When people buy or sell a home, one of the big questions they want to ask real estate agents is ‘How accurate are Zillow home value estimates’?

Nowadays there are more and more tools that consumers can use when they are buying or selling a home. The internet allows people to find a range of resources online which are related to the real estate process such as how to locate a property, how to view a home, how to do a listing, and advice on buying and selling your house generally. There are even pricing calculators available online to help consumers.

Zillow is known for being a popular real estate website and they offer a huge number of tools to help with the buying and selling process. Some of these can prove helpful but there are also occasions when they may not give you the right information that you need.

If you would like to know your true home value estimate please click: How Much is my Home Worth

If you are thinking about selling your home, please see:  My Home Marketing Selling System

Buyers, please see: Guide to Buying a Home

What is the problem with Zillow Home Value Estimates?

Online sites such as Zillow are great as they can empower buyers and sellers and include them in the real estate market. In the days of old, comparable sales prices and the value of real estate was only really understood by estate agents, but now buyers and sellers can learn about the process themselves and access information about properties in their area, including their own home.

Nowadays many customers do not feel that they need to go to a real estate agent for everything. They get their home value estimates online on a site like Zillow which also goes by the nickname ‘Zestimates’. But…the problem is that they are not accurate. Often, in fact, they may be completely off and this leaves the seller or buyer in a difficult position. It would have been better if they had not even looked at them in the first place!

Zillow may indeed try to give you an accurate estimate of the value of your home but at the end of the day, it is an online system and not a person so it can’t make accurate decisions on its own. It cannot look at all the variations that are important to the value of a home and these nuances could change the price dramatically. Instead, Zillow can only give you an ‘average’ quote on the value of your home.

Of course, it is absolutely possible that Zillow could be better at calculating home values, but at the moment it is not programmed in a way that lets it do this and so it makes it very difficult to trust the data. The bottom line when you are buying or selling a home is that you can’t afford to make a mistake and get the value of your home wrong by tens of thousands of dollars or bid thousands of dollars over the value price.

In my experience as a realtor who has been in the business a number of years, whenever I look at a Zillow home value in my area, I can see that it is usually off by $20,000 to $50,000 of the market value. This is a lot of money to lose because the valuation is wrong.

How does Zillow Estimate Home Value?

To calculate a home value, Zillow uses what is known as a proprietary formula. This is based on information that the website finds in public records and information which is entered by users.

The website looks at the price that the home was sold for when it was last purchased and it also looks at the information of homes in the area. It then uses this and the information entered by the homeowners regarding features of the home, and then calculates the price it thinks that the home is worth.

As you can see from this, Zillow uses a formula that includes the assessed value of a property. The problem with this is that it does not take into account the market value which usually does not correlate with the assessed home value. In reality, however, these two values are completely different and the assessed values are used by towns and cities to collect taxes. In many cases, these are lower, or at times to high, than the actual market value of a property so this, of course, skews the data that Zillow is using immediately.

From my experience in the real estate business, I have known homes that have sold for more than $100,000 over the assessed value and I have also seen them sell for less. A good real estate agent should never look at the assessed value of a home when they are trying to work out the market value. If we could it would make our jobs very easy, but it doesn’t actually work that way!

 

Why do Zillow estimates fail?

When you look at it on the surface, it may look like the method that Zillow follows is a good one that will be able to give you a close estimate of the price of your home. Sometimes it might even be right. But more often than not, the Zillow estimates are significantly out of line with the real market value, sometimes by as much as 40%.

It’s true that the recent selling price of a property is important and this is also easy for Zillow to get hold of. What a home sold for in the past is important information for both buyers and sellers, but it does not accurately show you what a home is worth now. The reason for this is that the market is changing constantly, so a sales price that goes back years or even decades is not an accurate way to judge the present day value of a property.

It is also helpful to look at the sales prices of homes in the area if you are buying or selling a property. This is called comparable sales and this is a crucial factor when a Real Estate Agent puts a price on a home. The problem with comparable sales is that they need to be looked at as they are and not as indisputable numbers. Basically, you need to compare like with like rather than apples with oranges which only apply to very specific situations.

It may be that your home is very similar to that of others in your area. This is particularly true if you live in a new housing development which has homes that are moderately priced and many people have not yet had the time to do any renovations to change the properties. In this situation, you can use comparable sales as the homes are going to be very similar. If however, you live in an area where the age, size, and style of homes are very different then it is like comparing apples to oranges.

When a realtor is looking at the real estate market value of a home, they do it in a completely different way to Zillow. A local Real Estate Agent or a realtor will know what comparable sales actually mean and how to calculate them correctly.

A good realtor is someone who has experience comparing homes that are very different but which are in the same neighborhood so that they can get an accurate price for a property. Zillow, however, does not have the ability to compare properties that are very different which is why the values it puts on homes can often be completely wrong.

Comparable sales are only one way to measure the value of a home and Zillow struggles to use this information in the right way. What it does do well, however, is tell Zillow users that its estimate might not be accurate and it displays this on one of its web pages. That said, however, many people don’t even see this and it might be a good thing if more Real Estate Agents actually shared this page with consumers so that they understand how Zillow works.

Another reason why the estimates may be wrong is that Zillow uses a different method than that used for comparative market analysis which is called CMA and is done by a qualified Real Estate Agent. When it comes to the geographical data, Zillow uses a broad set of parameters which encompass more than just your neighborhood or town. In fact, Zillow might even use the data of a whole country to calculate the value of a home.

This means that if there are no recent property sales in your neighborhood, Zillow may use a small number of sales in the wider area to then calculate changes in the local housing market. This data, however, does not let them look at patterns of neighborhood sales at all.

With that in mind, it shouldn’t be at all surprising that home value estimates performed by Zillow can be so inaccurate. Just consider the fact that they may use the data of a whole country and you can see that there is no way that they are calculating home prices properly at all.

In my experience, the values in one country differ so much that using this data and trying to calculate the value of a single home is almost impossible.

Why do so Many Real Estate Agents Hate Zillow?

Many Real Estate Agents really do not like or even hate, Zillow. Why? Well, it causes problems with credibility. Sometimes people don’t trust Real Estate Agents for a number of reasons and sometimes people think that a Real Estate Agent is something similar to a salesman who is just trying to get you to part with your money. One of the big issues is that when a home seller meets with an agent, they have often already done a Zillow estimate of the value of their home.

What happens then? Well, then they meet with the realtor who gives them their comparative market analysis which is based on years of experience and solid data. The agent will have looked at homes in the area that have been sold, have gone under contract and that are still for sale. They will then explain all this data to the seller and will then tell them their suggested list price and the probable final sale price.

The problems then come when the seller is quoted a price that is far less,  than the price that Zillow told them their home is worth. This then causes a very difficult situation for the realtor as they need to explain their process and also make their client understand that they are not trying to just give them a low price to sell their house quickly.

Sellers often don’t believe that Zillow can be that wrong, as it is a popular and well-known website that is widely advertised on television.

What many sellers fail to realize however is that Zillow estimates the value of homes all across the country which means that they are issuing values for over 100 million homes and there is no way that they can accurately predict the value of every home in the United States. They do not calculate what you may have done to improve your home and they do not know that you might make changes such as spend $50,000 upgrading your kitchen and bathrooms before you sell your home. There is no way for Zillow to calculate any of this, and it is also easy to see that just because you do invest $50,000 on an upgrade to your home, this does not mean that you will be adding $50,000 to the sales price or the value of your home.

This means that there are some things that you need to think about…

  1. Zillow can’t calculate if the town data is wrong and there is a mistake as you have three bedrooms instead of four, or a similar error.
  2. Zillow can’t calculate if you have a $30,000 crack in the foundation of your home that needs to be repaired.
  3. Zillow can’t calculate if your roof is about to collapse and needs to be completely replaced.
  4. Zillow can’t calculate and issue such as major easement in a backyard which means that its use is limited.
  5. Zillow can’t calculate if you have just added air conditioning, a sprinkler system, extra security systems and $10,000 in landscaping to your home.

So now can you see why Zillow estimates can get it so wrong?

Can Zillow still be useful?

As you can see from the above article, it is easy to dislike Zillow, although this is not the full picture. There are actually many things to like about Zillow except their estimates of value. All the other information that Zillow gathers however can be very useful when you want to either buy or sell a home.

When you want to buy a home, then you can go to Zillow and you will have a great platform where you can look at a whole bunch of properties. The information that Zillow has on their website is the best in the business in this area.

Some of the features that they offer are also great such as the integrated Bing maps which are attached with every listing. These are really helpful when you are trying to see what kinds of facilities are available around a particular property.

Zillow also provides you with all the information that you need when you are buying a home, like the exact square footage, the bedroom and bathroom count, the age of the property, the lot size, and the taxes. This is one of the reasons why they are the best in the business and they also have data related to the past ownership of the home and exactly how much was paid at the time. This information is difficult to find elsewhere but Zillow makes sure that you can see all of this quickly and easily.

If you are a seller then Zillow is also really useful as it lets you showcase your property which means that you have a higher chance of a potential buyer seeing it and then calling to make an appointment to view the home with their Real Estate Agent.

Another thing that Zillow does well is have a fantastic app which you can use with a smart phone. When you go out and look for a home, you can then use the app to look at all the information about the property in front of you. This is especially important if you go out to see a property without an agent as you may not be able to ask for the information you need right away.

This is the main reason why Zillow is the best real estate website in the business and why it is so popular. Even though real estate agents have issues with the home valuation part of the Zillow website, all the other information that it provides is excellent and extremely helpful for both buyers and sellers.

Conclusions about Zillow:

There have been a number of studies that have shown that Zillow accurately estimate the value of your home to within about 80-90%. From this we can see that some of the estimates it provides can be a good starting point. That said, if you want to price a home to sell or you want to know the true value of a home that you want to buy immediately then these numbers will not be accurate enough for you to do so.

If you want an accurate home valuation then you need to find a Good Real Estate Agent who has experience in the area.

Zillow will let you look at the way that prices are fluctuating in your area and this is good information as this can show you where you might want to buy a home and when. It is also good to look at different prices in your area and see how they are going up or down when you are making such a big purchase.

Zillow is a good tool to use but it is not accurate enough when it comes to home values for it to be used on its own. When you look at the estimates on Zillow then you should keep in mind that these are just a starting point. Always remember this when you get an estimate on Zillow.

If you are selling your home yourself and you are not planning to get an appraiser or a Real Estate Agent to help you to work out the correct market value of your home, then you may want to think again. As this article has hopefully shown you, the Zillow estimate on the value of a home is just good enough to use on its own when you are buying or selling a property.

It is also important to remember that the main reason that homes do not sell is because the asking price is too high and is not realistic. With that in mind, if you price your home incorrectly immediately then you will usually end up selling it at a lower price than you would have done if you have priced it properly in the first place.

Pricing a home is something that takes a lot of experience. It is not something that you should trust to a computer which will just generate a value without the correct data being used. This is true of Zillow and of any other online valuation tool you might come across.

If you want to make sure that you get an accurate estimate of your home value, then make sure that you always consult with a good local Real Estate Agent or a professional appraiser.

If you would like to know your true home value estimate please click: How Much is my Home Worth

If you are thinking about selling your home, please see:  My Home Marketing Selling System

Buyers, please see: Guide to Buying a Home

Wendy Mundy Realtor