December 15

How Accurate Are Zillow Estimates?

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Millions of homeowners, even prospective buyers, rely on Zillow's Zestimate to get an instant value of a home valuation.

In fact, Zillow says that they have data on 104 million of the 110 million homes in their ecosystem.

Because I'm in the profession, there's a lot of debate among real estate agents...and more so with homeowners.

And the question around how accurate are Zillow estimates comes up a lot.

In this article, I want to shed light into the accuracy, or lack thereof, of Zestimates.

Some topics I cover include:

  • How Zestimates work
  • What are the factors that affect Zestimates
  • Differences between Zestimates and other home valuation methods
  • Its strengths and limitations
  • How accurately it reflects real estate market values

So, understanding the accuracy and limitations of Zestimates is crucial for anyone in Tampa Bay looking to buy, sell, or assess their home's value.

What is a Zestimate on Zillow?

First, it's important to know that Zestimates are an AVM (automated valuation model - I'll talk about that in the next section).

The process behind each Zestimate is intricate

It starts with collecting a wide range of information, both from public records and information submitted by its users.

This data includes specifics of the property like:

  • Recent comps (properties that are active, pending, or sold)
  • Property features: Square footage, number of bedrooms and bathrooms, and acreage
  • On-market data such as list price and days on the market
  • Tax assessments
  • MLS data
  • User-submitted data
  • Public records

More on these details further down...

The algorithm then compares this data with similar properties and current market conditions to give you an estimated value.

As with all things AI, Zillow continues to refine its algorithm to enhance the accuracy of its estimates.

Zestimate's Role in Real Estate Transactions

How Accurate Are Zillow Estimates

I want to point out that a Zestimate is not an appraisal.

It's merely a tool that provides a preliminary insight into a property's value, helping both buyers and sellers in making informed decisions.

For sellers, it offers a starting point to assess their property's market price.

And for buyers, it provides a preliminary estimate to consider when evaluating a potential purchase.

What is an AVM or Home Value Estimator?

Zestimates are AVMs

AVMs, like Zillow's Zestimate, are tools used in real estate to estimate property values.

They use algorithms, data, and machine learning to provide quick and cost-effective valuations.

Therefore, the accuracy of Zillow estimates is heavily reliant on the quality of their algorithms, which are only as smart as the ones who program them.

The Essence of AVMs in Real Estate

AVMs are popular in today's age...real estate in particular.

In fact, I have it printed and present it during a listing presentation with homeowners.

Mind you, this is not a CMA (comparative market analysis).

How Do AVMs Work?

At their core, AVMs analyze data from various sources, such as:

  1. Public Property Records: This includes information like property size, age, and previous sale prices.
  2. User-Submitted Data: Details provided by homeowners or real estate agents, such as recent renovations or unique features.
  3. Market Trends: Current data on local and national real estate market conditions.

The algorithms then process this data, enabling AVMs to assess property values by comparing them to similar properties in the area.

Factors Influencing Zestimate Accuracy

While Zestimates provide a convenient way to gauge property values, various factors can influence their accuracy. 

Here are a few elements that affect how accurate Zillow estimates are:

1. New Data From Various Sources

  • Real Estate Market Changes: Fluctuations in the local and national real estate markets can impact Zestimates. Changes in supply and demand, economic conditions, and interest rates are examples of market dynamics that can affect property values.
  • Public Record Updates: New data from public records, such as recent property sales or changes in property taxes, can alter Zestimates as this information is integrated into Zillow's database.
  • User-Provided Information: Homeowners can update information about their properties on Zillow, like mentioning recent renovations or corrections to property details. These updates can lead to adjustments in Zestimate values.

2. New Entry From the Owner

Homeowners have the option to provide additional information about their property on Zillow.

This could include details about recent renovations, upgrades, or unique features that might not be otherwise accounted for in public records.

Such direct inputs from owners can significantly influence the Zestimate of a property.

3. Improvements Not in the Public Record

Not all property improvements or issues are reflected in public records.

Unrecorded renovations, maintenance issues, or unique architectural features can lead to discrepancies between a Zestimate and the property’s actual market value.

4. A House Going On/Off Market

When a property is listed for sale or removed from the market, this can impact its Zestimate.

The listing price, time on the market, and final sale price provide fresh data that can be factored into the Zestimate calculation, influencing its accuracy.

5. An Algorithm Change

Zillow periodically updates its algorithm to improve the accuracy of Zestimates.

These updates can lead to significant changes in Zestimate values, as the algorithm may start considering new data points or weigh existing data differently.

6. Housing Turnover Rate

The frequency of property sales in an area can also affect the accuracy of Zestimates.

In areas with high turnover rates, there's more recent sales data available, which can lead to more accurate Zestimates.

Conversely, in areas with low sales activity, Zestimates may be less accurate due to the lack of current market data.

To appreciate the dynamic nature of Zestimates, it's important to understand these factors.

Zestimates are not fixed figures but rather evolving estimates that reflect the constantly changing real estate market.

Other Ways to Determine Property Value

Zestimate Alternatives

No doubt that Zestimates give a quick and convenient property value estimate.

But they're definitely not the only way to determine a home's value. 

You'd be wise to consider these other methods, like:

  • Professional appraisals 
  • Redfin estimates 
  • Comparative Market Analysis (CMA)

Let's break them down and see how they compare.

Zestimate vs Professional Appraisal

Professional appraisals are evaluations conducted by licensed appraisers.

They involve a thorough on-site inspection of the property, considering its condition, unique features, and local market trends.

Unlike Zestimates, which are automated and based on public data and algorithms, professional appraisals offer a more in-depth and personalized valuation.

They are often required for official purposes like mortgage lending.

Yet, many homeowners are unaware that they're able to request an appraisal themselves.

Professional appraisals may charge between $300 - $450 here in Tampa, FL.

Zestimate vs Redfin Estimates

Redfin, another popular real estate platform, provides its own property value estimates known as Redfin Estimates.

Similar to Zestimates, Redfin Estimates are generated using an algorithm that analyzes various data points. 

In my opinion, there's not much difference today between Zillow and Redfin, as it pertains to accuracy. 

Yes, Redfin, has a slight advantage.

But, both have access to the same data, including the MLS.

Margin of Error % For Active Listings (Tampa/Hillsborough County)

AVM

% Median Error

Within 5%

Within 10%

Within 20%

Zillow

2.29%

82.84%

94.90%

98.60%

Redfin

1.60%

85.68%

94.60%

98.35%

Margin of Error % For Off Market Listings (Tampa/Hillsborough County)

AVM

% Median Error

Within 5%

Within 10%

Within 20%

Zillow

7.21%

36.93%

63.08%

86.25%

Redfin

5.64%

45.68%

70.72%

89.21%

Zestimate vs Comparative Market Analysis (CMA)

When meeting sellers at their homes, I perform a Comparative Market Analysis (CMA). 

A CMA involves analyzing similar properties in the same area that have recently sold, are currently on the market, or were on the market but didn’t sell. 

This process provides a more tailored and current market-driven valuation compared to Zestimates.

While Zestimates give a general idea of property value, CMAs offer a more localized and current market perspective, which can be particularly useful for setting list prices or making offers.

Pros and Cons of Zestimates

There's no hiding that Zillow's Zestimate has become a popular tool for homeowners and buyers alike.

But like any tool, it has its advantages and limitations.

Advantages of Zestimates

  1. Accessibility and Convenience: Zestimates are easily accessible to anyone, providing immediate property value estimates without the need for physical appraisals.
  2. Broad Data Utilization: Zestimates use a wide range of data, including user-submitted information and public records, to estimate property values.
  3. Market Trend Insights: They offer a quick glimpse into the current market conditions and trends, which can help buyers and sellers in gauging the general market sentiment.
  4. Useful Starting Point: Zestimates serve as a helpful starting point for homeowners considering selling their property or for buyers beginning their home search.

Limitations of Zestimates

  1. Cannot replace a Professional Appraisal: Zestimates should not be considered a replacement for a professional appraisal, as they lack the personalized inspection and detailed analysis of a licensed appraiser.
  2. Not a Substitute for a CMA: While useful, Zestimates cannot replace a Comparative Market Analysis (CMA) conducted by a Realtor, which offers a more detailed and localized evaluation of your property.
  3. Accuracy Variability: The accuracy of Zestimates can vary significantly, especially in areas with less real estate activity or unique properties that are hard to compare.
  4. Lack of Physical Inspection: Zestimates do not account for the current condition or specific unique features of a property, as they do not involve physical inspections.
  5. Delayed Updates: The information used to calculate Zestimates might not always be up-to-date, leading to potential discrepancies in the current market value.

In short, Zestimates can be useful.

But, they should be used sparingly and not be the only basis for getting the value of your home's worth.

Final Thoughts

So, what are your thoughts?

How accurate are Zillow Estimates in your opinion?

I'm not a fan of Zillow by any means. 

But to be fair, I think it's a mixed bag.

There are times when a Zestimate can hit close to the mark. Think of cookie cutter-like communities, like condos.

Other times, it can be significantly off-target, especially if we're talking custom built homes.

I want to leave you with one final thought...

Do you remember when Zillow was buying homes, under Zillow Offers?

Well, it was using their Zestimate to purchase homes...

Where are they now?

Zestimates are indeed a valuable tool in your real estate toolbox, but they're not the be-all and end-all.

Homeowners and buyers should consider Zestimates as a broad guideline and weigh them against other...and more reliable...sources of information.

But remember, Zestimates aren't accurate enough to replace the more detailed and personalized evaluations provided by a professional appraisal or a thorough CMA done by a real estate agent.

I'd love to hear about your experiences with Zestimates, whether they've been positive or negative. 

Do you have any interesting stories, comments, or questions? Feel free to share them in the comment section below!

FAQs on how accurate are Zillow estimates

Can Zestimates Replace Professional Appraisals?

No, Zestimates should not replace professional appraisals...or CMA's for that matter.

While they provide a quick estimate, professional appraisals involve a more detailed and personalized evaluation, crucial for official purposes like mortgage lending.

How Often Are Zestimates Updated?

Zestimates are typically updated several times a week, reflecting new data and market trends.

However, the frequency can vary depending on data availability and market activity.

What Should Homeowners Do If They Disagree With Their Zestimate?

If homeowners disagree with their Zestimate, they can update their home facts on Zillow to reflect accurate and current information.

However, this does not guarantee an increase in the Zestimate figure.

Do Zestimates Affect Actual Market Prices?

While Zestimates can influence perceptions of market value, they do not directly affect actual market prices.

Market prices are determined by numerous factors, including buyer and seller negotiations and real-world market conditions.

How Does Zillow Handle Newly Built Homes in Zestimates?

Because of the limitations in Zillow's algorithm, Zestimates on newly built homes may be less accurate due to limited data.

Zillow uses available data like location, property size, and local market trends, but the lack of sales history can impact accuracy.

Can Zestimates Account for Unique Home Features or Renovations?

Zestimates may not fully capture unique home features or renovations, especially if not reflected in public records.

Homeowners can update their home information on Zillow to include these details.

What Is the Margin of Error for Zestimates, and How Is It Calculated?

The margin of error for Zestimates varies by location and market conditions (see chart above). 

It's calculated based on how close the Zestimate is to the actual sale price of properties, with a lower margin indicating higher accuracy.

How Does Zillow Source Its Data for Zestimates?

Zillow sources data for Zestimates from public property records, user-submitted information, and other real estate market data, which is then processed by their algorithm.

Are Zestimates Biased Towards Certain Types of Properties or Locations?

Zestimates aim to be unbiased, but their accuracy can vary by property type and location, largely due to differences in data availability and market activity.

How Can Potential Buyers and Sellers Best Use Zestimates?

Potential buyers and sellers can use Zestimates as a starting point for understanding property values.

However, I suggest to supplement them with professional appraisals, CMAs, and market research for a comprehensive valuation.


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