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#31 Why Zillow’s Zestimate Could Cost You $250K+ · Own More Doors

• 0:00
  SPEAKER_00: What's up, everyone?
• 0:01
  SPEAKER_00: Juan Weezar here with the Own More Doors podcast.
• 0:04
  SPEAKER_00: This specific episode was first shared on our YouTube channel, Sage Real Estate.
• 0:08
  SPEAKER_00: Check it out.
• 0:09
  SPEAKER_00: And we're excited to bring it to you here.
• 0:11
  SPEAKER_00: Are you an apartment owner?
• 0:14
  SPEAKER_00: You own income-producing real estate, and what you're doing to come up with value is to look on Zillow.
• 0:20
  SPEAKER_00: You go on to Zillows for Zillow to tell you what your property is worth.
• 0:24
  SPEAKER_00: Am I describing the right situation?
• 0:26
  SPEAKER_00: Hey, I'm Juan Weezar, president of Sage Real Estate, and today I'm going to dive deep into the difference between Zillow valuations and an actual professional's valuations on value.
• 0:34
  SPEAKER_00: I'm going to tell you that based on our studies this year alone, there is probably an average of$200,000 difference on every sale that we do versus the price that we're able to generate and the price that Zillow said the property was worth.
• 0:48
  SPEAKER_00: And so let's dive right into it.
• 0:51
  SPEAKER_00: So hey everyone, Juan Weezar here.
• 0:53
  SPEAKER_00: And so a lot of people are going to use Zillow to come up with value.
• 0:57
  SPEAKER_00: And I'm not saying don't use Zillow, but don't hang your hat on the valuation.
• 1:02
  SPEAKER_00: Zillow might be okay if you have a single family home and the information over the square footage and everything is accurate.
• 1:11
  SPEAKER_00: It might do a good job.
• 1:12
  SPEAKER_00: The algorithm behind that software probably does okay.
• 1:17
  SPEAKER_00: Where we have major discrepancies is in income-producing real estate.
• 1:21
  SPEAKER_00: If you've been following my channel, you know that we specialize in teaching people how to build wealth through apartment ownership.
• 1:27
  SPEAKER_00: And oftentimes folks will reach out to me and will say, hey, we're thinking about selling.
• 1:32
  SPEAKER_00: Zillow says my property is worth this.
• 1:34
  SPEAKER_00: And I want to say, stop, stop.
• 1:39
  SPEAKER_00: You could look at the value from Zillow, but why is it that I'm very anti-Zillo valuations, especially with income-producing real estate?
• 1:47
  SPEAKER_00: Well, Zillow data is oftentimes incomplete.
• 1:52
  SPEAKER_00: A lot of apartment owners will have apartment buildings, and sometimes there's more bedroom counts, more bathroom counts than is what is stated.
• 2:01
  SPEAKER_00: Sometimes the square footage is bigger and it's not properly shown on Zillow.
• 2:06
  SPEAKER_00: And but the major, major reason when it comes to my opposition of relying on Zillow for valuation is that you own as a seller, as a housing provider, income-producing real estate.
• 2:20
  SPEAKER_00: And that is information that Zillow does not have access to.
• 2:58
  SPEAKER_00: Zilla doesn't ask any of those questions.
• 3:01
  SPEAKER_00: So two of the major metrics that I'm going to use to give your property value is the gross rent, gross rent multiplier and the capitalization rate, which we call cap rate.
• 3:14
  SPEAKER_00: So without knowing your income, I could not know those two value metrics without knowing your actual income.
• 3:22
  SPEAKER_00: And if you've been watching my channel, you know that the higher the rents, the higher the values.
• 3:30
  SPEAKER_00: Yet we're going to go to Zillow and plug in our number, our address, and it's going to spit out a value without ever having any information on what do you have high rents?
• 3:41
  SPEAKER_00: Do you have low rents?
• 3:43
  SPEAKER_00: Because I'll tell you this if we have two similar forplexes side by side and one has higher income, that value is going to be higher.
• 3:52
  SPEAKER_00: Now, why is that?
• 3:54
  SPEAKER_00: Why is it that the higher the value, the higher the income?
• 3:58
  SPEAKER_00: When investors are buying a piece of real estate, income-producing real estate, what they're really buying is the income stream.
• 4:06
  SPEAKER_00: I know you're going to say, no, they're buying the real estate, the uh the two-story fourplex with parking.
• 4:13
  SPEAKER_00: True, but they're really signing up for the income stream that that's producing.
• 4:17
  SPEAKER_00: And so that's why they're willing to pay more for this income stream.
• 4:20
  SPEAKER_00: Um, right now I'm gonna show you folks an analysis that we do.
• 4:25
  SPEAKER_00: This is just an example, but this is an analysis that we do here at Sage Real Estate.
• 4:30
  SPEAKER_00: And one of the first things that I want to show you is that we look at the rent role.
• 4:34
  SPEAKER_00: And the rent role is we've been hired to look at a property, compare its income versus everyone else's income.
• 4:43
  SPEAKER_00: And the first thing that I do to come up with value is I'm gonna try to find in a perfect scenario similar unit counts.
• 4:52
  SPEAKER_00: And so in this scenario, I'm gonna say someone's contacted me and says, what is our forplex worth?
• 4:59
  SPEAKER_00: I then want to look in that immediate area, go back depending, three, six months.
• 5:06
  SPEAKER_00: Sometimes we have to go further than that because there's no data.
• 5:09
  SPEAKER_00: And so I want to hand select other fourplexes that have recently sold.
• 5:16
  SPEAKER_00: I also want to call some of those agents that sold those properties, a lot of which those are agents that I do a lot of business with.
• 5:24
  SPEAKER_00: And so I'm gonna call them and say, hey, you sold that property on Locust, you sold that property on Cedar.
• 5:29
  SPEAKER_00: Tell me about it.
• 5:30
  SPEAKER_00: And I'm gathering actual information.
• 5:33
  SPEAKER_00: Did you have a lot of offers?
• 5:34
  SPEAKER_00: Did you have one?
• 5:36
  SPEAKER_00: Were you lucky to get one?
• 5:38
  SPEAKER_00: That type of data to me is market data that Zillow is not doing that additional step for you.
• 5:47
  SPEAKER_00: So I'm gonna hand pick four to six sales in the area.
• 5:53
  SPEAKER_00: And then I'm gonna go through and I'm gonna analyze well, what were the rents of that building?
• 5:57
  SPEAKER_00: And we're gonna start there.
• 5:59
  SPEAKER_00: And I'm gonna compare the income for your property with the income of everyone else's property.
• 6:05
  SPEAKER_00: All things being equal, if the buildings were all in the same area, same year built, same parking, same appearance, the property that's gonna sell for more, that should sell for more, is the one with higher income.
• 6:19
  SPEAKER_00: Zillow is not asking for income.
• 6:21
  SPEAKER_00: So how would it possibly know that?
• 6:23
  SPEAKER_00: What Zillow is gonna do is just look on a price per square foot basis, which is that's one of the metrics that we use.
• 6:30
  SPEAKER_00: Um, you know, from the very beginning, we came up with a formula, it's our 621 formula, and the six stands for six measurements of valuation.
• 6:39
  SPEAKER_00: Zillow is gonna give you one.
• 6:42
  SPEAKER_00: To me, that's incomplete.
• 6:43
  SPEAKER_00: There's there's five more we need to get to.
• 6:46
  SPEAKER_00: I'm gonna show you next.
• 6:48
  SPEAKER_00: This is again an example of what I look like, um, of what I look like.
• 6:52
  SPEAKER_00: We have a subject property, we have different comparables, comparable one, comparable two, comparable three, comparable four.
• 6:59
  SPEAKER_00: And I want to know exactly when did that property close, how many days on market, how many units.
• 7:07
  SPEAKER_00: I want to know how many one bedrooms, how many two bedrooms, how many three bedrooms, because I'm gonna compare all that.
• 7:13
  SPEAKER_00: I want to know the square footage.
• 7:15
  SPEAKER_00: I want to know the sales price.
• 7:18
  SPEAKER_00: Then what I'm gonna start doing is analyzing the closed sales.
• 7:24
  SPEAKER_00: I want to know what was the price per door or the price per unit.
• 7:28
  SPEAKER_00: I want to know cap rate.
• 7:30
  SPEAKER_00: Again, without without knowing the income of all the properties, you're not gonna know the cap rate.
• 7:35
  SPEAKER_00: And you're also not gonna know the um gross rent multiplier.
• 7:39
  SPEAKER_00: And the last figure that I look at is the price per square foot.
• 7:42
  SPEAKER_00: Zillow could know that one.
• 7:44
  SPEAKER_00: That's possible that it knows that.
• 7:45
  SPEAKER_00: But what I want you to see is this is a full professional analysis.
• 7:50
  SPEAKER_00: Lots of data, lots of data points, lots of different value metrics.
• 7:55
  SPEAKER_00: And sometimes our value metrics is going to be skewed, it's gonna be a big range.
• 7:59
  SPEAKER_00: And you might be wondering, well, Juan, how do you decide what it's worth?
• 8:04
  SPEAKER_00: I gather my actual experience, the buildings that I've sold recently, the market data that I that I took from actual market participants, and then and then I look at my complete property analysis and I try narrowing down that um that value.
• 8:25
  SPEAKER_00: I recently listed a four-unit building in Long Beach.
• 8:29
  SPEAKER_00: We had 11 offers.
• 8:32
  SPEAKER_00: Do you think me knowing 11 offers came in within the first week of being on the market?
• 8:38
  SPEAKER_00: Do you think that I know exactly what other fourplexes are gonna sell for in that area?
• 8:42
  SPEAKER_00: I will.
• 8:42
  SPEAKER_00: I will.
• 8:43
  SPEAKER_00: Zillow will not know that I had 11 offers, but do you think that's valuable information?
• 8:47
  SPEAKER_00: 100.
• 8:49
  SPEAKER_00: 100%.
• 8:50
  SPEAKER_00: So again, um, I'm gonna show you folks Zillow versus Sage Real Estate.
• 9:02
  SPEAKER_00: So this year I sold 1201 Olive.
• 9:04
  SPEAKER_00: Teresa in my office, Teresa Cornwall and I co-listed 1201 Olive and it was a four-unit building.
• 9:11
  SPEAKER_00: Zillow throughout the year was telling us that it was worth$760,000.
• 9:18
  SPEAKER_00: We closed the escrow last month for$980,000.
• 9:22
  SPEAKER_00: This is over$219,000 difference in value.
• 9:26
  SPEAKER_00: Now, if an owner simply relies that it's that it's that low value, they're leaving tons of money on the table.
• 9:34
  SPEAKER_00: We take every property through our full complete analysis, and this is a difference of 29% from the Zillow value to the Sage real estate value.
• 9:47
  SPEAKER_00: Moving on to my next example, this is 21 West Arbor.
• 9:50
  SPEAKER_00: This was my listing.
• 9:52
  SPEAKER_00: They sellers call me and they had gotten different bids from people, and most other agents were coming in at a million one hundred thousand.
• 10:01
  SPEAKER_00: They get me on the phone, they said, Juan, you're the last person we're gonna interview.
• 10:05
  SPEAKER_00: What do you think it's worth?
• 10:06
  SPEAKER_00: And I take them through.
• 10:07
  SPEAKER_00: Well, let me look through the rents, let me drive by the outside.
• 10:11
  SPEAKER_00: Tell me more about the building, tell me more about the renovations that have happened.
• 10:15
  SPEAKER_00: Um, because I'm gonna factor all that in.
• 10:17
  SPEAKER_00: I report back to them and I say, do not list it at a million one, like my competition is telling you.
• 10:24
  SPEAKER_00: I think we should list it at a million two hundred and fifty thousand.
• 10:28
  SPEAKER_00: They decided to go with me.
• 10:29
  SPEAKER_00: They said, Well, your value, why is your value higher than anybody else's?
• 10:34
  SPEAKER_00: And I said, Well, my company, my company does specialize in the sell of fourplexes, and no one is gonna do a better job listing a fourplex than than me, because that's exactly what I sell.
• 10:45
  SPEAKER_00: Now, I knew it was worth more.
• 10:49
  SPEAKER_00: And looking back, Zillow also said that the property was worth 1,100,000.
• 10:56
  SPEAKER_00: And so not only is this video for you, the apartment owner, but it's also to other brokers.
• 11:05
  SPEAKER_00: I got the feeling that other brokers were uh hanging their hat on value for the Zillow value, means other agents are actually believing what Zillow is telling them.
• 11:15
  SPEAKER_00: We spent 30 days on the market, we went into contract under 1,250,000 and we closed at that amount.
• 11:22
  SPEAKER_00: So my clients hiring me made an additional$150,000 because of my market knowledge and expertise.
• 11:31
  SPEAKER_00: That's 14% more than what Zillow told them, and 14% more than what other brokers told them.
• 11:37
  SPEAKER_00: So critically important.
• 11:39
  SPEAKER_00: Now, the last example is a property in Alhambra because this is actually in every city that we go to, I'm looking at before I never cared to go to Zillow.
• 11:50
  SPEAKER_00: In fact, I don't go there.
• 11:51
  SPEAKER_00: The only reason I do it is to show clients and folks like you watching this video that there is this major discrepancy.
• 11:58
  SPEAKER_00: So this was 2013 East 8th Street in Alhambra.
• 12:03
  SPEAKER_00: Um, this this couple was referred to me by a past client.
• 12:06
  SPEAKER_00: I go out to Alhambra, I collect their rents, I walk through their property.
• 12:11
  SPEAKER_00: Zillow at that time said that that property was worth 1.4 million.
• 12:16
  SPEAKER_00: I ended up selling it, closing escrow um at 1,673.
• 12:23
  SPEAKER_00: So this is over$273,000, over 20% more than what Zillow is telling you.
• 12:31
  SPEAKER_00: So people are leaving so much money on the table if they're not doing their research.
• 12:38
  SPEAKER_00: So if that's not convincing enough, folks, it's Zillow versus Sage Real Estate Values.
• 12:44
  SPEAKER_00: If you have an idea of what your property is worth, call us.
• 12:48
  SPEAKER_00: This is a non um non-salesy call and say, Hey, Juan, I watched your video or I got your postcard, and what do you think my property's worth?
• 12:58
  SPEAKER_00: Now, what Zillow ends up doing, once I okay, so it's exactly with the one in all Hambra.
• 13:04
  SPEAKER_00: It first said it was worth 1.4.
• 13:06
  SPEAKER_00: And then after I close the escrow at 1,673,000, all of a sudden the zestament goes up to the sales price that I gave it.
• 13:15
  SPEAKER_00: But Zillow does have a button where it gives you the history of the zestament.
• 13:20
  SPEAKER_00: And so that's what I want you to know is that the zestime may not always be right.
• 13:24
  SPEAKER_00: In other examples, um, I've seen that Zillow could be higher than what the market value is.
• 13:30
  SPEAKER_00: And so, with that being said, I hope you took a lot away from today's video.
• 13:35
  SPEAKER_00: Is to most real estate brokers who sell multifamily, again, if you have an income-producing property, do not go with a regular residential agent that does not specialize in income-producing properties.
• 13:49
  SPEAKER_00: If you do, ask them certain questions.
• 13:51
  SPEAKER_00: What's the cap rate in this type of market?
• 13:54
  SPEAKER_00: What is the gross rent multiplier?
• 13:56
  SPEAKER_00: It's gonna be a deer in the headlights.
• 13:59
  SPEAKER_00: They don't know those things, they don't sell those things, they know schools, they know that uh the grocery store that's near the house.
• 14:07
  SPEAKER_00: That's what they'll know, but they're not gonna know these types of numbers.
• 14:10
  SPEAKER_00: And so, critically important, if you have an income-producing property, go with a multifamily broker that specializes in the sell of apartment buildings.
• 14:20
  SPEAKER_00: And you could go to Zillow, type in your address and see what number it kicks out, and message me.
• 14:26
  SPEAKER_00: Hey, Juan, this is what Zillow is telling me.
• 14:29
  SPEAKER_00: Are they right?
• 14:30
  SPEAKER_00: And in some cases, they might be, but I'll tell you, in most cases, they're off.
• 14:35
  SPEAKER_00: And again, in in the sit in the examples that I gave you, the average discrepancy between their value and my actual sales price, quarter million dollars, 250,000.
• 14:46
  SPEAKER_00: So there you have it.
• 14:47
  SPEAKER_00: If you're an owner, please feel free to reach out for a free market analysis analysis of your building.
• 14:54
  SPEAKER_00: Make sure to comment and subscribe until next time.
• 14:58
  SPEAKER_00: But wait, I want to personally invite you to my first multifamily investor summit.
• 15:04
  SPEAKER_00: This is February 27th.
• 15:06
  SPEAKER_00: This is an event that I'm hosting here in the city of Long Beach.
• 15:09
  SPEAKER_00: So if you've been following me, if you want to come by and meet me, this is a half day event.
• 15:13
  SPEAKER_00: I'm stacking the half day with real estate professionals, eviction attorneys, economists.
• 15:20
  SPEAKER_00: We have someone from the city coming by.
• 15:23
  SPEAKER_00: This is gonna be a great event to meet other investors, to get a market update.
• 15:28
  SPEAKER_00: I have co-stars sending out their main analysts to let us know what's going on with the market.
• 15:34
  SPEAKER_00: Uh, tickets are$99, so not a whole lot, but with promo code SAGE, we will take 50% off.
• 15:42
  SPEAKER_00: So make sure to sign up.
• 15:44
  SPEAKER_00: I hope to see you guys there.
• 15:45
  SPEAKER_00: Until next time.