Can You Trust Zillows Home Price Zestimate? In a Word: No.

Can You Trust Zillows Home Price Zestimate? In a Word: No.


Written By: Jaymi Naciri
Tuesday, February 21, 2017

I got an email from Zillow last week. Seems my house has gone up in value another 2,000 dollars in the past 30 days. And its going to rise another 3.5 in the next year, according to their Zestimate. Fab

Except that its just speculation. When it comes to Zillows Zestimates, you have to take the numbers with a grain of salt. Make that a big shake of salt, right over your shoulder. And maybe a stiff drink. And a frank conversation with your real estate agent.

"Shoppers, sellers and buyers routinely quote Zestimates to realty agents - and to one another - as gauges of market value," said the Los Angeles Times. "If a house for sale has a Zestimate of 350,000, a buyer might challenge the sellers list price of 425,000. Or a seller might demand to know from potential listing brokers why they say a property should sell for just 595,000 when Zillow has it at 685,000. Disparities like these are daily occurrences and, in the words of one realty agent who posted on the industry blog ActiveRain, they are the bane of my existence."

Are faulty Zillow estimatesirritating, dangerous, somewhere in the middle? It all depends on your personal situation. A real estate investor, a seller in a high-end neighborhood, or an obsessive real estate watcher ahem may be able to brush off a 15,000 error. But for many people across the country, the word of Zillow might as well be the word of God. So, yeah, dangerous.

Price errors

Errors in sales prices are one of the issues Investopedia pointed out in its look at Zillows Zestimates.


spoty

"Zillow factors the date and price of the last sale into its estimate, and in some areas, these data make up a big part of the figure. If this information is inaccurate, it can throw off the Zestimate," they said. "And since comparable sales also affect a homes Zestimate, a mistake in one homes sales price record can affect the Zestimates of other homes in the area. The Zestimate also takes into account actualproperty taxespaid, exceptions to taxassessmentsand other publicly available property tax data. Tax assessors property values can be inaccurate, though. The tax assessors database might have a mistake >

In June, Zillows much-maligned by industry experts, anyway Zestimates got an upgrade with a new algorithm. Zillow CEO Spencer Rascoff has famously called his companys price estimates, "a good starting point" and copped to a median error rate of approximately 8. With their new algorithm, they say its dropped to 6.1.


Marketwatch

John Wake, an economist and real estate agent from Real Estate Decoded, applied Zillows updated 6.1 margin of error to "Zillows own estimate of the median sale price in the U.S. in May 2016 of229,737and got atypical error of 14,000. He then took a sample city, Denver - a city in which estimates areactually more accuratethan average" - and found "the error spread in 2016 is a lot tighter and more focused on the bullseye of the actual sales price," but that "their Zestimates are scattershot."

In his example, "aDenver home has a fair market value of 300,000.According to ZillowsZestimate Accuracy Table,10 of their Zestimate priceswere off by more than 20 from the actual sale prices. Half of that 10 are Zestimates that are too high by 20 or more, and half are Zestimates that are too low by 20 or more. That means you have a 5 chance Zillow will give you a Zestimate of 360,000 OR MORE, and a 5 chance Zillow will give you a Zestimate of 240,00 OR LESS.Yikes"

Missing data

It gets even more complicated without all the data that gets fed into Zillows algorithm. Limit the available info and the margin for error grows.

That same email I received included a couple of new listings and info on recent sold homes in the area. Notice anything interesting about these recent sales?

Yep, no sales prices. Texas is one of about a dozen states without a mandatory price disclosure law, which makes property appraisals challenging and which makes it even more difficult for Zillow to come up with an accurate Zestimate since it eliminates one of their key data points.

In the case of my home, theyre a good 11,00015,000 high on their sales price estimate. And thats based on my direct knowledge of sales prices in my neighborhoodnot list prices, not tax assessments, and not assumed sales prices based on trends.

Which brings up another issue that leads to inaccurate estimates. In many neighborhoods, sales trends and prices vary street to street. But Zillows estimates are a one-size-fits-all program. In my masterplan, the building of high-density units on the southern edge of the community a few years back took a bite out of the value of homes on the perimeter streets. Sales of homes with a first-floor master also get a bump here.

And then theres the fact that this community is also split between two elementary schools. Zillow wouldnt know which one buyers prefer and wouldnt account for a difference in sales price between two otherwise comparable homes. But, people who live here would, and so would the local real estate agents.

Which only reinforces the importance of working with one, BTW.





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