Zillow and the ZESTIMATE Fairy

Is the Zestimate useful information?


Information junkie.  That’s what they will write in my obituary.  “She knew many facts of marginal value and use”.

So, as someone who is a tad obsessed with the real estate market, you would think that I would also love the Zestimate; Zillow's famed tool for estimating home market values using their own proprietary formula.  Yes and No.

While I truly appreciate the spirit and intent of the Zestimate to innovate and differentiate Zillow from other traditional real estate web sites, I cannot get past the numbers themselves.

A house for sale in the area listed for $715,000 has a Zestimate of $598,000 featured right below the asking price. “The range” of possible values for this home is $496k-$711k; a $215,000 difference or +/- 17-18%.  Seriously?

The Zestimate is based on publically available comparable sales of similar homes in the same geographic area and ‘user submitted data’.  The differences do tighten up as more homes are sold within the criteria but there are still real weaknesses with the results.

Drilling down to the methodology of the algorithm, (have some Advil handy when you do this) you will find that ‘the range’ has a 70% confidence rate.  That is exactly as it sounds.  “The range” is correct 70% of the time.  30% of the time - not so much.  The median margin of error for the range in Fairfield County is apparently around +/-8%.

You could drive a large SUV through those statistics.  By comparison, the political polls we now see daily have a 3%+/- margin of error with 95% confidence.

The Zestimate is a purely mathematical, external measure.  Most significantly, it does not account for renovations or property characteristics.  It cannot it fully appreciate the appeal of the designer kitchen, which flows into the sunny family room and it has no way of accounting for wetlands or crazy slopes.  Zillow is very honest about all this and even allows sellers to update facts about their home.

Whether you agree with the final number or not, the Zestimate is out there and Zillow reports “In July, 168 million homes were viewed on Zillow via a mobile device – that’s 63 homes per second”.  That’s only mobile views and only in July!

In the end, I do think the Zestimate empowers buyer and sellers to look beyond an individual house and take a larger, more analytical view of the market. 

But let’s remember that the Zestimate is just one piece of data.  It is not the arbiter of all that is good and true and there is not a real thinking human being behind it.  More information is still far better than less but asking the right questions is better still.

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Margaret Callahan September 14, 2012 at 02:21 PM
Zillow can't factor in curb appeal, neighborhood nuances, other intangibles. Renters who missed the boat like to point out how little Zillow says their friends' houses are worth. It seems to underprice values in "tony" neighborhoods.
Marsha Charles September 15, 2012 at 02:01 AM
The zestimates are also inaccurate when a house in Darien or New Canaan is located near a border city like Norwalk or Stamford. Zillow incorporates those sales. Zillow should really be comparing properties in the same zip code but this is not happening.
Jackie Giamini September 16, 2012 at 12:53 PM
After contacting a national company to get a quote for homeowners insurance, I was quite surprised to find out that the industry uses Zillow, to determine my home value. When I looked up my property value using Zillow, I was equally surprised that my home was appraised for hundreds of thousands more than what I thought! How accurate is this website, really?
Karen Brewer September 16, 2012 at 02:50 PM
Great article betsy...I have seen clients with advanced degrees in finance and even other Realtors trot out Zillow numbers as proof positive of the value of their homes. This is a flawed algorithm and one that no one should assume is accurate. When you go to Real estate forums and Zillow is represented they spend all their time trying to defend the numbers. It may play in Peoria but but in this neck of the woods.
Ali September 17, 2012 at 02:08 AM
Marsha -- thanks for the interesting tid-bit. I had no idea.


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