Why don't Real Estate Investors offer what Zillow says my house is worth?
It happens quite often when I meet with homeowners and we discuss an offer and how much the were expecting for their property that there response is "Well I looked on Zillow and they said my house is worth such and such..." This response used to drive me crazy for several reasons. But, after thinking about it and putting myself in their shoes they are actually doing exactly what they should be doing. They are using the resources they have available to them and researching their property value before meeting with an investor or realtor so that they can make an educated decision to get the most for their property before moving forward.
Zillow does an excellent job at collecting data of properties sold and properties that are for sale and publishing this information on their website. Now I have seen in some instances where there have been some errors on certain properties where the bedroom and bathroom count were wrong. Other instances where the square footage was wrong or the photos do not match their actual house. But, you can not deny with the amount of properties sold and the amount for sale in the country they do a great job publishing this data.
In my opinion there is one HUGE fault in their Zestimate system and that is they have never been to your house. From what I understand Zillow uses and algorithm to determine their Zestimate. What I mean by that is they take in consideration all the houses that sold in the area and based on age, square footage, and bedroom / bathroom configuration they come up with a price of what your house should sell for. Now here is where we run into problems. You could have two identical houses as far as age, size, bed and bath count but, one property has had $50,000 dollars worth of renovation and looks like a house you would see on HGTV. The other house needs a new roof, new windows, new HVAC, new flooring, paint, the kitchen is from the 70's and the bathrooms still have pink subway tiles. I could be wrong but, I don't think anyone in their right mind would pay as much for the second house as they would for the first.
When a experienced real estate investor looks at your property for the first time he is taking mental notes right of the bat. He is looking at the roof, windows, and exterior as he is driving up to your property. It has just become habit. Now depending on what the investor plans to do with the property will determine what his renovation budget will be. He then has to figure out how long the renovation will take and how long he will be holding onto the property because that equals money. After he calculates all of his figures he can then make you an offer. .
Many people believe "Oh a real estate investor is just going to give me a low ball offer and they won't be anywhere near what Zillow says my house is worth." In some instances that may be the case but, does your property need a lot of work? Does it look like the house that just sold down the street for $400,000 or are your kitchen cabinets falling apart and you still have green shag carpeting? Keep in mind a real estate investor wants to buy your property that is how they make a living. They also know that they can not make an offer so ridiculous that they can never buy a house. Hopefully he has walked you through how he came up with his offer and showed you comparable properties and pointed out the differences between your house and the house down the street. Now is where it is time for you to make the decision. The things to keep in mind is how much would it cost you to make your house look like the HGTV house. Do you have contractors that work for you regularly and can offer you a discount because you give them a lot of work? Can you replace a roof for the same amount as an investor can? Do you have the time and knowledge that the investor has? If you did the work yourself could you make more money or would you lose money? Do you even want to do the work yourself? These are all things to consider.
I am not saying to stop looking at Zillow. I look at Zillow every day but I use it as more of a gauge to see about what the value of the property is. I urge everyone to do the same. If I estimate that a property should be worth $300,000 and Zillow says $500,000 my first thought is did I miss something. I then dig a bit deeper in case there is something that is adding value. I will say usually more often then not the Zestimate is somewhat inflated. There my be a reason Zillow now longer buys houses and had a fire sale of their inventory.
I hope you found this information helpful and it provided a little bit of insight into why an investor's offer may be different than what you were expecting.