Many people use Zillow to value a home, but how accurate is Zillow? Zillow uses what they call a Zestimate to give values on almost every house in the United States. The problem with the Zestimate is it uses an algorithm to come up with a property value. When valuing real estate, you need to have real people valuing homes in order to be accurate. When I preview listings, Zillow comes pretty close to values on some, and on others, they are way off. The problem is how do you know if their value is correct on your house or not?
My Experience with Zillow Zestimate Home Values
I have been a licensed real estate broker since 2012. I have sold hundreds of homes and completed even more broker price opinions. I am also an investor who purchases several homes a year, and I own a small portfolio of long-term rentals. I know the values in my area after years of experience. Below I want to go into examples of a few properties I recently sold that were not accurately priced by Zillow’s Zestimate.
How is Zillow’s Zestimate calculated?
Zillow says they get their price based off a proprietary formula from public and user-entered data. If you want to get a more accurate value from Zillow, you can actually change the details of your own house on Zillow. Zillow is very clear that their price estimate is a starting point for homeowners or home buyers and should not be the only data used when determining value. Part of Zillow’s calculations come from the sales of homes. Whether they are arms length transactions, auctions or estates.
Zillow rent values
Zillow also gives estimates for rental rates on properties. Valuing rents on homes is much harder to compare than house values because you cannot look up what properties actually get rented for. Brokers use sold comparable properties to figure house values in most cases, then tweak the value based on multiple facets but rental rates are much more difficult to value because rents are not published in most cases. The best way to determine market rents is to see what people are currently asking for their rental properties, but you still never know if properties will actually rent for those amounts. For investors, estimated rents can be a huge factor when purchasing a property.
Why are online house values not accurate?
Computer programs can determine the value of things like cars pretty accurately. Most cars are very similar, and it is fairly easy to see what values are based depending on the miles, condition, and options. However, houses are not produced on assembly lines like cars. Every house is different and located in a different market area, which changes the value. Because no two houses are the same, it is almost impossible for a computer program to accurately determine the value of a house. To accurately value a home, you need to have a local market expert who knows how to value houses and knows how much the location, condition, and design features will affect the value.
You can see the Zestimate change drastically when houses are bought or sold. A prime example of this is Zillows own CEO Spencer Rascoff sold his home in Seattle in 2016. In the screenshot below you can see his Zestimate on the day of the sale is $1.75 million. The actual sale price was nearly 40% less, $1.05 million.
How far off is the Zillow Zestimate?
I went through 4 random listings I sold through the past year and compared their Zestimate home values with what we sold for and here is what I found:
Property number 1
Here is a prime example of a 2 family I recently sold on Morris St in Albany. The first image below is showing the Zestimate for the property s few days prior to listing… Which shows an estimated value of $238,600.
We proceeded to list the property for $255,000 which we then received multiple offers on that increased the overall sale price $262,000, as shown below. This is almost 10% more than Zestimate!
Property number 2
Another 2 Family here in Albany right off of New Scotland. Below is the Zestimate of the property right before we listed which shows a value of $208,200. We proceeded to list this property for $229,000 and received multiple offers and ultimately sold for $235,000. A difference of about 13%.
Property number 3
This one is another 2 family but this time in the mansion neighborhood of Albany. This is a unique one as the Zestimate fluctuated sporadically in a very short period of time. In July it’s Zestimate was close to $240,000 but then dropped drastically to $212,000 prior to the listing. We then listed for $219,000 and received multiple offers, ultimately selling for $221,000. A difference of about 4%.
Property number 4
This property was a two family located in the up and coming Park South neighborhood. Where there has become more demand recently due to Albany Med’s rapid expansion and some independent developments happening in the area. The “average” sales for this properties square footage put the Zestimate value at $184,900. We proceeded to list the home for $228,000 and sold at that price in a matter of a few days. A difference of about 23%!
Overall, I think Zillow does a good job of giving ballpark values, but do not depend on Zillow if you plan to buy or sell a home. As you can see from the above values, some Zillow estimates are pretty close, but some are off by over 20 percent! I would hate to be the person that sells their home for 20 percent less than market value. The tricky part is there is no way for someone to know which values are accurate and which are not when looking on Zillow.
What can Zillow tell us?
As I mentioned, it is hard to get accurate values from Zillow, but they do show recently sold comps in neighborhoods. Zillow also shows pricing trends, which tend to be fairly accurate in my opinion. That can tell you if prices are going up or down in certain areas. Zillow also lists homes for sale as well as local real estate agents. Overall, I think Zillow has a lot of great information, but don’t count solely on their home values.
If you want an accurate home value, you need to talk to a local professional. They can perform CMA’s (Comparative Market Analysis) for free for you!