Zillow is the largest real estate website in the world. As of the date of this article, Zillow has over 83 million visitors per month and controls 64% of the online real estate market share. The company’s 2015 revenue was $645 million! So suffice it to say, Zillow is a major player in the industry.
In fact, you’d be hard-pressed to find a buyer who doesn’t look for homes on Zillow, even if they also search other websites. And almost every seller I meet can tell me their Zestimate value.
What is a Zestimate?
According to Zillow, a “Zestimate” is:
Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user-submitted data, taking into account special features, location, and market conditions.
So what type of data does Zillow use?
The data is quantitative, including square footage, year built, number of bedrooms, number of bathrooms, lot size, etc. Zillow doesn’t have a way to know if the home has a superior view, new granite countertops, or a new roof. Regarding updates and remodeling, Zillow says:
Most upgrade information is not in the public records, and is not easily quantifiable. We do not know about home updates and remodels unless they have been reported to the local tax assessor, so those items are not used in Zestimate calculations. While we do utilize user-submitted data that is measurable, (e.g., additional bedroom count, bath count, and square footage) there is no way for us to systematically gather and verify the type of remodel or build information where the value is based upon how the final product appeals to the buyer. Because of this, the algorithm can’t use that information.
How Accurate is a Zestimate?
Very accurate. Or very inaccurate. Essentially, the Zestimate can vary widely. Zillow publishes accuracy data for each market, down to the county level (or metro area in some larger markets). So, let’s take a look at the Buncombe County “Data Coverage and Zestimate Accuracy Table” updated in August (the most recent available data on Zillow as of the date of this article).
Zillow grades its own data with 2 stars (out of a possible 4) for Buncombe County. And less than half (42%) of the Zestimates fell within 5% of the eventual selling price. Only 2/3 of the Zestimates were within 10%. And 1 out of every 6 Zestimates was more than 20% off. The median error was 6.3%, or an error of $15,750 for a $250,000 home.
As a Realtor who helps sellers price new listings all the time, I am amazed at how much weight sellers put on the Zestimate for their home. I believe it’s because usually the sellers aren’t aware of how Zestimates are calculated and what data is used. In the world of real estate agents, Zestimate is often a four-letter-word. One reason I wrote this article is to be able to share it with clients who often ask about their Zestimate (or ask about the Zestimate on a house they want to buy). It’s a conversation I have at least once a week with sellers and buyers.
Should I Use a Zestimate in Pricing my Home?
Zillow points out that a Zestimate is a starting point to price a home. It is not meant to take the place of an appraisal, a Comparative Market Analysis (CMA) performed by a Realtor, or an actual on-site viewing of a property by a buyer. In some markets, the Zestimate is more accurate, especially when there have been more recent sales. So check the Accuracy Table first, and be sure to ask for a CMA.