Should I Factor Online Estimate or Zestimate Into My Real Estate Offer Price?

Understanding the limits of estimated home values gained for free online.

Question

My wife and I just toured a home that we like and would like to put in an offer on. But we noticed that the list price is higher than the online Zestimate. What’s more, our real estate agent is telling us that other bids are likely to come in on the place, and so we should offer even more than list price if we are to get the home.

What’s going on? I’m worried that our real estate agent is scamming us a bit, wanting to increase her commission.

Answer

You’ve raised two issues here: one regarding the value of online estimate (or “Zestimates,” when found on Zillow, and the second regarding whether your agent has a conflict of interest with regard to suggesting an offer amount.

Online estimates of home value should always be taken with a grain—or maybe a pound—of salt. They are computer generated, based on objectively determined (but sometimes themselves inaccurate) factors gleaned from public records, such as number of rooms and square footage.

The computer has no way of knowing whether the house overlooks a botanical garden or a garbage dump, smells like the nearby pine woods or like the last owner’s cats were incontinent, or is streaming with sunlight or in the shadow of a nearby high-rise. The very reason you and your wife fell in love with this house could be utterly unreflected in its Zestimate.

Is the Zestimate entirely irrelevant? No, in the sense that other buyers may be viewing it an asking the same questions as you. But if you’re truly in a multiple-bidding situation, then counting on all the other buyer lowballing their offers is a strategy not likely to get you a house.

The best way to figure out how much to offer on a house is to develop a sense of the market yourself, by going to open houses and getting a sense of how various features in the area where you live translate into value, and by asking your agent to evaluate the recent sales of comparable homes. See  Home List Price: What Is a House Worth?for more on this.

Now, to the matter of your real estate agent’s conflict of interest. It’s true that the more you pay, the higher the commission the agent will get. But unless you have other questions about your agent, there’s no reason to assume the agent will act unprofessionally and put your best interests ahead of his. Hopefully you checked the agent out carefully in advance, using the criteria described in  Choosing a Real Estate Agent to Help You Buy a Home.

Many fine agents navigate this inherent conflict with no complaints from clients—in fact, they will be the first to say that they’d quickly ruin their careers if they let their desire for a few dollars more in commission sway their judgment as to what will help their clients.

If you have other issues with your agent, that may be cause for concern. But if this is the only one, start by asking the seller’s agent directly how many offers are expected. If it’s several, listen to your agent—you’re in a bidding situation where you should be calculating how much the house is worth to you and how high you’re willing to go to beat out other offers. This house isn’t going to be a bargain. See  Making an Offer to Buy a House  for more tips on this part of the process.

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