As an investor, there’s no doubt you have run into Zillow *Zestimate accuracy over and over again in the last 10 years. No longer do you have to beg an agent for MLS access to pull quick comps. A skilled investor can gauge the rough value of any home by using Zillow in most markets. Have you gotten a lead in a new market and wonder what the value is? Thanks to the online real estate database company called Zillow, you don’t have to wonder. The answers are all there at your fingertips with a free report they like to call Zestimate.

What is a Zillow Zestimate?

The Zestimate is a home valuation estimate of a home based on data in Zillow’s extensive database of over 100 million homes. This data is accumulated from publicly available statitics as well as user-submitted details. As such, it is constantly changing to reflect changes in the housing market. Some people refer to this as a living database because it is continually evolving as it accumulates more data.

How is the Zillow Zestimate calculated?

Since Zillow first began operations in 2004 they have made significant changes to the way their Zestimates are calculated.

Zillow uses a sophisticated proprietary algorithm to analyze hundreds of unique variables pertaining to the home in question before reporting the Zestimate valuation. Although the exact formula is a closely guarded secret Zillow confirms that some of the variables include:

• County and tax assessor records
• Direct feeds from hundreds of multiple listing services and brokerages
• Home characteristics (square footage, location, number of bathrooms)
• Unique features (hardwood floors, landscaped backyard, granite countertops)
• Market data (listing price, description, comparable homes in the area, and days on the market)

Is the Zestimate Accurate?

With so much importance placed onto Zestimates the question of their accuracy is hotly debated. You do not need to look very far to find stories of homeowners with ridiculously inflated or deflated Zestimates. So are they accurate?

The short answer is “yes… and no”. Zillow claims that the median error for homes that are listed for sale is 1.9% which sounds pretty good, but this depends greatly on the region in question. Some markets are easier to predict than others. It’s worth noting that the median error for homes that are not listed for sale jumps to 7.7% nationally.

Essentially Zillow is stating that the final sale price of the average home in America is going to be within +/- 1.9% of the Zestimate. 

The Zestimate Dilemma

In an ideal world a homeowner could receive a Zestimate report and feel confident that they would receive that amount for their home on the market. Unfortunately, housing markets do not work like that and there is a real danger of homeowners blindly following the Zestimate without tempering their expectations based on the true value of their home.

Zillow clearly states that the Zestimate is not an appraisal of the home, but a starting point. They encourage buyers, sellers and homeowners to research the property in question, and receive a professional appraisal. Human nature being what it is, though, sellers are understandably interested in maximizing their profits from the sale and may point to the Zestimate as evidence that the property should be valued higher.

On the other hand, if a Zestimate comes back lower than what the homeowner is comfortable with, potential buyers, especially wholesalers may use that as leverage to argue for a lower selling price.

A good real estate agent knows that the Zestimate is not the final authority on the valuation of a home and will use their intimate knowledge of the local market to push for a fair selling price. This can sometimes lead to conflicting opinions between agent and homeowner.

How to Update the Zestimate

Zillow claims that Zestimates are refreshed on a daily basis, so you are likely to observe some fluctuation, especially over a period of time. If a homeowner is concerned about a significant difference in their Zestimate compared to their perceived value of the home, it’s possible to update their home facts on the Zillow site. This may affect the Zestimate.

The more information that Zillow has on a home, the more accurate the Zestimate is expected to be. Additional information such as architectural style, roof type, heat source and building amenities can go a long way to increase the value of the Zestimate.

Zillow Zestimate Effect on Investor Home-Owner Negotiation

When out negotiating directly with homeowners and inexperienced wholesalers the Zestimate can be frustrating on the buying side. The Zestimate does not take into account the condition of the home.  This is a major issue when it comes to homeowners understanding the value of their homes.   From an investor or wholesaler side trying to negotiate a property with a homeowner directly this is typically the sticky point. 

Homeowner points at their $200,000 Zestimate with pride & stubbornness while negotiating the sale.  The investor notes the kitchen, bathrooms and AC system are 20 years old and it would take a $50,000 renovation to bring the house up to the Zestimate they are sticking by.  On top of that an investor needs some room for profit and closing costs so that $200,000 Zestimate can often instead warrant a $100,000 offer.  It’s easy to understand how this would upset and confuse homeowners.

Final Thoughts on Zillow’s Zestimate

A Zestimate is a convenient starting point for homeowners to get a feel for the market value of their home. It is intended by Zillow to promote a neutral, transparent real estate market and allow people to make more informed decisions. It is not intended to replace a professional appraisal or common sense. Your real estate agent is a professional who is equipped to take into consideration all the local market factors to determine the actual fair listing price for a home.  If you ever find yourself negotiating against an unreasonably high Zestimate, ask the homeowner to update the house facts on Zillow.com and this will usually help a lot.

Do you have real estate questions? Are you interested in learning more about Zestimates and how to use them to their full potential? Contact us today and be sure to follow our social media for more real estate topics.

*Zillow.com and Zestimate are trademarks of Zillow, Inc.