Real Estate Analysis Should You Use Zillow Sold Homes for Your Comparative Market Analysis? by Kabue Muriithi May 31, 2022June 13, 2022 by Kabue Muriithi May 31, 2022June 13, 2022 As a beginner investor looking to find out how much a property is worth, can you use Zillow sold homes to conduct a comparative market analysis? Table of Contents What Is Zillow? What Is a Comparative Market Analysis? Using Zillow Sold Homes for Comparative Market Analysis How to Conduct a Comparative Market Analysis Key Takeaways While getting your estimates from Zillow may have you turning green with envy, it may be hard to predict what a home may sell for, especially if you’re located in a competitive market. There are many factors that go into coming up with estimates, including property tax details, sale records, property details, etc. An online algorithm will barely understand property as a human would. National Zillow estimates for property listings show a median error rate of 1.9%. For off-market properties, the error rate is even higher, standing at 7.3%. However, it isn’t to discourage you from carrying out a comparative market analysis using Zillow sold homes. Today, we’re going to look at what Zillow is and whether it’s wise to run a comparative market analysis using this platform. What Is Zillow? Founded in 2005 by Rich Barton and Lloyd Frink, Zillow is an online real estate platform that offers various services for both real estate buyers and sellers. Zillow Marketplace comprises everything that relates to the purchase, selling, leasing, and financing of a home. The company says its main goal is to provide real estate investors with important data and resources to help them with their investments. Here’s how real estate investors can benefit from the Zillow platform: Home Buyers Previously, the company ran a “Zillow Offers” program, where buyers could directly purchase homes sold by Zillow. However, it stopped the program in November 2021. Buyers can still buy properties directly from the owner through For-Sale-By-Owner (FSBO) listings. Buyers can also purchase foreclosed properties or through an Agent on the “Zillow Premier Agent” program. Rental Tenants Zillow also offers many features to tenants looking for rental properties to stay in. Tenants can browse rental listings on the platform and even submit an application on Zillow. It helps speed up the background check and credit history process. The platform also comes with an affordability calculator to help tenants determine their budget. You can also pay online on Zillow instead of using checks. Property Sellers For real estate sellers, there are two ways to utilize Zillow: You can list your home directly on Zillow homes for sale You can use Zillow’s “Agent Finder” to find and work with a vetted agent to help you sell your home. In addition to searching for agents, the feature also helps you find property managers, inspectors, home improvement professionals, professional photographers, and any other professional or services you need. Zillow offers a famous tool known as Zestimate, used to estimate a property’s value. Zestimates are obtained from Zillow’s property valuation algorithms that also factor in a property’s tax history and complete details. Property sellers use the tool to determine a property’s market value so they may not miss out on any profits. However, you want to be wary when using Zestimate. According to many investors, the tool supposedly doesn’t provide accurate numbers. We can attribute it to the fact that the platform heavily relies on publicly available data, especially for properties located in less-populous neighborhoods and in areas whose information is scarce. Mortgage Borrowers Lastly, Zillow also provides services to borrowers. In 2018, the company acquired Mortgage Lender of America to become part of Zillow Group. It means investors can directly access mortgages from Zillow. In addition, other partner firms offer loans in the mortgage marketplace. Zillow also includes a mortgage calculator to help investors during the loan application process. Related: Why Real Estate Investors Need a Mortgage Calculator What Is a Comparative Market Analysis? A comparative market analysis (CMA) is a comprehensive report that estimates the fair market value of a specific property. The estimate is based on similar properties within the same neighborhood that were recently sold. A realtor can carry out a CMA to estimate the value before listing on the market. Similarly, real estate buyers can get a CMA report to prepare a competitive offer and also help them while negotiating. Why must we use Zillow recent homes sold? The real estate market can sometimes be a bedrock of uncertainty. Prices can fluctuate based on many factors. Real estate professionals must use recently sold homes Zillow to account for the market conditions. What Does a CMA Report Include? Many property buyers and sellers prefer to consult with real estate agents when carrying out a CMA because agents can access different software solutions. A good CMA report includes details for the subject property and three to five comparable homes. The following data for every property is listed for easier cross-reference: Property Description: This includes the property address, the number of bedrooms and bathrooms, and the floor plan. It also contains other important property features, such as laundry, flooring, heating, and air conditioning. Size: The report must include the square footage of every property. Sales Price: This is the price that each of the recently sold comparable properties sold for. The report also includes the price adjustments and the selling price per square foot. Property Estimated Value: Finally, a CMA report must include the subject property’s estimated fair market value. Be careful not to confuse a comparative market analysis with an appraisal. The main differences between the two lie in the professionals who carry out the reports. A real estate agent or investor can get a CMA report. They don’t need an appraisal license to get a CMA report. On the other hand, an appraisal is only obtained by a professional property appraiser. When a borrower applies for a mortgage loan from a lender, the lender requests an appraisal from the professional appraiser to avoid lending more money than needed. Using Zillow Sold Homes for Comparative Market Analysis Since Zillow offers many resources for real estate investors, can you use the platform to conduct a comparative market analysis? The short answer is yes. You can use homes sold Zillow to estimate the fair market value of a property. You can follow the following steps to do it: Use Zillow’s listing pricing tool to find information about homes that sold on Zillow Enter the property’s address to view recent Zillow sales Narrow down the results to only display the Zillow houses similar to the subject property using the filtering option on the Zillow homes sold page Work out the property value estimation However, you need to be wary of the Zestimates. While Zillow is helpful while looking for a home and provides accurate home prices, Zestimates are sometimes subject to serious errors that may mislead real estate investors. When it comes to accuracy, Zestimate’s only received one-star ratings out of five in most states in the US. Many investors believe that Zillow is an authoritative platform in real estate. However, you need to be aware that sometimes Zillow isn’t privy to the most recent real estate sales and market data. You can use Zillow sold homes as a starting point. Related: Should You Look for Zillow Homes for Sale for Your Next Investment Property? How to Conduct a Comparative Market Analysis Many real estate investors would prefer to hire an agent on the Zillow “Premier Agent” program to carry out a comparative market analysis for their property. Since we’ve seen that Zillow sold homes data can be inaccurate, how can you conduct the analysis? Here is a breakdown of the steps to follow: 1. Assess the Neighborhood A CMA doesn’t only involve analyzing the subject property and other similar properties in the area. You should always start by analyzing the market before moving on to the property. In fact, the better you understand the neighborhood, the more accurate your CMA will be. You want to familiarize yourself with the local market and understand the historical and current sale prices, as well as the rental value of rental properties within the neighborhood. Google Street View can be a great resource for assessing the neighborhood. However, the images there can be quite outdated. It is why it’s better to drive or walk through the neighborhood yourself. What should you be looking for? Ideally, you want to analyze the general quality of the neighborhood. Spot the attractive and unattractive blocks as you check the proximity to local amenities, such as parks. Note the school district as well. Don’t forget to note down any potential causes of annoyances, such as busy highways and railways. 2. Analyze the Subject Property Now it’s time to learn as much about the property as you possibly can. If the subject property is listed on a platform, such as Mashvisor Property Finder, you can browse it and note the listed details. It not only gives you an idea of what to expect should you visit the property in person, but also helps you when collecting real estate comps. Here’s a list of the property details you ought to collect: Property age Square footage Lot size Property condition Construction type Number of bedrooms and bathrooms Other important details to collect include upgrades and renovations, finishes, layout, and landscaping. Rental comps allow investors to compare the performance of different properties in a particular neighborhood based on specific characteristics. 3. Compile Comparable Properties Choose three to five Zillow homes that have sold within the neighborhood to ensure your CMA report is accurate. You can scan Mashvisor to find recently sold homes or closed properties, pending sales, active listings, and expired listings. Here are three important factors to guide you when selecting comps: Property Location: The comparable properties should be as close to the subject property as possible. It’s better when they’re located within the same subdivision, neighborhood, or school district. The comps should be within a one-mile radius. Sale Period: The property sale date is important, especially in a hot market where prices can change fast. Home prices one year ago could be irrelevant today. The comps’ sale periods should be as recent as possible. Ideally, look for properties sold in the previous few weeks. Property Features: The comparable properties should have similar features to the subject property. It is especially for the number of bedrooms and baths, lot size, and square footage. Also, find properties with similar architectural and construction styles. 4. Prepare the CMA Report Before preparing the CMA report, you need to make some price adjustments for any differences. While you might try finding similar properties for comps, sometimes it’s not possible to find exact features. For example, let’s assume that your subject property is a two-bedroom house. You may collect three comparable properties sold recently and within the same neighborhood, only that one of the comps is a three-bedroom house. You can assign a value to the extra bedroom and adjust the property’s value accordingly. Now it’s time to do the calculations. First, you need to find the realtor sold price per square foot. Simply divide the total selling price by the square footage. Do the same for every comparable property, then compute the average price per square foot. Afterward, multiply the average price per square foot by the subject property’s square footage. What you get is the property’s fair market value. Not that hard after all, right? 5. Analyze the Property Personally Once you’ve found the property’s fair market value, don’t stop there. You need to visit the property in person and scrutinize it for any damages. It is to make sure whether the property is indeed worth the estimated market value. When assessing the property, you want to be on the lookout for any major issues, such as old siding or cracks in the foundation. Talk to the property owner and find out about any recent upgrades and repairs. If you find any major issues, adjust your estimated market value accordingly. Related: The Investor’s Guide to 4 Point Home Inspection Key Takeaways Many real estate investors, both experienced and beginners, use Zillow sold homes as a resource to find investment properties and real estate data. The platform was founded with the aim of providing real estate professionals with access to anything that relates to the purchase, selling, leasing, and financing of a home. While you can use Zestimates to carry out a comparative market analysis, you should be wary of the inaccuracies. The tool supposedly comes with serious errors that can mislead you when making investment decisions. It is why you need an accurate and reliable platform like Mashvisor. We provide you with the latest data and analytics to help you make smart investment decisions. You don’t need to worry about data accuracy since we pull our data from reliable sources. Sign up today and start your 7-day free trial. Start Your Investment Property Search! START FREE TRIAL CMAInvestor ToolsMarket AnalysisNeighborhood AnalysisReal Estate CompsReal Estate Tips 0 FacebookTwitterGoogle +PinterestLinkedin Kabue Muriithi Kabue Muriithi is an experienced writer with years of experience covering various aspects of the real estate industry. He values delivering powerful content that provides the utmost value to audiences. Previous Post Should You Invest in Furnished Apartments in 2022? Next Post Pros and Cons of Buying a Rental Property in a Cul de Sac Related Posts Key Metrics: Average Airbnb Daily Rate Explained Real Estate Basics: The Cash on Cash Return Formula What Is a Good ROI for Real Estate Investments? Cap Rate vs. Cash on Cash Return: The Formula to Success in Real Estate Investing? How to Analyze Real Estate Deals in 5 Steps 7 Real Estate Numbers Every Investor Needs for Analyzing Investments Airbnb Analytics: How Investors Stay Ahead of the Competition Question of the Day: How Much Rent Should I Charge? How to Find Real Estate Comps in 2019: 4 Different Ways How Do You Conduct Residential Property Market Analysis? Mashvisor’s Real Estate Data and Analytics: Must-Have for Investors Rental Property Cash Flow: What’s Considered Good? Leave a Comment Cancel Reply Save my name, email, and website in this browser for the next time I comment.