Zillow Zestimates. What they are, how they work, and what they mean for buying and selling homes.
A hot button topic for real estate professionals and clients alike are Zillow Zestimates. Nearly every seller looks at their Zestimate online before they list and most buyers use the Zestimate information as part of their offer price. Today with the help of Zillow, we will discuss the good, the bad, and the ugly of Zestimates.
The good: Zestimates are a free and easy evaluation of the marketplace for potential buyers and sellers. It has the ability to give you a snapshot of a home’s value as well as the surrounding properties.
According to Zillow, Zestimates are meant to be used as a market tracker, not necessarily as a pricing tool for buyer or seller. Zillow recommends that because Zestimates are an estimated value, and not specifically an appraisal tool, you should consult with a Real Estate professional to assist in accurately pricing a home and before writing an offer. “The Zestimate is an estimated value of a home, crafted by a complex, ever-evolving series of data models designed by expert economists, mathematicians, statisticians, and computer scientists at Zillow. It’s essentially a starting point in the long (and sometimes painful) process of uncovering how much a home is worth in current local market conditions.”
Zestimates are a starting point for a more pointed discussion on value. Real Estate is based on emotion a majority of the time. People fall in love with a home and want to do anything to get it. Sometimes sellers place too much emotional value in their homes and get set on a specific monetary value to separate themselves from it rather than focus on actual market value. A lot of consumers are skeptical about the real estate profession so the Zestimate helps to break down the emotional barriers and have a realistic discussion about price since it comes from a third party source unconnected from the agent.
The bad: Zestimates do sometimes entrench a buyer into thinking a home is not worth as much as it is listed for. They also can discourage a potential seller to not list a home based on what they think the perceived market value may be.
It must be noted that Zestimates won’t always be low. They can overshoot the actual market value of a property. A buyer may offer too much based on a Zestimate or a seller may overprice their home causing it to sit on the market and frustrating the homeowner. This is why a realistic comparative market analysis supplied by your agent, preferably an Inglenook Realty Inc. agent, is the best option.
There is also an opportunity that a Zestimate can be completely bonkers for a home. The Zestimate uses publically sourced data to determine values. If the public data is off, the Zestimate will suffer magnified inaccuracy. This can be corrected if a homeowner claims the home on Zillow and updates the record Zillow has.
The Ugly: Zillow’s own statistics on Zestimate accuracy. Roughly 35% of the time the Zestimate falls within 5% of the sale price. Roughly 60% it’s within 10% of the sales price. So about 40% of the time according to Zillow, the Zestimates are off by 10%. Zillow reports that the median amount they are off either high or low is 7.9%.
But wait, there’s more! Those numbers are based on major metropolitan areas. Zillow itself says: “Keep in mind that the Zestimate is less accurate in neighborhoods without many recent transactions or areas where the homes are unique.” So our predominately rural/suburban area we live in with many different styles of homes are more likely to be on the fringes of correct Zestimate pricing. Meaning that the Zestimates are likely off more than 7.9% either way.
I leave you with one final quote from Zillow: “Calculating the Zestimate and its forecast is a sophisticated process that focuses on hard data. The process doesn’t ever involve physically visiting or inspecting homes. The Zestimate isn’t called a Zappraisal or a Z-exactimate for good reason. It’s simply another tool, an estimated value that can be used to start painting the picture of a home’s true worth.”
Zillow Zestimate quotes and information cited in this article came from:
***January 2016 Update*** The numbers are in. In our local counties in upstate the Zestimate margin of error was: 7.9% – Albany, 13.7% – Fulton, 14.5% – Montgomery, 7.7% – Saratoga. Don’t trust Zestimates!
Adam Pandori is an original agent and Realtor® of Inglenook Realty Inc. established in 2005. He is a multi-million dollar selling agent as well as one of the in-house photographers for the company. You can reach him directly at (518)528-3654 or at [email protected] Follow him on Twitter @NYSRealtorAdam on Instagram @AdamSellsUpstate and on Facebook @ facebook.com/adamsellsupstate