Zillow’s Zestimate- Not As Accurate As You Thought

As you probably know, Zillow is one of the most popular online real estate databases. Its site was visited by 36 million people in January 2020. Founded in 2006, Seattle-based Zillow lists information about millions of homes throughout the United States. Users can search for homes by location, price, number of beds/baths, home type, and other features.

Zillow offers its users a "Zestimate" which is a popular tool used to determine a home's worth. You can use it if you're curious about what your house is worth compared to your neighbor's or how much your boss paid for his house. But just how does Zillow come up with the Zestimate and should you rely on it?

What Information Does Zillow Use To Make The Zestimate?

Zillow utilizes a sophisticated algorithm that factors in publicly available information, such as location, square footage, number of bedrooms and baths, and property taxes. It also lets users submit information about the property, such as renovations and additions, but be warned that homeowners aren't always honest about their home's specs. Zillow also incorporates information from the multiple listing service (MLS) and brokerages.

How Accurate is the Zestimate?

It depends... Imagine you were selling your house and Zillow allowed you to add in features about your house that could potentially increase its value. Do you see how some might be tempted to stretch the truth? The Zestimate will also be off if the information is incorrectly recorded on county records. For this reason, Zillow recommends its users to get a professional appraisal or comparative market analysis (CMA) from a real estate agent to supplement the Zestimate.

Zillow admits that most Zestimates are "within 10 percent of the selling price of the home". That means that if your house is worth $100,000, your Zestimate can range anywhere from $90,000 to $110,000.

In January 2019, Zillow paid 1 million dollars to a group of data scientists to help improve the accuracy of its Zestimates. This new algorithm factors in commute time, road noise, and other information. With a new and improved algorithm in place, it estimates that the nationwide error rate will drop down to less than 4%.

Zestimates Are Only As Good As the Data Supplying Them

Zillow factors in the sale price and sale date of comparable homes in the area. If for example, the sale price of a similar house was incorrectly recorded, it could throw off the Zestimate.

The zestimate also considers property tax data and tax exemptions. If the tax assessor makes a mistake related to the property's information, such as incorrect number of bedrooms, this too, can cause the assessed value to either be too high or too low.

If a homeowner discovers an error, they can report the incorrect sales information or tax records online to Zillow.

What About Upgrades?

If you make upgrades to your house, they may increase the value of your home. But Zillow won't know this unless your local property tax assessor has record of it. If you take out a permit to build a fourth bedroom, then it is likely your county will pass this information along to the property tax assessor, and eventually Zillow will update this information in their listing. But if you only renovated the kitchen and didn't require permission from the county, it's unlikely that Zillow will know this and the true value of your house isn't being reflected in their Zestimate.

With that said, upgrades don't always raise property value by as much as you'd hope. It all depends on your local market and projects you've completed, so don't assume you can just add on $20,000 to your home's Zestimate. In the same light, if Zillow says your house is worth $400,000 but you know your house isn't as updated as similarly sold homes in your area, the Zestimate may not be as accurate.

Housing Turnover

A large part of the zestimate comes from information about sold properties in your neighborhood. The more sales information that Zillow can glean about homes in the area, the more current and therefore accurate the zestimate will be. In a "hot" market such as Miami, Fl where there are many homes being sold, the zestimate will be more accurate than in a rural area where homeowners tend to live for a long time.

Similarly, if your house is in a suburban neighborhood where homes were built by the same developer around the same time, then chances are they are similar in value and it will be easier to calculate a Zestimate. If your house is very different from other homes in your area, or if it was built at a different time, it would be harder to compare it to other homes and come up with an accurate Zestimate.

Summing It Up

Zestimates are a good reference point for homeowners, but Zillow knows its Zestimates shouldn't be taken as gospel. Zillow (and I) recommends its users to get a professional appraisal or comparative market analysis if they want to learn what their home is worth. One way to look at Zillow is kind of like WebMD but for houses. If you're curious about a health condition, you can hop on the internet and search online. But if you're seriously worried, you'd better make an appointment and see the doctor.