Recently a client asked me "Why does Zillow estimate this Marin home's value at $1M when the list price is close to $2M?" In this case the home was located in an estate community in San Rafael where the homes are not uniform in nature. The homes are custom built, the lots vary in size and their orientation. This particular home was on the waterfront with views of the surrounding hills and had flat sunny .5 acre lot with extensive upgrades. This home certainly was worth more than the neighbor's home across the street that lacked these features. Was it worth $1M more or $500k more? That is the question buyers want to know and this is the challenge when assessing value using Zillow's Zestimate tool.
Zillow pulls their data from public records and their Zestimates work relatively well when assessing homes in planned unit developments (tract home neighborhoods) where the homes have relatively similar floorplans, square footage, lot sizes and amenities. Still Zillow does not take into account a home's upgrades and lot orientation (views, corner lot, upslope, downslope, flat lot, added pool) - which can alter the value dramatically. It also doesn't take into account the intrinsic value of a particularly desirable street or home's architecture. Zillow does disclose this in their FAQ section.
When making an offer on a home, rely on your real estate professional to do a thorough analysis of the home's value. As real estate professional, I take a similar approach to an appraiser when determining the value of a home, but from a macro level. This way I can recommend an offer price to my client that seems fair in the market place and will likely be considered by the seller.
After we settle on a price with the seller, an appraiser will come out to the home to conduct a detailed assessment of the value on behalf of my client's lending institution. In my experience, the appraisal usually comes in at the value of the offer. If appraiser does not assess the home at the value my client has offered, then there could be room for further negotiation with the seller on price.
If you are selling your home, you would also want to take the same approach to assessing a fair list price prior to going to the market - as price is the main driving force in today's market.
I consult, and represent, both buyers and sellers in Marin. Feel free to call me or email me for assistance.