I hear it all the time from friends, family and acquaintances: “Real estate is my hobby. I’m always looking at Zillow to see how my house compares to my neighbors’.” If they are looking at the Zestimates purely for entertainment or to look at photos of a potential home to purchase, I see it as a valuable marketing tool. But, when a potential Buyer or Seller insists that they won’t budge from the AVM (Automated Valuation Model) generated by Zillow, it can break a deal by creating conflicts between Buyer and Seller. Or worse, it can cause the Seller to leave money on the table if the Zestimate is too low.
According to Zillow.com,
“The Zestimate home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is a starting point in determining a home’s value. [It] is calculated from public and user-submitted data, taking into account special features, location, and market conditions. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:
Getting a comparative market analysis (CMA) from a real estate agent
Getting an appraisal from a professional appraiser
Visiting a house (whenever possible)
We use advanced algorithms to analyze our data including:
Physical Attributes: Location, lot size, square footage, number of bedrooms and bathrooms
Tax Assessments: Information provided in the tax assessors’ records
Prior and current transactions: Actual sales prices over time of the home itself and comparable recent sales of nearby homes”
Where does the data come from?
Reading this carefully, you’ll notice that Zillow is using public records, which are updated much less frequently than Zillow, which updates its home values daily. Inaccuracies in public records is commonplace, but Zillow does provide an option for homeowners to “Update Home Facts,” which is where the “user-submitted data” comes into play. So, if neither the public records are up-to-date, and homeowners are not correcting the mistakes, there are potentially 2 major factors that can negatively influence the Zestimate. Additionally, there are other value factors such as lot location, proximity to transportation, exterior amenities, and any upgrades or updates to the home which Zillow cannot include as they have no way of knowing about them or quantifying them. A real estate professional can adjust a listing price accordingly and build confidence with a consumer by presenting a detailed CMA about their home and the comparables.
How accurate are the Zestimates?
Zillow provides consumers with a Value Range in addition to the Zestimate, which shows a range of estimated valuations. According to Zillow, “[It] can vary in magnitude depending on our historical ability to estimate similar homes. A wider range indicates less data are available or there is more volatility in the data.” In essence, this means that if there weren’t many homes sold in recent years in the area or that there were more outliers due to foreclosures or to family-to family sales, it would drive the averages down and create a larger range. With a 70% confidence level from Zillow, some value ranges can extend as much as 30% above or below the Zestimate, which leaves little confidence for the consumer in the valuation.
Zillow has improved its accuracy since its inception. In a 2013 study, a Zestimate was within 5% of the sale price 52.9% and within 20% of the sale price 85.8% of the time. The median error rate on their predictions was 4.6%, which means that the Zestimate for half of the homes were within 4.6% of the selling price and the other half are off by more than 4.6%*. This number is quite low considering that when the company began in 2006, it was 13.6%. Zillow announced the “Zillow Prize” last year as a machine-learning competition in which over 4,000 data teams have a chance to win a $1 Million prize for improving the Zestimate accuracy rate. As of February 2018, the median error rate was reported at 5.4%, indicating that this rate will continuously change as the markets do.
Compared with the real estate agent’s guided listing prices in the 2013 study, which were within 5% of the sale price 55.6% of the time (4.2% error,) Zestimates were within 5% of the sale price only 35.4% of the time (7.7% error.) Zillow willfully admits that “a Zestimate is a good starting point, but it should not be used for pricing a home. We always recommend supplementing the Zestimate with professional advice. Great agents provide services far beyond just pricing a home: assistance in negotiation, help with marketing and priceless peace of mind. A computer will never replace that.”
The key to overcoming your client’s pre-conceived notions that Zillow is an authority on home values is in educating your clients about the way that Zillow calculates its Zestimate and providing them with a comprehensive evaluation of their home based on the extensive data available to you and your experience as a real estate agent. *[Study: Zillow Jan 1, 2016-Dec 31, 2016; 2 Million homes]
If you are ready to buy or sell a home or you’re just curious what your home is worth, please contact me today for a free, no-obligation CMA. Let me put my expertise in Bucks County real estate to work for you and see how I go “Above and Beyond the Sale.”
Frank Dolski, Associate Broker and Relocation Specialist
Office: 215.794.1070 x123