In fact, I backed out after the inspection. There were repair issues I wasn’t sure about. I did some further research and I am now in the process of renegotiating the deal.

Wasn’t sure how Zillow did their estimates but I have used and compared their figures with information found on other sites. For me, Zillow is one of the more easily manipulated sites.

Now that I know you work close to this line of business I may ask a question or two occasionally.

1. The agent is on your side. Up until the offer and counter-offer price gets to be within about $10,000 of one another. At that point, the agent’s real client is the deal, since the agent is likely getting 3% of the total transaction, and the agent would rather close a deal quickly than haggle and possibly lose a deal over something that only makes $300 in difference. The way to handle this is to understand beforehand what realistic price you are willing to pay, and what price is too much, and stick to it.

2. Zillow does its price estimations based on a complex statistical progression of comparable sales in the area, including foreclosures completed with bank credit bids. This depresses the actual market value, and particularly in a downward-trending market, Zillow will tend to exaggerate the downward swing and give you a depressed value. Similarly, in an upward-trending market, Zillow tends to give unreliably high estimates. Finally, Zillow determines comps based on straight-line distance from the subject house and the square footage and room count. It does not and cannot look at premiums, upgrades, or on-the-ground factors like desirability of particular neighborhoods. In my neck of the woods, it is entirely possible that my house is in a desirable area that adds value, and a quarter mile away is a very undesirable area that depresses value, despite having similar square footage and room count numbers. Also, Zillow does not take lot size or zoning issues into consideration.

What it all really means is, you have to do your homework. You also need enough capital to sit on the new property while you’re waiting for the market to turn around. Check IRC 1023, too — you might find it is to your advantage to flip or exchange the property within five years after acquiring title.

Good luck, and go get rich!
.-= Transplanted Lawyer´s last blog ..Antonin Scalia, Judicial Policymaker =-.