You Can’t Always Trust Zillow’s Zestimates

Zillow is the most popular real estate website out there right now. Anyone that has been on their site has surely seen their “Zestimates.” A Zestimate is simply an automated property value estimate that appears alongside otherwise objective property information provided by Zillow.  They makes most of its money on advertising purchased by real estate agents who have supplied it with critical information (listings) in the first place.

san diego house value zestimate inaccurateReal estate agents frequently complain about these Zestimates, which — despite Zillow’s disclaimers — are often weighted too heavily by both buyers and sellers. (Typically, of course, the Zestimate is accorded such status when it happens to support the position of the concerned party. Buyers quote Zillow when the Zestimate is low, Sellers when it is high.)

Zillow makes it clear that Zestimates are not appraisals; rather, they are “a good starting point” or sometimes “just a starting point.” But what is that supposed to mean? Any number picked out of the air could be a starting point. Especially if we don’t even know if the Zestimate is liable to be high or to be low, how does that really help?

How is a Zestimate calculated and why can they be so inaccurate? Zillow takes public record characteristics (e.g. age, number of bedrooms, square footage), which can be wrong with unpermitted additions or simply inaccurate. With that information, they compare other similar homes in the area that are for sale or recently sold. This sounds great, but there are two problems that make Zestimates so inaccurate at times:

1. Zillow has no idea as to the condition of the property. They base their Zestimate on only the raw public records. They don’t know if there was $100,000 in beautiful remodeling upgrades or if the home is in total disrepair. The Zestimate tends to be a valuation for the “average” property in the area.

2. Zillow doesn’t take into account neighborhood boundaries.  We all know neighborhoods can change drastically by driving a few blocks away and this will also affect home values accordingly. Zestimates merely take a given “radius” around the subject property.san diego home market value zestimate

In my opinion, Zestimates are good for determining pricing trends for homes (taken as a percentage up or down), but the quoted home value should be taken very lightly.

So what’s the solution to the above problems with Zestimates? A professional appraiser will gladly come to the property to inspect it, and ultimately give a full blown appraisal report for around $400. The better option (at least for starters) is to have a licensed Realtor perform a CMA, or comparative market analysis for the home in question (most do this for free). While a CMA doesn’t go into as much depth as an appraiser does, they can be very accurate. Either way, these methods actually have a human (instead of  a computer generated system) analyze the subject home. They will know the condition of the home and if any additions or upgrades were done. These things obviously make a huge difference in what the property’s market value will be.

If you have a disagreement with a CMA, or even a full-blown appraisal, you have something in hand that you can work with. What comparables were used? What might have been overlooked? How much value was attributed to this feature or that? Are features of the comparables (e.g. view, street location) adjusted in an appropriate manner?

A Zestimate doesn’t allow for those questions to be asked. That is because you don’t know what data the Zestimate was based on; nor do you know how adjustments were made.

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4 Responses to “You Can’t Always Trust Zillow’s Zestimates”

  1. […] their home? Is it smaller than most other homes in the area? Using a service like Zillow’s Zestimate is NOT a good basis for your offer price. Your agent should be able to provide you with sales data […]

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