Zillow Zestimates® – Are They Accurate? Can You Trust Them?
Every once in a while, I have a client who references the Zillow “Zestimate®” of a property as an accurate estimator of its value. Zillow.com has become a popular internet destination, because it gives consumers a place to go to estimate a property value without having to do a thorough analysis themselves and without having to talk to a salesperson. Sometimes, though, I get worried about the level of significance folks place in websites like Zillow. I thought I’d write a blog article on this topic, today.
But first, a disclaimer: if you’re one of the thousands of people who go to Zillow.com on a regular basis I don’t want you to feel that by me downplaying Zillow that I’m somehow downplaying you or your choice to use it. Unlike some real estate agents, I have no negative feelings about Zillow, and I hope I don’t come across that way. Please accept this critique in the spirit in which it is given, which is to help you sort through the “noise” and to arrive at the best information possible with which to make your purchase decisions. Sound fair? Hopefully so; that being said, let’s dive into this a little bit now.
Zillow does not make money by having accurate Zestimates on their website. Like most websites, they make money selling ad space, and they actually make a LOT of money by getting real estate agents (like me) to advertise our businesses on their site. They sell subscriptions for $40/mo so agents can advertise their listings; they also have a lead generation program that, depending on the zip code I want to sign up for, will send me buyer and seller leads. The lead-generation subscription can cost (no joke) hundreds of dollars per month. That’s how agents get their headshot to appear in the “Contact a Local Agent” section you see on the top-right of every property page.
Zillow has a few “wiz-bang” features that look legitimate like value estimators, charts and graphs that draw users in and engage them. But again, they are not paid based on the accuracy of their estimations — the are paid based on the users they engage, the ad space they sell, and the leads they generate for real estate agents.
Fundamentally, that presents a challenge when a client comes to me with information from Zillow’s website and pursues purchase decisions based on that information. A recent email from a client engaged my curiosity this morning, so I pulled up a sampling of our listings on Zillow over the last few years. For each of these homes, you can go to the link below and scroll down to the line graph under the “Property Details” heading. I’ll reference those graphs in the bullets below:
- Here’s one in Livermore that we sold in 2013. The sale was for $485K at a time when Zillow said the house was worth $411K. That’s a sale price that’s a little more than 15% over the Zestimate® at the time.
- Here’s the house in Sequoyah that we sold last year. It sold for less than the Zestimate, but it also sold with $60,000 in damage that Zillow could not have known about. Ironically, taking that damage into account, the most unique property we’ve sold had the most accurate Zestimate — good job, Zillow!
- And then finally, we sold this house a couple of months ago in San Pablo. With regard to Zestimates, this one is the strangest. It closed escrow for $530,000 at a time when Zillow said it was worth $420,000. That’s a Zestimate® that’s 21% below the price a buyer was willing to pay at the time!
On that last property, though, imagine for a moment the conversation a real estate professional would have with a prospective homebuyer who doesn’t understand “you can’t believe everything you read on the internet.” Here’s someone who comes to me expecting to pay $420,000 for a house that is legitimately listed for well over $500,000, and then wonders what kind of a “sucker” I take them for that I would suggest they pay a price that’s $100,000 over the Zestimate®. I’d also be interested to know how many potential home sellers are holding off on putting their house on the market because they’re going to Zillow, seeing the low Zestimate® on their home, and then thinking “I can’t sell my house right now because I can’t accept an offer that low and take with me the equity I need to move to my next place.”
Who knows — it could be that the current Bay Area inventory shortage would be significantly alleviated if Zillow would take their Zestimate® prices more seriously.
According to this February 2015 in the Los Angeles Times, Spencer Rascoff, CEO of Zillow was quoted to say that nationwide Zestimates have a “median error rate” of about 8%. Further reading into the article, though, gives examples from agents in other parts of the country who are having a similar experience as the three homes I described above. I will say they are a FANTASTIC resource for agents like me to advertise and generate leads but, as a professional, I don’t place a lot of stock in their value analysis past sheer curiosity.
I hope that these thoughts provided an adequate, fair analysis I’d welcome hearing your thoughts or experiences in the comments section below. If you’re interested in reading more about how Zillow comes to their valuations, they have a webpage that answers questions from a high level.
Lifestyle Real Estate Services wants to be your go-to real estate resource long before you’re ready to buy or sell your property. If you’re looking at the Zestimate® on your house and wanting a professional opinion on its actual value, you can Contact Us and request a Complimentary Market Analysis.