Why Zillow “zestimates” aren’t accurate

Zillow is not accurate I wrote a blog post earlier this year that showed you how to determine how accurate Zillow was in your area. The response on this was phenomenal so I thought I would follow up that post with one in which I explain to you why the Zillow “zestimate” can be so inaccurate. With so many people turning to Zillow to determine the value of their home I thought it would be a good idea to fill you in on how a full appraisal by a live person can be much more accurate than one done by a computer that knows nothing about your home.

The first and biggest reason that Zillow will never be able to give you an accurate estimate on the value of your home is that the people in charge of programming the Zillow computers DO NOT personally look at your house, either inside or out, to determine its quality, condition, or appeal in relation to other “comps” in the area. This is a vital step in the appraisal of a home because it helps the appraiser determine how the home compares to other recently sold houses. During an appraisal inspection the appraiser measures the heated and cooled gross living area (GLA) of the house, takes detailed notes on the construction quality of the home taking into consideration materials of construction, condition, and quality. These are all things that are not possible with services like Zillow because they do not personally look at each home as it is not physically possible to do so with the number of homes there are. You may say “of course it’s not possible to look at every house-that’s a no brainer”, but this is not a step in the process that should be taken so lightly.

The process of measuring and calculating the GLA is also very important when estimating the value of your home. This is one of the biggest problems I see because the zestimate is based on what Zillow things the GLA is. They typically get this from county records, which are notorious for being inaccurate. The price per square foot of recently sold homes is also calculated based on the counties square footage estimates which can multiply the inaccuracies. So what you have is a price per square of recently sold homes that is based on inaccurate information that is then multiplied by the inaccurate GLA of the home whose value is being estimated. This imperfect process leaves a lot of room for mistakes, which may be why Zillow covers themselves by giving such a wide range of estimated value. I’ve seen value estimates that provide a range in value of $50,000, which really provides no benefit to you at all.

After an appraiser collects the data noted above they use it to determine what the best sales comparables are to compare with the subject. The appraiser also uses proven appraisal methods developed over the years to calculate adjustment amounts to apply to the sales. These adjustments reflect value differences between the subject and sales. Appraisers dig deep to find out if a sale should be used in the assignment. There may have been extenuating circumstances that resulted in the comp. selling for more-or less, than it should have. After the adjustments are made, the sales provide a range of value that the appraiser then uses to reconcile a final value estimate. Again, the appraiser’s first hand knowledge of what the subject property is like can help determine what part of the value range is emphasized. If the home had lots of upgrades and was in very good condition then the upper end of the value range might be reconciled,  however if the home was of basic construction and  was not well taken care of then the lower end of the range of value may be more indicative of its market value. An appraiser also considers the current supply of homes available for sale by looking at what other homes in the immediate area are listed for sale at.

As you can see there are many reasons why Zillow “zestimates” are not accurate, and why the services of a professional appraiser can provide you with the best valuation of your home. Do you have any Zillow stories you would like to share? Leave me a message below, I would love to hear them.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Comments

  1. Thank you for posting this blog on the inaccuracies of Zillow and Zestimates. I still find homeowners wondering why banks don’t use Zillow for their loans. What a nightmare that would be! I can’t stress enough the value of an appraisal for sellers and buyers especially for FSBO properties and cash purchases. I always recommend using a RE Agent to represent you and propect your interests but if you insist on doing it yourself, at least get an appraisal. I work also with RE Agents on pricing unique homes that Zillow couldn’t even come close to on value.

    • Thanks for your comments Cindy. I guess we as appraisers have our work cut out for us educating the public on the inaccuracies of Zillow, however it does provide a starting point for dialogue between appraisers, agents, and homeowners.

  2. Unfortunately I have to respectfully disagree with you with respect to the Zestimate. I think the Zestimate does a great disservice to the entire real estate industry and it should be removed from Zillow entirely. As we both noted the accuracy does vary by city but not being within 5% of the sale price about 33% of the time and not being within 10% of the sale price about 50% for most cities is not very good. All of the data I’ve seen shows the average list price to sale price ratio ranging from 97% – 90% in various localities. If 66% of the time the price estimate will not be within 5% of the eventual sale price and 50% of the time it will not be within 10% of the eventual sale price don’t we have to ask what value this pricing tool has for the consumer? Maybe you can persuade me and explain what the value of the Zestimate is? How is it a good place for starting to determine home value if it can only get to within 20% of the eventual sale price with any regularity?

    • I agree with you. There really is no value in a value estimate that is so inaccurate, but if it leads the homeowner to call a professional appraiser then maybe it has been of some value because it pointed them in the right direction.

    • The biggest problem with Zillow is their outright refusal to correct or delete substantially incorrect Zestimates when requested by the homeowner to do so. When 17% of 100 million Zestimates are more than 25% WRONG then one has to question Zillows integrity and what they hope to gain by continuing to publish inaccurate Zestimates.

      When a powerful $3Bn Nasdaq listed company behaves in such an unfair way towards homeowners who suffer misery and potential financial loss then its time that Zillow was subject to some form of regulation over the use of Zestimates. At the very least there should be a DoNotZestimate website so that homeowner can opt out of Zillows nonsense, in the same way that people can opt out of unwanted spam phone calls by registering with DoNotCall.

  3. Having the right data and being able to interpret the data takes skill and experience. Humans > Computers.

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