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Don't Be Fooled By The Inaccuracy of Zillow Zestimates

By Bill Gassett | February 4, 2024

In the digital age, Zillow has become a go-to platform for individuals looking to buy, sell, or assess the value of real estate.

At the heart of Zillow's appeal is its incredible database of valuable real estate information. Unfortunately, one aspect of the site falls short. Their 'Zestimate' is an estimated market value for a home.

Zillow provides an easy-to-use interface and immediate property value estimates. However, many users and real estate professionals question the accuracy of these numbers.

With good reason. They are rarely correct!

From experience being in the real estate industry as a top Massachusetts Realtor, I often come across inaccurate Zillow estimates. Sometimes, it can be fun just to see how off they are when providing clients an analysis of value of their homes.

Unfortunately, some uneducated consumers place stock in these values. Real Estate agents are constantly tasked with educating the public on this topic.

We will examine why Zillow home values might not always mirror market value. Proper real estate valuation must have the eye of a professional.

You wouldn't want to split assets in a marriage relying on their estimates.

Zillow Estimate Realty Biz News

Essential Facts Buyers and Sellers Should Know

1. Zillow is a popular online real estate marketplace.
2. Zillow estimates home values for properties across the United States.
3. These estimates are based on various data sources, including public records and user-submitted information.
4. The company uses algorithms to calculate home values, considering location, size, and recent sales in the area.
5. Zillow's home value estimates can be a helpful starting point for buyers, sellers, and homeowners to understand the market trends and potential property values.
6. Estimates of value can be more accurate in some locations versus others. For example, Zillow's home values in Massachusetts could be more accurate than New York's.
7. Densley-populated areas with many sales tend to be more accurate than rural areas.

Zillow's Estimation Methodology

The 'Zestimate' Algorithm

Zillow uses a proprietary formula known as the 'Zestimate' to calculate property values. This algorithm considers various factors, including physical attributes, location details, and recent property transactions.

However, the algorithm's reliance on publicly available data and historical transactions introduces a margin of error.

Limitations of Publicly Available Data

Public records, a primary data source for Zillow, can often be outdated or inaccurate. They may not reflect recent improvements or deteriorations in a property, leading to discrepancies in the estimated values.

For example, if a homeowner finishes their basement and doesn't pull building permits, nobody knows it exists. The Zillow robot won't have any clue!

When selling a house for the first time, you would never want to put your trust in online value estimators. That's a big no-no.

Factors Affecting Zillow Estimate Accuracy

Market Volatility

Real estate markets are dynamic, with prices fluctuating due to economic factors, interest rates, and local demand-supply balances.

Zillow's estimates, however, may not be updated in real time, leading to a gap between listed estimates and actual market values.

Property Unique Characteristics

No two properties are the same. Unique features such as renovations, landscaping, or even subjective factors like curb appeal can significantly affect a property's value.

Zillow's algorithm, however, may not account for these nuances adequately. For example, imagine you just turned your backyard into a magnificent oasis. You've got a massive luxury patio, garden benches, and incredible landscaping. You have topped it all off with a splendid pergola.

Does Zillow know you did this? No, they don't. On the slip side, imagine a similar home down the street surrounded by swamp land. The lot is a postage stamp.

It just sold and will be put into Zillow's ingredients to bake their home value cake. Guess what. This data point will impact your estimate. Based on the lot, your home could be worth $30,000-$40,000 more.

Timing of Data Updates

The frequency at which Zillow updates its database can significantly impact the accuracy of its estimates. Even a short delay can lead to significant discrepancies between Zillow estimates and actual market values in fast-moving markets.

On the other hand, sometimes Zillow estimates go up or down, leaving you shaking your head. Market values of homes don't fluctuate like that.

Your home shouldn't be worth $500,000 one week and $515,000 the next.

Realtors' Insights on Zestimates

Many real estate professionals express concerns about the reliability of Zillow estimates. They argue that these estimates can mislead buyers and sellers, affecting their decision-making process.

Paul Sian, a Realtor in Cincinnati and Northern Kentucky, told me the values in his area are a mixed bag. "Bill, while many buyers, sellers, and homeowners rely on Zillow to determine the value of their homes, the accuracy of the Zestimate in my area can be questionable. I have found their algorithms to be off the mark.

From experience, the more varied a location is, the more likely the Zestimate will be off since Zillow cannot accurately differentiate between the luxury home with high finishes and the newly built starter home just down the street.

What it takes to get a more accurate value is an individual looking at the home and comparing it to other recently sold homes.  Both appraisers and real estate agents have been using that method for quite some time, and it is pretty accurate compared to some computer guessing at the number.”

Appraisers' Views on The Estimates

Professional appraisers who assess property values for a living often find significant variances between Zillow estimates and their valuation.

They highlight the importance of on-site evaluations, which consider factors beyond the scope of Zillow's algorithm. Tom Horn, a Birmingham, Alabama, real estate appraiser, told me about his experiences.

"Bill, You must see Zillow for what it is, and don’t expect much more.  Without looking inside a property and using the human touch to sift through sales information, you will only attain a certain level of accuracy.

Another thing I would like to point out is that computers do not recognize similar market areas.

An example of this is school districts. In many cities, property values are driven by the school district the home is in.

I have seen Zillow comparables pulled from areas in different school districts, which can give an inaccurate indication of market value. One other undeniable area where inaccuracies can occur is with property conditions. Appraisers are trained to research this information so that adjustments can be made.

It's essential to understand how Zillow estimates value. Zillow utilizes the square footage of each property and develops a Zestimate. It gets this information from county records, which are known to be inaccurate.

It then divides the sales price of recent sales by the county-reported square footage (which is inaccurate) to arrive at a price per square foot. This most likely inaccurate metric is then applied to the square footage of the subject to come up with a Zestimate.

As you can see, the Zestimate is derived from multiple inaccurate data points and should not be relied upon. Only an analysis by a qualified and licensed appraiser can provide the most accurate value estimate."

Mortgage Professionals Assessments

Eric Jeanette, CEO of FHA Lenders, has provided us with his experience with Zillow home values. "Bill, when a home is not for sale or has not sold recently, we found the home values provided by Zillow to be less than accurate.

I recommend speaking with a seasoned real estate agent in that town to get an actual estimated value. You can also look at current homes for sale in the area that compare to the home in question. The average of those will be a better indicator of value."

Case Studies: Zillow Estimates vs. Real Sales

There have been very few case studies on the divergence between Zillow estimates and actual sale prices. It would be great if someone took on this task.

According to Zillow, the median error rate for the Zestimate for on-market homes nationwide is 2.4%. They state that off-market homes have a median error rate of 7.49%.

I can’t image meeting with a prospective home seller and giving them an estimate that is off by over 7 percent. A property valued at $500,000 would be off by over $35,000!

The Impact of Inaccurate Zillow Estimates

Zillow Overpriced

On Home Buyers

Inaccurate Zillow estimates can lead buyers to overpay for a property. A lower Zillow home value could also cause a buyer to miss out on a fairly valued property, potentially derailing their home-buying journey.

Don't lose out on your dream home because of a robot. Realtors get asked all the time why Zillow property values are changing. Quite often, the answer is they are not!

On Home Sellers

Similarly, sellers might overvalue or undervalue their property based on inaccurate Zestimates, affecting their returns on investment and market dynamics.

From my experience as an agent, I see many sellers falling in love with the Zillow value. It is unfortunate because these folks end up losing money from overpricing.

Many real estate agents from around the country deal with this problem.

Alternatives to Zillow Estimates

There are other online home value estimators, but they are not better than Zillow's. All of them fail to deliver when compared to real estate professionals.

Professional Appraisals

Hiring a professional appraiser offers a more accurate and personalized assessment of a property's worth, considering all unique and local factors.

Appraisers are trained in acceptable property valuation techniques to arrive at an accurate home value.

Real Estate Agent Expertise

Real estate professionals with local market expertise can provide insights and valuations more aligned with the current market conditions.

I would highly recommend using someone with a track record with accurate values. Choosing someone who rarely reduces the price of a home is what you want.

Look around the area and find a top-producing listing agent. Picking the right Realtor makes a significant difference when valuing properties.

How Do Realtors and Appraisers Arrive at Home Value?

Real estate agents and appraisers play crucial roles in determining the market value of homes. They use their expertise and local real estate market knowledge to provide accurate assessments.

Real estate agents often begin by conducting a comparative market analysis (CMA) to evaluate the selling prices of similar properties in the area.

This involves examining recent sales of comparable homes. Agents consider factors such as location, size, condition, and amenities to gauge the potential value of the property in question.

Real estate agents also consider current market trends, demand for housing, and the overall economic climate to assess the property's value. They also consider the property's unique features, upgrades or renovations, and curb appeal. All of which can influence its market value.

Appraisers Valuation

On the other hand, appraisers use a more formal approach. They conduct a detailed inspection of the property and consider various factors such as its condition, location, and comparable sales data to provide a professional appraisal.

Appraisers also consider the cost approach, which involves estimating the cost of replacing the property with a similar one. In some circumstances, they use the income approach, which is used for investment properties and considers the potential income the property could generate.

By combining these methods and leveraging their expertise, real estate agents and appraisers can provide homeowners and buyers with accurate and reliable assessments of a property's market value.

Their information ultimately facilitates informed decision-making in the real estate market.

How to Use Zillow Wisely

Cross-Referencing with Other Sources

Users should use Zillow estimates as a starting point and cross-reference with other valuation tools and professional advice. Take what you see with a grain of salt.

Be skeptical. Don't get romantically involved with your Zillow value. It will cause you great pain when the value gives you a divorce.

Consulting with Real Estate Professionals

Engaging with local realtors or appraisers can provide a more comprehensive understanding of a property's value and market conditions.

If you hire the right expert, you won't have to worry about receiving an accurate value for your home. For buyers, hiring an excellent buyer's agent can provide value analysis.

Conclusion

While Zillow offers a convenient and accessible tool for property valuation, its estimates are not infallible. Users should know the potential inaccuracies and complement Zillow's information with professional assessments and local market research.

By adopting a multifaceted approach to property valuation, home buyers and sellers can navigate the real estate market more effectively and make informed decisions.

Without the assistance of professionals, you could make significant mistakes relying on inaccurate online estimates.

FAQs

How Often Does Zillow Update Its Property Estimates?

Zillow updates its property estimates daily, using a combination of algorithms and human input to ensure accuracy and timeliness. This frequent updating allows users to access the platform's most current and reliable property estimates.

Can I Improve The Accuracy of My Property's Zestimate on Zillow?

To improve the accuracy of your property's Zestimate on Zillow, you can update your home's information, such as square footage, number of bedrooms and bathrooms, recent renovations, and other relevant details.

Providing pictures and verifying ownership can help improve the Zestimate's accuracy.

What Should I Do if The Zestimate Significantly Differs From My Property's Asking Price?

If the Zestimate significantly differs from your property's listing price, it's essential to consider several factors before taking action. Compare the Zestimate with recent sales of similar properties in your area to understand the current market value.

Additionally, consulting with a real estate agent or appraiser can provide valuable insights into the accuracy of the Zestimate and help you make informed decisions about pricing your property.

How Do Professional Appraisals Differ From Zillow Estimates?

Professional appraisals and Zillow estimates differ in their approach and accuracy. Professional appraisals are conducted by licensed appraisers who physically inspect the property and consider various factors.

At the same time, Zillow estimates are automated and based on algorithms. They often lack a nuanced understanding of local market conditions and property specifics.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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