Zestimates

Investing News

What Is a Zestimate?

A Zillow® estimate, or Zestimate®, is a key feature offered by Zillow, a popular online real estate marketplace. It’s also the name of its home valuation model that lets consumers obtain Zestimates.

Zestimate includes information from the multiple listing service (MLS) database, user-submitted details, market trends, and specific facts on homes in its proprietary formula that produces its estimates.

However, there are several reasons why these numbers may not be as accurate as you’d like them to be. Read on to find out more.

Key Takeaways

  • Zestimates allows users to get a basic idea of how much homes may be worth.
  • Figures are based on Zillow’s proprietary Zestimate formula, which incorporates information from sources like comparable sales and public data.
  • Zestimates are only as up to date as the data behind them, meaning they may be outdated or incorrect.
  • Zestimates may not reflect improvements, mistakes in property taxes paid, or exceptions to tax assessments.
  • Since Zestimate also accounts for turnover rate, estimates for homes kept long periods of time may not be accurate.

Understanding Zestimates

Founded in 2006 by former Microsoft executives Rich Barton and Lloyd Frink, Seattle-based Zillow lists information about millions of homes for sale and rent across the United States and Canada.

Zestimate was launched in 2011 with information on about 90 million homes, Since then, it has expanded its reach and now provides data on more than 100 million homes.

To determine Zestimates for those seeking home value information, Zestimate studies a wealth of data points for individual homes.

Zillow’s unique algorithm updates its collection of property values multiple times a week, based on information from both public data, industry data, and user-submitted data.

How Is a Zestimate Calculated?

According to Zillow, to calculate a Zestimate it “uses a sophisticated neural network-based model that incorporates data from county and tax assessor records and direct feeds from hundreds of multiple listing services and brokerages.”

Zestimate also specifically examines:

  • Home square footage, location, the number of bathrooms, and other details.
  • Active listing information like listing price, description, comparable homes in the area, days on the market
  • Off-market data such as tax assessments and prior sales
  • Market trends and figures for seasonal demand

Consumers should not consider Zestimates to be appraisals. However, if you want an idea of your home’s value, Zestimates can offer users a starting point.

Accuracy of Zestimates

According to Zillow’s website, Zestimate’s nationwide median error rate for active listings is 3.2%. For off-market homes, it’s now 6.9%. Zestimates are only as accurate as the data behind them. So, if the number of a home’s bedrooms or bathrooms, its square footage, or its lot size are inaccurate on Zillow, a Zestimate will be inaccurate.

Users can correct these mistakes. However, Zillow cautions that updating a property’s details won’t result in an immediate change in that home’s Zestimate. In fact, depending on the type of update, it may not result in any change at all. That’s because a fourth bathroom, for example, doesn’t always impact home values.

Along with accepting user-submitted data, Zillow deals with problems of inaccuracy by reporting estimated value ranges for individual properties. The smaller the range, the more reliable the Zestimate because it means Zillow has more data available on that property. Looking at the high and low end of the range will give you a sense of what a home may be worth.

Factors That Affect Zestimate Accuracy

Mistakes in Key Figures

Zestimate factors the date and price of the last sale into estimates. In some areas, this information makes up a big part of a Zestimate. If this information is inaccurate, it can throw off the Zestimate. Since comparable sales also affect a home’s Zestimate, a mistake in one home’s sales price record may affect the Zestimates of other homes in the area.

A Zestimate also takes into account actual property taxes paid, exceptions to tax assessments, and other publicly available property tax data. The tax assessor’s property values can be inaccurate, though. The tax assessor database also might have a mistake related to a property’s basic information, causing the assessed value to be too high or too low.

Homeowners who see discrepancies can report incorrect sales data or tax records to Zillow online.

Improvements Not in the Public Record

Sometimes a homeowner makes improvements or upgrades to a property that should increase the value of the home. However, unless the local property tax authority has added that information to the public database and record, Zillow can’t use it. Zillow can only update its listings when this information is made available.

For example, if you add a permitted fifth bedroom to your home and the property tax assessor deems that the upgrade increases your home’s value, your home’s Zestimate should reflect that at some point.

However, if you put in a brand new designer kitchen that didn’t require any major permits, there’s nothing to add to the public record by the assessor. So Zillow will value your home and your neighbor’s home, with its original 1975 kitchen, similarly (even though your home may fetch a higher sale price).

Upgrades aren’t always as valuable as you think. Value can depend on local housing market conditions and the particular project. So, if your home’s Zestimate hasn’t changed since you added that bedroom, don’t assume you can tack on an extra $30,000 to the Zestimate.

Conversely, even if your Zestimate is $300,000 but you haven’t updated your home as much as similar homes in your neighborhood, it may sell for less or take longer to find an interested buyer.

Housing Turnover Rate

The more home sales that occur in your area, the more data Zillow has about how much buyers think those homes are worth. This makes Zestimates more accurate. So, if you live in a hot real estate market in the San Francisco Bay Area, your Zestimate might be more accurate than if you live in a rural town where people stay in their homes for decades and sales are rare.

In June 2021, Zillow announced a major advancement in the accuracy of its Zestimates due to an improvement in the model’s ability to react quickly to dynamic market conditions.

Special Considerations

Updates to Zillow’s Algorithm

Zillow updates the Zestimate algorithm as it comes up with more ways to improve its accuracy. When this happens, Zestimates can change significantly even though nothing may have changed about homes or the real estate market.

In January 2019, Zillow announced that it awarded a $1 million contract to a team of data scientists and engineers to help improve the accuracy of Zestimate. The team incorporated into the algorithm added factors affecting a home’s value, including additional public data, commute times, and road noise.

The company was the subject of a 2017 class-action lawsuit filed by Chicago homeowners who claimed it misled homebuyers with very low figures. The plaintiffs also stated that most users treated Zestimates like appraisals. According to a report by MarketWatch, Zillow, said the lawsuit had no merit, denying that its Zestimates were appraisals. Instead, it called them a reference point where users can start their search for home values.

What Does Zestimate Mean?

Zestimate is the model that the online real estate company Zillow uses to produce an estimate (also called Zestimate) for the value of a home. Zestimates aren’t exact valuations. They serve only to provide an idea of potential value for homeowners, buyers, and sellers.

How Accurate Is a Zestimate?

A Zestimate is only as accurate as the information Zillow has to base it on. Plus, it depends on what you’re comparing it to for accuracy. No home valuation is perfect. Zestimates are meant to be used only as a ballpark view of value, not as an appraisal.

Is Zestimate the Same as an Appraisal?

No, it isn’t. Zillow tries to be clear about that. Zestimate provides a general idea of a home’s value based on the information that the Zestimate model has to calculate it. Typically, appraisers will have more accurate data to work with than Zestimate has at any point in time.

The Bottom Line

Zillow isn’t trying to hide the imperfections of its Zestimates from consumers. Perfectly accurate estimates from it or even competing sites aren’t possible. Homeowners should use Zestimates as a broad guideline and contrast them with other sources. 

A Zestimate should not be considered an appraisal. In fact, a comparable market analysis from a local real estate agent and a professional appraisal of the home are the best ways to learn its value.

Yet even these tools are imperfect. Sometimes there are no recent sales of similar homes. What’s more, appraisers—who are only human—may be subjective in their assessments.

In the end, there is no perfect assessment of a home’s value. There are simply general benchmarks—such as Zestimate—that we can use when buying, selling, applying for a loan, and when we just need a sense of a home’s value.

Articles You May Like

Best Day Trading Platforms 2022
The 7 Best Agriculture Stocks to Buy Now
Federal Reserve Regulation D Definition
QQQ ETF Risks and Rewards
Muscle Through a Recession With Growth Stocks