FAQ IV: Why is the Zestimate So Much Different Than The Asking Price?

FAQ IV:  Why is the Zillow Zestimate So Much Different Than The Asking Price?

As alchemists struggled to find ways of turning lead into gold, real estate professionals and the industries that support them have tried to find an automated way to determine property value.  The biggest challenge to that end is that in many markets, no two homes are exactly the same.  There are so many variables to consider that even the most sophisticated of algorithms, pulling information from the most comprehensive databases can only approximate the market value of any given property.  The question remains, how close can these auto-generated values get?

More and more consumers are relying on sites like Zillow and Trulia for their personal research on real estate and properties in their area.  Zillow in particular was one of the first listing syndicators to provide automated opinions of value called “Zestimates”.  Originally, these Zestimates were based solely on tax assessment values provided in the public record.  Since most tax assessments are notoriously inaccurate with regard to actual market value, Zillow’s original Zestimates were off the mark both high and low by a large margin (15% or more of the eventual actual sales price).

But here’s the thing about how networks and data mining work.  Over time, Zillow has amassed a tremendous amount of sales data as well as continued access to the public record.  Like a baby whose initial arm and leg movements are simply random wavings and kickings which progressively become more refined movements allowing the child to perform coordinated actions like rolling over, then crawling, then the familiar staggering of early toddler-hood.  It appears Zillow has reached its own toddler-hood but it is still far from the accuracy that a licensed real estate broker (human being) can provide.

Have you seen this?  At the very bottom of the Zillow web-site is a clickable link called “About Zestimates”.  When you click on that link you’ll be taken to what amounts to a methodology and accuracy explanation of the Zillow Zestimate process.  If you click on the “States and Counties” section you can review Zillow’s Zestimate performance as compared to actual sales data for the same properties.  In Larimer County, for example, only 43% of the Zestimates came within 5% of the actual sales price. That means 57% of the homes Zestimated had a greater than 5% margin of error.  Consider this:  The average price of a home in Fort Collins is in the $230,000 price range.  If that’s the range you’re looking in, even with a 5% swing, the Zestimate you receive could be between $218,500 and $241,500.  That’s a total swing of $23,000.  That’s a huge margin when you’re trying to figure how much house you can actually buy (or sell, for that matter).

This is where using a professional, licensed real estate broker is critical.  These individuals have access to all the current data as well as pools of experience to get you a much narrower margin of error on the value of any given home.  Determining value is numbers based, yes.  However, there is an artistry to viewing the data with an experienced eye that takes into account information not available to the algorithms like paint colors, interior finishes, nearby schools, etc. 

The next time you’re cruising around Zillow, drop to the very bottom of the page and take a look at the accuracy table for your area.  Then call your local real estate broker and ask them for their own accuracy table of recommended list price to actual sales price data.  I’ll bet it’s better than Zillow’s by quite a bit!!