How Accurate Is Zillow’s Zestimate?

Technology has made our lives easier in many ways. Most of us rely on our smartphones, tablets, and computers when making daily decisions, whether checking Yelp for restaurant reviews or comparing prices on a new big-screen TV. When it comes to real estate, however, consumers should be wary of relying too heavily on estimates from websites like Zillow.

Zillow offers “Zestimates” on properties throughout the United States, which are estimates of the value of a home. A Zestimate is created using an algorithm based on public records. While it can be reasonably accurate for properties currently on the market, it is often off by tens or even hundreds of thousands of dollars. Your best bet is to work with a licensed realtor for the most accurate estimate of a property’s value.

Based in Lithia, Eaton Realty has served the Hillsborough County region for more than 20 years. We offer a full range of real estate services, from selling to buying to renting properties. Our team also manages properties on behalf of landlords and property investors. Reach out today to learn more about how we can help you find or sell a home in or around Tampa, Florida.

Want to learn even more about buying or selling a home for the right price? Contact us to speak with an experienced Hillsborough County realtor.

What Is A Zestimate?

In 2006, former tech company executives launched the real estate website Zillow. This real estate marketplace company collects information about residential properties throughout the country and makes most of its money from on-site advertising.

One feature that consumers frequently use on the Zillow site is “Zestimate,” which is the company’s proprietary home price estimator. Zillow uses an algorithm based on public records, comparable sales, current housing market data, and MLS listing inventory to estimate a home’s likely selling price. The tool estimates a property’s market value and selling price range. For example, a listing in Lithia on the market for $550,000 has a Zestimate of $531,400 with a sales range of $505,000 to $558,000.

While a Zestimate can be helpful, it can also create problems. In the example above, $550,000 might be a fair price for the home - but a prospective buyer may look at the Zestimate and decide that they won’t pay a penny more than $531,400. In other situations, sellers may insist on listing their home at or above the Zestimate, even if the value is grossly inflated.

Like any algorithm, the accuracy of a Zestimate is based on the quality of the data that the formula uses. A Zestimate might be fairly accurate - or it might be wildly off base. This margin of error was evident when one of Zillow’s founders sold his Seattle home for $1.05 million, 40% less than the Zestimate of $1.75 million for the property. As discussed in greater detail below, the accuracy of a Zestimate can vary considerably based on factors such as when the home was last sold, the amount of information Zillow has about a particular zip code, and whether the site has accurate information about the house itself.

Is Zestimate Accurate?

In some cases, a Zestimate is incredibly accurate. This often occurs when a home has been recently sold, as the data on that property is reliable and recent. However, even the company admits that Zillow’s estimates are only as good as the amount and quality of data available - which is why homeowners can edit their home facts such as the number of bedrooms and bathrooms and the home’s square footage.

A Zestimate is most accurate for homes that are currently on the market. Zillow claims that on-market home Zestimates have a median error rate of 2.4%, and Off-market homes have a much wider median error rate of 7.49%. However, these numbers can change quite a bit depending on the property's location and the number of homes with Zestimates in a given area.

For example, 9,600 homes with active listings in San Francisco have Zestimates. This region's median error rate for Zestimates is fairly high at 3.33%. By comparison, the median error rate for Colorado Springs - where there are 4,100 actively listed homes with Zestimates - is 1.20%. The median error rate for Zestimates of active listings in Florida is 2.16%.

Of course, these statistics are based on homes with active listings, which typically means that more data is available about the property and the listing price. The numbers are often far more skewed for properties not recently sold. For example, if you look up your grandparent's house that was built in 1960 and has never been on the market, you may find that the Zestimate is very different from a number provided by a realtor or a real estate appraiser.

These error rates may seem pretty low, even at the higher 7.5% median error rate for off-market properties. However, depending on the market value of the money, the Zestimate could be thousands of dollars off. For example, if your home’s actual market value (what someone is willing to pay) is $650,000, the Zestimate could be as high as $698,750 or as low as $601,250. That is a pretty significant range!

The other thing to consider is that Zillow's numbers are a median error rate, not an average error rate. That means that it is a number that falls in the middle of the range of error rates. The error rate in your community may be much, much higher.

Finally, Zillow uses public records and other data to calculate its Zestimate, and it doesn’t consider other factors that are typically not quantifiable. For example, Zillow may estimate a home's value at $550,000. But when you tour the house, you learn that the current owner has four dogs and eight cats - a factor that Zillow can’t generally consider. Based on your real-world experience, you may realize the home is worth far less than $550,000.

Should You Rely on a Zestimate?

Zillow’s Zestimates can be very hit or miss. The best way to look at a Zestimate is as a tool that you can use to estimate a home’s value. You should not rely exclusively on it when making real estate decisions.

A Zestimate can be a good starting point when you are looking to buy or sell a home. It can also be helpful when considering taking out a home equity loan or refinancing your home, as it can give you a general idea of your home’s current value. However, you should never mistake a Zestimate for actual market value.

A better plan is to use several different tools to better understand how much a home is worth. Finding a consensus among online tools like Redfin and Realtor.com gives you a general idea of the value of a property, and this is a good starting point when you are just beginning the process.

To get the most accurate estimate of a home’s value, it’s best to talk to an experienced local real estate agent. They have more practical experience with the market in your community and what features and locations people find desirable. They can view your home and give you a more precise estimate of what your home is worth. A realtor can also suggest improvements and other steps that you can take to increase the value of your home.

A professional real estate appraiser can also look at a property and give a more accurate estimate of its value. An appraisal is often required in many real estate transactions, including buying a home with a mortgage or refinancing your existing mortgage. A licensed appraiser will use much of the same data that Zillow uses - such as comparable home sales - along with an analysis of the property based on their in-person viewing of the home. Evaluating a property in-person leads to an estimate far more accurate than a Zestimate - which is why banks won’t allow you to substitute a Zestimate for an actual appraisal.

The bottom line for consumers is that Zestimates can be helpful, but they shouldn’t be relied on when making real-world real estate decisions. It should just be one data point among many factors you consider when determining a listing price for your home, making an offer on a property, or deciding to refinance your mortgage. A seasoned Hillsborough County realtor can also offer you valuable insight based on their experience and knowledge of local market conditions.

How Eaton Realty Can Help

Whether you are planning to buy or sell a house, you need information you can rely on to make an informed decision. While a Zestimate can be a good starting point, you should never base a real estate decision on it alone. A licensed Florida realtor can help you get a far more accurate value for a property.

Eaton Realty works with buyers, sellers, landlords, and tenants throughout Hillsborough County. We have deep experience with the local real estate market, allowing us to advise our clients on home prices and other factors affecting real estate decisions. If you’d like to learn more about how we can help you buy or sell a house, fill out our online contact form or give us a call at 813-672-8022 to talk to a team member.