Zillow Estimates trustworthy?

Question

Hey BP,

I am analyzing on surface level for my first deal which I am looking into MFH. I found this ideal ideal 4plex that was on market for 650k. I think this was a tad expensive, changing websites to zillow showed and Zestimate of 200k. This was quite concerning to me and I was wondering if that held any weight? Rentometer showed comparable rents from around 1300-2000.

Maybe this deal is too big for my first one, I'm trying not to let me emotion get into it. I ran my last free calculator at 600k and it almost met my metrics. I really need to go pro soon. Please advise thoughts.

Charlie MacPherson · Answer

@Dominique M. Conwell  It varies by market, but Zillow's "Zestimates" are no better than a rough ballpark - and I mean ROUGH.

In the Boston market area (where they laughably rate themselves 3 out of 4 stars for accuracy), and we have a median price of probably $550,000, their own claim is that they're within:

$27,500 on 55.9% of homes.  On 44% of homes, their error is larger than $27,500.

$55,000 on 79.3% of homes On 20% of homes, their error is larger than $55,000.

$110,000 on 91% of homes.  On 9% of homes, their error is larger than $110,000.

Zestimates are infuriating for Realtors too.

We have to address this with sellers every day.  We have to explain why this huge company with what is probably an 8-figure TV ad budget is spewing these useless numbers.

It gives us an uphill climb that is completely unnecessary.

The worst part of this Zestimate scam is that they show you the Zestimate in big bold numbers, but you have to dig deep to find the chart I posted here.

Anna Buffkin · Answer

Zestimates can be all over the place especially for multifamily.  They work best in homogeneous areas comparing apples to apples.   I use Zillow more for historical data than the Zestimate.  Think of the zestimate as asking your buddy's opinion as a starting point, but not a true expert on the subject.

Ronald Rohde · Answer

Not worth anything in multi-unit, income based approach

Patrick M Nichols · Answer

I recently financed a property where the bank's appraisal came just about where Zillow "zestimated" it to. Each market is nuanced though, and there's a reason we have licensed agents and brokers who do this for a living. I think you can use it as a guide, but you should put in additional work to verify it before you rely on what it tells you. Run your own comps and make sure you really agree with their number.

In fact, there was a BP podcast episode a few months ago where they talked an investor who had a lot of luck challenging appraisals: https://www.biggerpockets.com/blog/biggerpockets-podcast-314-find-rockstar-contractors-and-manage-like-a-boss-andresa-guidelli

Angie Syphers · Answer

It's interesting to see that both investors & us agents feel the same about Zillow's Zestimates. I agree 100% with all the others…you have to look at Actual recent Sales, not Listings. Also, it's best to stay within about a 1 mile radius of the subject property to get the most accurate comps. Lastly, remember that the NOI is very important on any Income property, but especially on MF. Ask a REALTOR® for a Comparative Property Analysis (CMA). Good luck!

Ramsin Jacob · Answer

@Dominique M. Conwell

Do not rely on zillow for accurate/realistic estimates for a property.  Conduct your own due diligence and proper analysis.

Chinmay J. · Answer

I was going to post the exact same thing.. You nailed it right on the head..

Darius Kellar · Answer

@Dominique M. Conwell

I would look directly at MLS and see what the real current comps are going for. The houses in my market are over priced. What confirms the true neighborhood value is not the list price,  but the actual sold price.

Account Closed · Answer

@Dominique M. Conwell zestimate is an algorithm that evaluates off certain criteria-a human set of eyes has not been set on the property... It may not know that it's multi-family, it may not factor the rare million dollar properties 2 blocks away or alternatively thousand dollar properties-it uses averages without a personal fine tuning touch. Depending on your area a cma may be difficult so the right lender and appraiser might be your best shot for the do diligence but appraisal will obviously cost. But go prepared with rent rolls/financials

Zillow Estimates trustworthy?

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