What is a Zestimate? (And is it accurate?)

Posted by Round Table Realty on Monday, July 1st, 2019 at 1:53pm.

You may have heard a Realtor say it - Zillow is not a trustworthy site for accurate home values. Often times they don't just say it, they shout it! They ball up their fists and stomp their feet with big eyes and smoke-blowing ears. It is one of the most frustrating parts of being a Realtor today - the Zestimate. We watch clients believe they have information that is accurate when in actuality they only have enough information to be dangerous. Once and for all, we'd like to explain why Zillow and other websites estimates of your home's value are rarely, if ever, correct. (And why they were never meant to be in the first place.)

First, how do Zillow and other sites calculate a "Zestimate," or estimated home market value?

Is a Zillow Zestimate accurate?What is a Zestimate?

An Estimated Home Market Value, or Zestimate, is simply public data entered into a formula. It is an algorithm. Some numbers are entered into an equation and then one big number pops out and is deemed the value of your home. There are no humans involved in this formula. There is no visual interaction with your property. It is simply data pulled from multiple sources to create an estimated value. 

What is the data that Zillow uses to create a Zestimate?

Zillow uses data from public county records and tax records. In their own, proprietary formula, other data like the known home facts and features (bedrooms/bathrooms), prior sales, and local, comparable sales in the area. From this information, an estimate as well as an estimated value range is published on the Zillow site. On top of that, homeowners can also update a home's features with things like landscaping, a new pool, or an updated kitchen. However, homeowners do not always (nor often) update their home's information if it's not currently for sale, so those are rarely included in the algorithm.

What can you take from all that? Zillow is using data that could be 20 years old and could be 3 months old to determine a home's value. And with no human touch, there's a lot of room for error.

Zillow's take on their own Zestimate

It's important to note that Zillow itself recognizes the inaccuracies that often occur due to the fact that only the data available to the public can be used to determine a home's Zestimate. Zillow never promises the accuracy, nor the specificity, of its Zestimates. It clearly states on its own website that these numbers are a "starting point." No one is over at Zillow headquarters trying to get away with secretly raising or lowering a home's value in an attempt to sway the market. As written on the Zillow site in 2019, "Some areas have more detailed home information available — such as square footage and number of bedrooms or bathrooms — and other areas do not. The more data available, the more accurate the Zestimate value will be."  But that doesn't mean that most people actually read that part of Zillow's website!

Instead, clients often take the Zestimate to a Realtor and use it as a basis for pricing their home or making an offer on a home. With enough information, that number could be close to accurate and very helpful. But a vast majority of the time, it's not accurate enough to be used as anything more than a reference point. Instead of spending time focusing on accurate methods for pricing a home, Realtors sometimes have to spend time convincing clients that these numbers aren't worth using as a negotiation point, nor are they even helpful to an actual, professional appraiser. This conversation often becomes frustrating for both the client and Realtor!

When is a Zestimate accurate?

There are definitely situations wherein a Zestimate, or a Zestimate range, are very close or even dead-on accurate. One scenario is when a home has recently sold, it’s upgrades updated in city records, and now it is on the marketing again. Unless the market itself has vastly changed within the past year, it is likely that Zillow’s algorithm actually has the information it needs to create an accurate Zestimate.

Another possibility is that a fairly uniform neighborhood that has been selling homes regularly will likely provide Zillow with enough data to present a fair Zestimate. That, of course, depends on the home falling in line with the specifications of the other homes recently sold.

A Zestimate is not an appraisal!

It goes without saying, but a Zestimate can never be used as your home’s appraisal. An appraiser, provided by the lender, is a person who will base the home’s value on things like updates, upgrades, and location. Specific features of your property could raise or lower value.
Here are six common features (but certainly not the only features) that appraisers look at:

  1. A septic tank in need of replacement
  2. Recent landscaping
  3. Additions
  4. Age of the air conditioning and water systems
  5. A new roof or fence
  6. A pool that hasn't been maintained

Tax records and comparable homes sold in the neighborhood also factor into an appraisal, just like on Zillow. But without all the added benefit of human interpretation, a Zestimate doesn’t come close to the detail you’ll find in an appraisal.

You should also know that you can never take a Zestimate to a mortgage company and expect anyone there to use it! As mentioned earlier, Zillow’s own website notes the inaccuracies in its estimated home values and never intended for those numbers to be used as negotiation tools or appraisal numbers. 

What is a home worth?

A home is really worth two things - what a lender determines it’s willing to lend on the home or what a cash buyer is willing to pay for the home. Just because you believe your home to be worth $300,000 doesn’t mean anything if a lender determines they can only safely lend $280,000 on it. If a home has particular sentimental or personal value to a cash buyer, the Zestimate and/or appraisal are nil so long as buyer and seller agree on a price. Remember, your upgrades and updates don’t usually provide an equivalent value added to your home, and so sometimes you aren’t going to get the price you wish to get. If you’re a buyer, you need to know exactly how much you can afford and then purchase a home based on that appraised amount. And never should you use the estimated numbers on any of the Realty sites to determine a home’s worth. Hire a single agent Realtor who can give you the facts and figures to understand why your home is worth what it’s worth and use Zillow as just one tool in your tool belt.



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