Understanding the Zillow Zestimate

Understanding the Zillow Zestimate

So how does Zillow get their real estate information?  How do they come up with the Zestimate?  Understanding how Zillow works and their business plan can shed a new light on the use of Zillow in the home value process.  Many consumers and real estate junkies are turning to the website Zillow and their proprietary home value estimate feature Zestimate to arm themselves with real estate market knowledge.  Many Realtors face clients with a Zillow listing firmly clasped in their hand as they meet to discuss a possible transaction.

One hundred million homes nationwide have a Zestimate on the Zillow website.  Zillow is a slick, well presented website that has brought Real Estate listing information to the consumer.  The Zestimate is a feature of the website that gives an estimate of the value of a property.  This information is used by some home owners to track the value of their home, and can impact decisions about selling.   It is important to know that Zillow never claimed to provide this information as a substitute for a professional appraisal, and is now defending itself in a class action lawsuit in Illinois that the Zestimate is being viewed as an appraisal by the public.  Zillow has always stated that the information provided is a “starting point” for determining value.  Don’t forget that Zestimate rhymes with estimate.

So how does Zillow calculate the Zestimate?   Zillow uses an algorithm that takes public record information to crunch the numbers.  Public records include a recent sale of the subject property, tax records, permits pulled to renovate the property (change in  square footage or number of rooms) and sales of other similar properties.  The algorithm is not perfect, is being updated constantly.  Zillow is offering a $1 million bonus to anyone who can offer the best solution to make it better.

Zestimate quick highlights:

  • They do not use foreclosure properties to estimate value.  Appraisers do the same as they do not represent market value.
  • The more transactions on a property, the more accurate the Zestimate.
  • The algorithm is a neutral unbiased model, so homeowner comments and updates are not always taken into consideration.
  • Zestimates cannot be used to get a loan.
  • The algorithm does not always understand nuances of a neighborhood or area.  The size of the data area pulled to find the value of a home can be as large as an entire county, or intermingle newer/older construction phases in a subdivision.
  • MLS does not syndicate information to non-members such as Zillow.  Zillow uses a third party such as ListHub to get the listing information you see on their website.  That can create a time lag with accuracy of the status of a listed property.
  • Tax appraisal information used in the Zestimate algorithm may not be accurate, and can be off by a significant amount.
  • Zillow accuracy is within 5% of the actual market sale value 54.4% of the time.  They are within 10% of value 74.5% of the time, and within 20% of the value 86.9% of the time.  The Phoenix market has better accuracy within 5% of value 67.3% of the time.
  • More information is available on the Zillow website.

The top take-away is this:  Zillow’s business plan is to sell ads on their website.  A Realtor’s business plan is to sell Real Estate.  There is no substitute for the “boots on the ground” work of a licensed Realtor.  To find the market value of your property, contact a Realtor to have a comparative market analysis run on your home or hire a professional appraiser.  If you want to know the latest up-to-date information on a listing, contact a local Realtor who subscribes to MLS.  Realtors use MLS for a reason.

RobinW

Realtor HomeSmart Premier 12645 N Saguaro Blvd. #5 Fountain Hills, AZ 85268

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Close Menu
%d bloggers like this: