If you’ve ever shopped for homes online, whether as a serious buyer or just for fun, you probably have encountered the website called Zillow. It is a database that features homes across the United States that are on the market, as well as millions more that are not currently for sale. The website has many features, including resources for buyers, renters, and sellers. It can direct you to a local real estate agent and lending company as well. If you’ve ever browsed the site, you have also likely noticed that when you click on a home, the webpage provides you with an estimate of the home’s value. But, how accurate are Zillow home value estimates?
Zillow has what it calls the “Zestimate” for every home listed on its website. This is an estimate of the home’s market value. The site calculates the value through information supplied by the site’s users as well as public information about the area, features of the home, and the market in general.
For example, if you took out a city permit to build an addition on your home that included an additional bedroom and bathroom, there would be public information about that construction work. Then, when the local property tax assessor examined the addition and concluded that it added $50,000 in value to the home, your taxes would increase. Zillow would receive that information and use it to calculate an updated Zestimate for the home.
However, if you made improvements to your existing bathroom that did not require a city permit, the local government would have no record of the construction and neither would Zillow. Therefore, your home (with an improved bathroom) might have a similar Zestimate as a comparable home in your neighborhood with the original bathroom features from the 1980s.
As an attempt to account for these discrepancies, the site provides an estimated range in order to give buyers an idea of the possible high and low values of the home. The wider the range, the less data there is available about the area and the home itself. Sometimes, certain information is missing or unavailable, such as the tax records and remodeling work, which can affect the estimated value.
The site claims that the accuracy of the Zestimate depends on the data it has on the home and surrounding homes. Certain areas of the country have higher turnover rates than others. Cities that have homes selling more frequently have better records and can provide the website with more accurate information about the perceived values of such homes. Therefore, the Zestimate can be more closely aligned with the potential sale price.
For example, In Detroit, Michigan, 46.3% of homes sold were within 5% of the Zestimate value, and 67.9% within 10%. This means that the Zestimate and the transaction price were within 5% of each other for slightly less than half the homes sold. So, there will be some discrepancies to the calculations, though the site states that it aims to be as accurate as possible. You can visit the site to see how accurate the values are for many of the top metropolitan areas in the country.
The company refers to the Zestimate as a “starting point” and recommends that interested buyers still speak with a real estate agent, home appraiser, and inspector. It cannot serve as a replacement for an actual estimate calculated by an appraiser. It also encourages its site users to update any information they have about their own home on the site, in order to improve the Zestimate.
Testing the Accuracy
Other reporting agencies have tested the accuracy of the Zestimate using their own calculations. In June 2014, a real estate agent from the East Coast wrote a piece in the Washington Post calling the Zestimate “wildly inaccurate and inconsistent.” He claimed that the site does not consider factors such as:
- Remodeling work completed right before a home was put on the market
- Curb appeal- how well the yard and outside of the home are maintained
- Shifts in the market that vary between neighborhoods
- The motivations of buyers and sellers
Other issues with the algorithm, as mentioned by other sites include:
- The size of bedrooms and bathrooms
- The home’s layout
- Title defects
- Unpermitted work on the home
- The year and architectural style of the home
Of course, some of these factors are, admittedly, hard to calculate. However, the article went on to state that the Zestimates and the actual value of homes are accurate in less than 50% of cases, just as the site itself mentions. The real estate company conducting the research for the article also conducted similar research 18 months prior, and noted that the website’s accuracy had not improved overtime.
Another issue is that the Zestimate is often higher than the actual value of the home. For example, the CEO for Zillow, Spencer Rascoff, sold his home for $1.295 million, while the Zestimate was $1.39 million. According to his real estate agent, having a higher Zestimate value is better than a lower value because buyers perceive that they are getting a “deal” on the home once the sale price has been negotiated.
As a response to the Washington Post article, the chief economist for Zillow wrote a follow-up piece a few days later. He argued that the website has improved in accuracy over time. When the site first launched in 2006, the median error rate was 13.6%, while in 2014 it was 6.9%. During that same time prior, the number of homes on the site has doubled, further demonstrating the enhancements to the Zestimate algorithm. He contended that the Zestimate values continue to improve, and that no computer algorithm can completely replace speaking with a real estate agent. However, it does provide potential homebuyers with a wealth of information during their home search and helps them to find homes that will fit reasonably within their budget.
Find Out More
If you are interested in finding out more about the Zestimate accuracy of your own home, or a home you are interested in purchasing, speak to a real estate agent. They will provide you with updated information and help to arrange tours of homes on the market.
Along with purchasing a new home, it is important to also speak with an independent insurance agent about homeowners insurance. Mortgage companies will require that you have enough coverage to protect the unpaid balance on your loan. However, most homeowners have coverage to protect their entire value of the home. This type of insurance is crucial to protecting your home against fires, bad weather, theft, and vandalism. Not only will it cover any damage to the outside of the home, but the contents inside the home as well. There are a variety of homeowners insurance policies available, so speak with your independent agent today.
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