Jul 28, 2017
During the home search process, 95% of home buyers use the Internet to search for homes.
Undoubtedly, many use the popular real estate web site, Zillow. Zillow offers a plethora of information about homes for sale including a "Zestimate" for millions of US homes. A Zestimate is Zillow's estimated value of a home. This value is calculated by pulling housing data from a large number of sources to determine a home's value within a range.
Home owners and home buyers often place a lot of significance on a property's Zestimate. I keep an eye on Zillow advice forums, where users ask questions about home buying, selling, and mortgage lending. It's not uncommon to see posts from homeowners asking to have their Zestimate updated after a remodel. Or posts complaining that a Zestimate is too low. This gentleman even threatened to sue Zillow over a low Zestimate!
A Zestimate is simply what it implies, an estimate of a home's value. The Zestimate is not an appraisal. It's not an estimate of value from a local real estate professional. Zillow itself states, "[The Zestimate] is a computer-generated estimate of the worth of a house today, given the available data. Zillow does not offer the Zestimate as the basis of any specific real-estate-related financial transaction. Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home. Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for."
So how accurate is a Zestimate?
The accuracy of a particular Zestimate depends entirely on the data Zillow receives about that property - data that may or may not be accurate. In a Zillow conference I attended in the spring of 2014, they stated the algorithms were constantly changing and promoted new technology to more accurately predict values for waterfront homes.
In fact, Zillow publishes their own accuracy estimates nationally, by state, and by county.
Nationally (as of 02/2017), Zillow boasts a median error rate of 5.0%. That means half of all Zestimates are within 5.0% of the actual sales price.
In Jefferson County, WA, a Zestimate is:
- within 5% of the actual sales price 53.0% of the time,
- within 10% of the actual sales price 73.5% of the time, and
- within 20% of the actual sales price 89.2% of the time.
Zillow gives Jefferson County a four- (out of four) star rating, which they define as their "Best Zestimate."
Kitsap and Mason Counties get a one-star rating which means they are "unable to compute Zestimate accuracy."
What's missing from Zestimates?
The human touch. A Zestimate can't tell you the condition or marketability of a property. Zillow doesn't know that the dog across the street barks constantly or the kitchen still boasts avocado green appliances.
A home's location and style also factor into its value. And that value isn't the same for everyone! A home buyer who is a master gardener might place a lot of value on a one-acre lot. But a busy professional might see nothing but a pesky lawn that must be maintained! At the end of the day, the value of a home is the price a buyer is willing to pay for it.
Zestimates also rely on public and user submitted data. And that data isn't always accurate. In fact, an inaccuracy appeared on my own home's Zillow listing! A Realtor® reported to Zillow that they'd sold my home (news to me!!) when they actually sold the house down the street.
In addition, Zillow doesn't have a direct feed to the multiple listing service (at least, not in this area), the computer system that real estate professionals use to list property for sale. Zillow mines data about listed properties from other web sites. And it's not at all unusual to see homes listed for sale on Zillow that actually sold months ago.
So use Zillow as a jumping off point. But don't place too much stock in their Zestimate. Estimating a home's value is a job for your real estate agent.