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Why Zillow Z-Estimates Of House Values Are So Wrong

By
Real Estate Agent with Cell: 703-677-1120

 There are more tools available than ever for the average person interested in buying or selling a home. The internet provides numerous resources for everything related to real estate – locating properties, viewing, listing, advice on buying and selling and even pricing calculators. 

Zillow is one of the more popular real estate websites that offer many of these tools. Unfortunately, while these tools can certainly prove handy, there are times when using them can give you unreliable information. One of the questions that real estate agents often get from consumers is “how accurate are the Zillow home value estimates”.

The Problem With Zillow Home Value Estimates

Sites like Zillow have great potential to empower buyers and sellers. Where once the world of comparable sales and real estate values was understood only by real estate agents, now everyday buyers and sellers have the ability to learn tons of useful information about area properties including their own.

They no longer have to go to a real estate agent for every little bit of knowledge. The problem is, the estimates – or “Zestimates” as Zillow calls them – are just plain wrong. In fact, they can be wildly off the mark, leaving the buyer or seller worse off than before they looked at them.

When you are trying to buy or sell, you cannot afford to be off by tens of thousands of dollars in your pricing or your bidding.

In my personal experience looking at Zillow home values in the area of Virginia where I am located they are typically off anywhere from $20,000 to $50,000 of the actual market value. Probably better than some markets but worse than others.

How Zillow Estimates Value

Zillow uses a proprietary formula to determine the value of a home based off of information the website has obtained users. Zillow relies on nice folks like you, me, our neighbors, going to the Zillow website and entering the details of our sale. Using data entered in by homeowners – things like features of their particular home – Zillow comes up with a price that a home is worth.

Compare that with a REALTOR who is using the Multiple Listing Service (MLS) that tracks the sales of all homes sold, by location, date, price, size, and features.  That's why a a REALTOR can give you the most accurate estimate of the value of your house. 

Why Zillow Estimates Fail So Often

Why Zillows Values Are Wrong764On the surface, the method used by Zillow seems like it would give a pretty decent ballpark figure for the value of a home. And sometimes, it succeeds. More often though, Zillow estimates are off significantly – sometimes by 40% or more.

The most recent selling price of a property is certainly useful information to have and is likely the easiest concrete data that Zillow can obtain. This is information that buyers and sellers should know about properties. However, it does not indicate what a home is worth now. The market is changing minute to minute and a sale price that is years if not decades old is no way to estimate the current value of a home.

The recent sale prices of nearby homes are also useful when you are buying or selling. Known as comparable sales, they make up a major factor in how a real estate agent will price a home. The problem is, these comparable sales need to be considered for what they actually are – not as indisputable numbers. Comparable sales can only be viewed as an apples to apples scenario in very specific situations.

If your home is very similar to all the other homes in the neighborhood – such as in a newer housing development of moderately priced homes – and no one has had time to renovate the properties, comparable sales may be viewed as apples to apples. But if you are in an area where the age, size or features are varied, then it quickly becomes an apples to oranges situation. Both fruit, but very different kinds of fruit.

The way a Realtor determines real estate market value is off the charts different than how Zillow does it. Local real estate agents or even an appraiser understand how one comparable sale relates to the next.

A good Realtor is seasoned in comparing drastically different homes in a single neighborhood to get an accurate price on a property. Zillow does not have this kind of ability. This is why it can be off so significantly at times. Comparable sales are only one tool in measuring the value of a home and Zillow is not so great at using this information as it should be used.

Zillow in fact does a good job informing consumers that Zestimates may not be accurate in this web page. The problem however, is that most people never see it. Maybe it would be a good idea for Realtors to share this webpage more?

Another reason the estimates are so off according to Zillow is their evaluation method differs from that of a comparative market analysis (CMA) completed by a real estate agent. Geographically, the data Zillow uses is much broader than just your neighborhood or town. Zillow states that often times, they use all the data in a county to calculate.

So though there may be no recent sales in the “neighborhood”, even a few sales in the area allow them to extrapolate changes in the local housing market. However, the data they gather does allow the models to incorporate the  neighborhood patterns of recent sales.

Is there any wonder why Zillow home value estimates are so inaccurate? All that keeps coming to mind when thinking about using “county data” is you have got to be kidding me. The values from one county to the next in my area varies tremendously! Lets just throw all the data into one big barrel and call it Zillow value soup.

Why So Many Real Estate Agents Hate Zillow

Why Real Estate Agents Hate Zillow764While hate is a strong word this is how many real estate agents feel about Zillow. Why is this the case? It is all about one word – credibility. Real Estate agents as a whole have a difficult time as it is being trusted by some people. In some circles we are only regarded just above a car salesmen. When a home seller sits down to interview an agent on many occasions a homeowner will already have visited Zillow and taken a look at their “Zestimate of value” for their home.

Along comes a Realtor who presents their comparative market analysis of all the homes in the area that have recently sold, gone under contract and are currently for sale. The Realtor carefully takes the homeowner through all the data until they finally arrive at the suggested list price and probable sale price. The sellers jaw hits the floor. The local real estate expert has just come to the table with a value that is $50,000 less than what Zillow says the home is worth.

This is where the real estate agent has to go on the defensive because “Mr. & Mrs I don’t trust Realtors” is now looking at you like have three heads. How could Zillow be wrong after all they are a really well run organization and we see them advertising on television?

What most sellers don’t understand is that Zillow estimates values of over 100 million homes across the country. It would be impossible for them to accurately predict the value of every home in America.

They don’t know what if anything we do to our homes. You could drop $75,000 renovating your kitchen and baths tomorrow and Zillow won’t know that. The last time I checked there wasn’t a Zillow peeping tom that looked in everybody’s windows. I think everyone can agree though that dropping that much money into kitchen and bath improvements is going to have a substantial impact on market value.

Here are more things to ponder:

  • Zillow doesn’t know that the town data card is wrong and you really only have 3 bedrooms not 4.
  • Zillow doesn’t know you have a $20,000 structural crack in your foundation that needs repair.
  • Zillow doesn’t know that your roof is on it’s last leg and needs replacement.
  • Zillow doesn’t know you have a major easement running through your backyard that limits its use.
  • Zillow doesn’t know you just added central air conditioning, a sprinkler system, a security system and $10,000 worth of landscaping.

Is the picture starting to become more clear about the accuracy of Zillow estimates?

How Zillow is Useful

Zillow Has Great Information764You may be thinking after ready the above information that I am not a fan of Zillow. Actually that is really far from the truth. I love everything about Zillow except for their Zestimates of value. The other information that Zillow gathers can be really useful when you are buying or selling a home.

When you are ready to buy a home they have an excellent platform for looking at properties. The information provided is second to none in my opinion. There is no doubt that tons of folks love their integrated Bing maps that come with every listing. These are super handy when trying to decipher what is around a particular property.

They have all the information you would expect when buying a home like the square footage, bedroom and bath count, age, lot size, taxes, etc. Where they really excel however is their data of the past ownership of the home and what the owner paid. This is information that is hard to find elsewhere and Zillow does a marvelous of putting it at a buyer’s finger tips.

From a sellers perspective the site is excellent because the better a property looks online the greater chance a buyer will be picking up the phone to schedule an appointment with their real estate agent.

Zillow also has an awesome app for those that have a smart phone. While you are out house hunting you can quickly and easily pull up information while in front of a home! This of course really comes in handy when you are out by yourself and don’t have a real estate agent handy to ask question you might not otherwise get the answers to right away.

Folks there is a reason why Zillow is the #1 most visited real estate website on the internet. Despite that fact that many Realtors hate them because of their crude estimating model, they do provide excellent data that is helpful to both buyers and sellers.

Final Thoughts on Zillow

There have been several studies done that demonstrate that it’s possible Zillow can be accurate within 80-90% on the value of a home. This means that its estimates can be a good starting point. However, when you are want to price a home to sell or you want to know what a home is really worth so you can buy now, its numbers are not accurate enough. For on-point accuracy, you need a savvy real estate agent than knows the area and is successfully working it right now.

Zillow also shows you the way prices are trending, either up or down, in a particular area. This is certainly useful information that can help you decide where you really want to buy and when. It is always good to know where prices appear to be going when you are making such a large transaction.

Zillow is a useful too, but it does not provide enough accuracy on home prices to be used exclusively. The site states that its estimates are only a starting point. Keep this in mind when you are getting your own Zestimates. If you are selling a home for sale by owner and were not planning on meeting with an appraiser or real estate agent to help you determine the accurate market value because you thought the Zillow estimate was good enough, hopefully this has been an eye opener. Keep in mind that the number one reason why homes do not sell is because of an unrealistic asking price. If you price your home incorrectly out of the gate more than likely you will end up selling it for less than you would have if priced correctly.

Additional Helpful Zillow Resources

Pricing a home properly is an art and science all rolled into one. It is not accomplished very well by trusting a computer generated value whether it is Zillow or some other online valuation tool. If you want an accurate value of your home always consult with a local real estate professional or competent appraiser.

Posted by

Erick BlackwelderCall or text Erick Blackwelder right now for help finding a home, or help selling your house.  

Don't worry... Erick doesn't bite, and you won't get a sales pitch.  Text or call Erick now at 703-677-1120 for a FREE consultation.

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Comments (2)

Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

Zillow guestimates and HGTV shows are the bane of the Real Estate Profession.  

Jun 09, 2015 06:54 AM
Erick Blackwelder
Cell: 703-677-1120 - Woodbridge, VA
Text or call Erick now at 703-677-1120.

Zillow is supposedly accessing county tax assessments, but I don't have confirmation of that.  I don't know about your county, but my county tax assessments are typically 80% of market values.  

A property with a market value of $500,000 will have a tax assessed value of $400,000.  

Jun 10, 2015 12:46 AM