Though it’s
not prominently featured on the website [I wonder why?], at Here is what homeowners must understand before they begin
the bottom of Zillow’s home page in small type is the word the process of determining their home’s true market value:
“Zestimates.” This section provides helpful background infor- Price is what it is, but value can be manipulated. Value is what
mation along with valuation error rates by state and county— dictates price and determines what someone is willing to
some of which are stunners.”
pay for a certain product, service, or in this case, your home.
The article goes on to summarize: By manipulating value, as long as it’s done correctly, a good
agent can substantially increase the profit of a home sale.
“So what do you do now that you’ve got the scoop on Zesti-
mate accuracy? Most important, take Rascoff’s advice: Look The technical name for Warren Buffett’s investment style is
at them as no more than starting point in pricing discussions Value-Driven Investing. As a value-driven investor, he will pay
with the real authorities on local real estate values — experi- more for a company’s stock if he perceives it to be a good val-
enced agents and appraisers. Zestimates are hardly gospel ue. If he doesn’t perceive the value to be strong enough, but
– often far from it.” still feels he can make something of that value, he’ll pay less.

All that being said though, the real tragedy here is the inferior This introduces a very important point, to be successful, one
approach. must understand this element to Buffett’s investment style:
not all companies are the same. Just because two com-
Zestimates, the reason they are so inaccurate is because they panies both rent furniture, for example, does not mean those
depend too heavily on the data of other comparable sales. two companies are the same. It does not mean both compa-
They only take into account the most basic information. This nies have the same value. It does not mean their stock will sell
is one of the fundamental mistakes that for the same price.
we avoid by taking a VALUE-DRIVEN ...the real tragedy
APPROACH to sell real estate. This Buffett might buy one company’s stock
practical approach will help you protect here is the inferior for $30 a share, but for the other com-
yourself from REAL ESTATE GREED & pany, he might pay $40 a share.
bank extra profit by thinking like the great approach. Why pay the higher price for Company B,
WARREN BUFFETT.
when Company B does the exact same
To be fair, in some cookie-cutter neigh- thing as Company A? Because they’re not
borhoods, that “price-driven” approach used by Zillow and the same company and the value of Company B, unlike Com-
most agents, just looking at recent home sales and finding pany A, supports the investment and the higher price point.
the average can be effective. But more often it is used, not Maybe Company B has a better marketing system for acquir-
because it is the most comprehensive approach, but because ing new clientele, a better management system, or a stronger
it is the easiest, quickest and simplest. And frankly, this infe- sales department. Maybe their operation procedure is more
rior price-driven approach (opposed to the more comprehen- efficient, or is run by a world-class leader, a CEO like Lee
sive value-driven approach) doesn’t require that the person Iacocca when he was at the head of Chrysler.
or company doing the valuation have much knowledge about
the actual home. Nor does it require much knowledge (from The point is that Buffett invests his money based on value. If
the agent or Zillow) about the actual building or construction the value is there, he’ll pay more for a company’s stock. If not,
process, or about how different materials, upgrades, layouts, he won’t.
etc. can positively or negatively impact the functional value of
a specific property. So, bringing this back to my point…

Think of it this way, if one house has a standard kitchen and If you want buyers to buy your home, your investment, at a
yours has an upgraded kitchen, how does Zillow know? Or higher price point, meaning, put more of their money into the
what about the smell of cat urine or cigarette smoke? How “stock” of your company, your home, then it’s simple: You
does Zillow know? Or what about tile vs. marble vs. traver- must manipulate the value of your home (in a positive manner)
tine? Or what about seller concessions built into the final sales to justify that higher price point. And sorry, but Zillow’s Zesti-
price resulting in, technically, inaccurate data. How does Zil- mates, as good of a marketing ploy that they are, they are not
low know about that? Or what if the property was sold to capable of showing any homeowner how to do that.
a son or daughter, by their parents, at a price significantly
reduced from market value? Or what if the home was sold as Therefore, by the smartest homeowners, those committed
part of a financial hardship, resulting in a below-market sale? to increasing value and maximizing return, they should be ig-
nored. In reality, Zestimates are of little value to the consumer,
My point is, the price-driven approach used by Zillow, where and in many cases, the false information provided can have
the Zestimate is based entirely on the data that can be found detrimental impact to buyers and sellers. |

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