How accurate is Zillow ?

Question

Seasoned investors how accurate do you find Zillow? (and even there Rent Zestimate)

Ive assumed it wasn't right on just an estimate, but people are telling me they can be WAY off (high or low)

Matt M. · Answer

Zillow is a lead generation company that sells your info to real estate agents. We cut our data from them years ago. Their data should NOT be used for investment purposes. Hire a pro and let them work for you.

Chris Mason · Answer

I was going to say what @Chris Seveney said. The CEO of Zillow sold his house for 40% below Zillow's estimate. Zillow estimates are garbage, sometimes vastly overestimating, sometimes underestimating, and sometimes being a broken clock that is right twice a day.

Probably about 75% of the appraisal issues that come up on refinances are because someone has owned a home for seven months, their Zillow number went up a bazillion dollars, and then they call me to pull equity out... equity that does not actually exist, because the home didn't actually go up in value a bazillion dollars, that's just Zillow hitting the crack pipe again. Hell, my personal home went up in value about 25% the day I closed... according to Zillow.

On purchases, by contrast, you've got a pair of real estate agents running credible comps and keeping the delusions in check. Appraisal issues are relatively rare, because of that. The buyer's agent isn't going to let her client over-pay, and the listing agent isn't going to let his client leave money on the table. That adversarial mechanism keeps contract purchase prices sane, and supportable by an appraisal.

FSBO and other no real estate agent type deals, right back to Zillow, the crack pipe, the appraisal issues, and me having to explain that an underwriter doesn't care what Zillow says, price per square foot is not relevant to valuating real estate, no it's not worth challenging an appraisal based on Zillow and price per square foot, no we do not care what your uncle who was a real estate agent that retired 15 years ago has to say, et cetera.

David Krulac · Answer

I'm not sure its even a guideline!  The zestimate is a guesstimate.

Zillow is a math formula, remember back in school how much you loved math formulas?  Zillow takes sales in a zip code and compares it to your property in the same zip code.

Here are some problems:

1.  Zip codes vary a lot by size.  In a tight highly populated area zip codes can be pretty geographically small.  But in sparser populated areas a zip code can cover 10 miles or more.

2.  If your house is located close to other higher priced properties it will raise your zestimate, whether your property deserves it or not.

3.  OTH, it you property is located near other less valuable properties it will drag you value down also.

4.  You might say well, that's the was it should be, remembering location, location, location.  But hold on, buckaroo.  One example that I looked up is basically a shack, no utilities, no water, no sewer, and almost falling down.  Zillow has its value at $275,000.  Its for sale for $25,000.  Who's right the seller who thinks its only worth $25,000 and has it listed for sale for that much or some computer program thousands of miles away, that never saw the property?

5.  Besides the zip code Zillow also uses county assessment value in its math formula also.  So what happens is that if your property is over assessed, then Zillow values will be high.  If your property is under assessed, then Zillow values will be low.

6.  And here's the kicker, if you successfully lower your assessment, you'll lower your Zillow value.  To me that seems a bit backwards.  You lower your tax expense, so you property is worth less, I'd say it might be worth more, since expenses are lower.

7.  An office building built in the 1960s was just the subject of a newspaper article in the last few weeks.  It has been on the market for 4 years and finally sold.  It was assessed at $47.5 million; it sold for $2million, and the owners appealed the assessment and got it lowered to $4.75million, a 90% reduction.  What is the property worth?  And what would Zillow say its worth?

8.  You can look at Zillow, but its not a guideline, its an amusement.

Matt M. · Answer

This is the main problem. The public thinks it is gospel. Zillow openly doesn't care that it has bad data. Instead of trying to fix it, they let it ride.

Jeff Copeland · Answer

@Par Attaran

The numbers below are directly from Zillow (at http://www.zillow.com/zestimate/, which is definitely worth a few minutes of your time if you're asking this question)...

Specifically, the Zestimate is:

• Within 5% of the final sale price 47.3% of the time.
• Within 10% of the final sale price 69.6% of the time.
• Within 20% of the final sale price 86.4% of the time.

These numbers are national. They also have a chart at the link above showing how the Zestimate accuracy varies regionally.

Regardless of what you think of Zillow - they are certainly not secretive with the accuracy or explanation of their Zestimate algorithm, and they clearly state, "the Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing a home."

The problem often lies in uneducated consumers taking the Zestimate as gospel, which was never Zillow's intent.

The Zestimate a very useful data point if you take the time to understand what it represents. And, when viewed in context with other data points, can help determine a home's potential ARV. Which brings up another important point - the Zestimate algorithm excludes REO sales and "is intended to provide an estimate of the price that a home would fetch if sold in a full-value, arms-length sale".

Emmett McNulty · Answer

For what its worth, my opinion of Zillow is as follows:

If I look at Zillow and it shows something drastically different than what I am planning, I consider this a decent indicator that my estimate may be worth further evaluating.

Zillow uses some very advanced algorithms to determine value that can not be ignored (as much as people want to).  That in mind, if Zillow is showing a value way below what you are thinking, you may have a problem and need to dig into your evaluation further.  However, if it shows a value that is way above what you are thinking, you may want to try and find out why and may have hidden gem.

That said, nothing replaces doing your own due diligence, 99% of the deals out there won't fit the Zillow algorithms in a way that predicts a good or bad deal.

Todd Hannebaum · Answer

I believe Denver has appreciated by a higher % than any other metro since the great recession.  I've found that zestimates are often 20K+ lower than actual values as zillow just hasn't been able to keep up with how quickly Denver has appreciated.  I don't use their rent estimates as often,  but in my opinion those are less accurate because they have less info to go off of for comps.

Scott Trench · Answer

What matters is what properties sell for, that's it. Zestimates can be way off in the analysis of individual properties.

Where Zillow has lots of value (in my opinion) is in an aggregate sense. I believe that their data is readily accessible and provides a good look at the trends in a given neighborhood, city, or metro. You can download a lot of really good data, including Zestimates that can give you an excellent bird's eye veiw of market conditions here:

http://www.zillow.com/research/data/

How accurate is Zillow ?

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