Learn How Accurate Zillow Home Estimates Are

Suburban home
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Clients have asked me so many times about the estimates of value on Zillow that I imagine everybody's been wondering about whether Zillow is accurate with its Zestimate. I think the first thing to understand is what Zillow is not. Zillow is not in real estate. I don't know of any real estate agents who work at Zillow (not yet anyway). It is not a public service like a library. Zillow is a business website, established to lure eyeballs who want to gaze at homes and, in turn, to sell advertising to real estate professionals.

Zillow bases many conclusions on opinions formed by observing data collected from various sources. Everybody has an opinion about something. You can agree or disagree. Opinions are not facts. If Zillow had its finger on the market pulse through its own special crystal ball, Zillow would have predicted the collapse of the housing market, and that did not happen. In fact, Zillow was just getting started when the market began to crumble.

It's like that analogy given by Randolph Duke in the 1983 Eddie Murphy movie Trading Places, in which the Duke character explains that whether the market goes up or the market goes down, commodity brokers (and, yes, even companies like Zillow,) will continue to make money.

Understanding Zillow's Zestimate

Zillow acquired data by amalgamating all the information on housing it could find. Amalgamating is a fancy word for mixing and merging data from various sources into one source. Done correctly, amalgamating can create a monopoly. But let's not get ahead of ourselves. Many computerized programs exist that can forecast the value of a home. Even real estate agents use computerized programs, but the difference is real estate agents don't rely on those programs as, say, one might view artificial intelligence.

We're not quite there yet.

At least not for now, Zillow can't predict how a buyer will feel when she enters the home. Zillow can't tell you whether the interior has been updated, if the workmanship is superior, or whether the materials used are inferior, or whether a school around the corner has decreased value of homes backing to the football field, or any other number of factors real estate agents and appraisers use when they know the neighborhood and have inspected the home in person.

How Agents Arrive at an Estimate of Value

I don't speak for all real estate agents, but I've been in the business for more than 40 years and possess an adequate if not above average level of competency. When I begin to assess a property, the first thing I do from my computer is study the home from a satellite on Google. I note whether it backs up to a busy street, the proximity to commercial property or freeways, the size of other homes nearby, the vegetation and landscaping, its orientation to the sun and, if I'm lucky, there might be a photo of the exterior plus a street scene.

I also run two sets of automated valuation. One is through Realist, a company owned by CoreLogic, that is data centric from all sales, including non-MLS, and will take into consideration surrounding home sales varying 25% or less in configuration and type, including other parameters I manually establish.

The other automated valuation is based also on sales pulled directly from MLS and computed based on​ square footage, including high, low, median and average values of all sold, pending, and active listings. Those two values alone are often very different from each other but, used together, I can arrive at a range of value, generally not more than a 5% difference. But that is not nearly enough to establish value.

Armed with that information, I then inspect the home and look at it through the eyes of a buyer, how an appraiser will view it, and where we need to be positioned against the competition to ​drive traffic to the home. It's not unusual for me to enter a home with a prepared listing agreement in hand and end up manually changing the listing price after viewing the home. Automation does not take the place of personal assessment.

The Zillow Zestimate of Value Accuracy

Zillow never claims to be 100% accurate all the time or even 80% accurate most of the time in all areas. If all the homes within a six-block radius are very similar to each other, say, a suburban subdivision, filled with homes built around the same year, about the same size and with identical amenities, a Zillow estimate will be much more accurate, perhaps within 10%, because there are not enough specific variances to throw it off. Other times, it won't be that close at all.

I pulled four typical homes that I have personally sold to compare with a Zestimate for you. One property is two houses on a lot in Midtown Sacramento, located on a busy street near the railroad tracks and close to freeway noise, across from a commercial property. Zillow estimated the value of that home at $380,733, but it sold at $349,000, after almost 6 months on the market, with plenty of exposure. The Zillow estimate was about 9% too high.

The second home was a custom waterfront in the Pocket area of Sacramento. Zillow valued that home at $983,097. It sold at $1,085,000, which was 10% more than the Zillow estimate. If the sellers had relied on the Zillow estimate, they would have lost more than $100,000, which is no small change.

The third home was a reconstructed home in an exclusive area of Davis, California, near the University of Davis. Zillow valued that home at $1,230,563, but it sold for $1,495,000, and for cash, no financing was involved. That Zestimate was more than 20% too low.

The fourth home was a lakefront home in Elk Grove, California. Again, the Zillow estimate was too low, at $488,711, and it sold for 16% more, which included a buyer's lender's appraisal, at $565,500.

The Zestimate is formulated to give website visitors a range of value. It's not meant to replace an appraisal nor a real estate professional's opinion of value. I always take a gander at Zillow values before I visit a seller because I know the seller is looking at those values. Not because there is value to me as a professional in the estimate. Real estate agents do not use Zillow to price a home.

I do realize some agents will tell their clients to look at the price in Zillow to justify what a good deal they are getting when buying a home, providing the Zestimate is much higher than the actual sales price. It's a selective usage with agents. When the price is to their advantage, they might use it. Even banks don't know any better, so in a short sale situation for example, when the offer is more than a Zestimate, a short sale agent might point to the Zestimate for the short sale bank.

Yet, Zillow offers so much more for the consumer than the Zestimate aspect. I believe people get so hung up on the Zestimate that they overlook the abundant wealth of information on that website that includes hard facts, pertinent data, comparable sales and neighborhood demographics, all of which can be invaluable to any first-time home buyer or home seller in a real estate transaction.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

Full disclosure: Elizabeth Weintraub is also a Premier Zillow Agent