The Booming Housing Market: Online Estimates

Is It Time to Sell? How do we buy?

The image above is from two properties we wrote offers for this week. (1/26/24)

Which one do you think was more competitive? From a simple first glance, the property illustrating the “most competitive“ would be the most competitive. However, the home that was labeled as “very competitive“ was only on the market for 8 days before going pending and sold for 350k above list price. On the other hand, the home labeled most competitive has now been on the market for 20 days and offers being sent to them are below list. Nobody wants to bid aggressively for that home.

The housing market is fully back in attack mode (It never really stopped in some areas) , likely making homes more valuable than they were even just a few months ago.

But how much can you trust online estimates like Zillow’s Zestimate, or those from Redfin.com and Realtor.com when you have so many scenarios of online estimates being wrong?

The Reality of Online Home Value Estimates

While looking into the value of the home, accurately predicting sale prices in a dynamic market is challenging.

People look for online websites to help with the prediction of what the sale price will be. These online estimates incorporate hundreds of factors, including local real estate data, historical sale records, property and tax records. However, despite improving accuracy, different sites can offer estimates that vary significantly, sometimes by hundreds of thousands of dollars. These discrepancies highlight the complexity of home valuation. This is a generally a rapidly appreciating market where homes sell quickly, often above asking price.

A home is typically listed on the market on a Wednesday, open houses during the weekend and then offer date the following week i.e. Tuesday 10am.

Why can't online estimates be trusted?

Every single math equation and predictor can not take into account the emotional aspect of a RESIDENTIAL real estate sale. A commercial sale is different.

The psychological dynamics in residential real estate transactions significantly impact decision-making and override logical considerations.

Emotional factors

Attachment to a property location

There are always the media clickbait  headlines that say statements like “people are leaving California." The reality is that people like to pay the “location tax,” whether it's California or any other expensive place. People for the most part like to stay where they are living. People want to take their kids to the best schools. People want to stay close to where their family and friends are located. This creates a stability of prices. Hundreds of people leave only to realize that they miss where they live.

As parents age, adults might want to make sure they are close to their parents. When this happens, logic goes out of the window. If there is a house down the street from where homeowners currently live, they will attempt to purchase by any means necessary. The same happens if for example, there is a woman 9 months pregnant that wants to make sure they get that specific home. This throws comparable data out of the equation. The data cannot account for situations like these. Subscribe to get an update into other location factors that might affect location valuation in your specific home sale purchase or sale.

The thrill of a bidding war

An offer date creates a general fear of missing out. The psychological thrill makes it easy for people to overextend their original bid amount. This can be even more apparent when there is a probate court auction. The people bidding, have run numbers and they have their upper number. But when the judge says, “ will anyone want to bid higher” the sigh of seeing someone else get the home creates an emotional attachment. Quickly emotion can take hold of the bids. Because why lose a home for not simply bidding 10k more? 10k more can quickly become 60-80k more.

Sellers setting unrealistic expectations

Sellers see redfin, zillow, and realtor.com estimates ( also estimates from unethical agents that give sellers high sell expectations in order to get the listing agreement ) and might be under the impression that the home deserves to get an X offer. They overprice their homes. Now, the way a lot of estimates function, depending on the list price, the estimates will go backwards and usually hover around whatever the list price is in. In essence, if a home is worth 1M but the list price is 4M, odds are that the estimate will hover around the list price, even if there is no way that the home will get an offer at that price.

Buyers forget that sellers don’t actually have to sell unless they get a price that they are comfortable with. Some sellers are selling their asset for millions more than what they initially bought it for so if they need the money they could theoretically just borrow from the house vs selling from a price they don't like. Why should they? After all, many home sellers bought 30 years ago, and at this point the home is paid off , there’s no threat of foreclosure (most times) so they can just spend months if not years on the market without capitulating to a lower sale price. Better yet they can even decide to rent vs selling. While buying properties at a premium doesn’t make sense to rent based on the current numbers, if the cost basis is low enough from when initially purchasing, it could make sense for current owners to rent with a number that makes sense and is profitable.

Giving up on “finding a deal”

With all this in mind, new homebuyers sometimes opt to say things like “we’ll if it's an aggressive bid I won't partake in, I have patience and will just look for the right home .” A great Real Estate Broker won’t push you to hurry and make a purchase quickly. It's your money after all, and obviously budget has to be taken into consideration. But that’s not the point.

Buyer fatigue from enduring the pain of losing too many homes can override logical considerations. This emotional investment often leads to buyers paying more than the market value.

Even if you don’t want to participate in those processes, other people who have been looking for years might be close to giving up on getting a “huge deal” and instead understand that they have to focus on finding a place that they are comfortable with and that they like vs price. There is an opportunity cost to go to open houses every weekend. It takes a toll on your time and this should be something people think about when looking at homes for a long time. People waiting for three years might realize a that if they would have “overpaid “ three years ago, odds are that the homes would have appreciated and they would no longer be in the situation of overpaying even more in the present.

When purchasing a home, you’re also dealing with buyers who now simply want a home before their kids are too old for the schools to matter. Those buyers are not accounted for in data analysis.

Average of all estimates

Some buyers opt to say they will bid an average of all the big real estate companies website estimates. Although it might seem creative, it's not that simple and I actually hear that so much that odds are that if you are thinking of doing that, other new buyers are also thinking of doing that, which creates the loop of bids that wont be enough to compete with other buyers.

What's the winning number?

Accurately pricing homes in fluctuating markets is an intricate process. While online tools provide a baseline, they cannot fully capture the unique qualities of a property or current market sentiments. This is where the expertise of real estate professionals becomes invaluable. They bring a nuanced understanding of both the tangible and intangible aspects that influence a property's value.

This isn’t an exact science. There will always be exceptions. This article is meant to acknowledge competitive deals. If a house has been on the market for 40+ days, that will allow for potential price flexibility...but again sellers don't have to sell unless they really need to. So just be prepared to understand the details and look at every home individually, versus making generalizations on how a home will sell based on price per square foot.

As always, if you have any questions or if you want to know more about how to bid for it to have a chance while not overextending yourself and overbidding - send me a message!

Rene Perez Jr, PMP, Broker

DRE:02115618