FAQ IV: Why is the Zestimate So Much Different Than The Asking Price?

By
Real Estate Broker/Owner with Elevations Real Estate, LLC www.BuyFortCollinsHomes.com

FAQ IV:  Why is the Zillow Zestimate So Much Different Than The Asking Price?Alchemist

As alchemists struggled to find ways of turning lead into gold, real estate professionals and the industries that support them have tried to find an automated way to determine property value.  The biggest challenge to that end is that in many markets, no two homes are exactly the same.  There are so many variables to consider that even the most sophisticated of algorithms, pulling information from the most comprehensive databases can only approximate the market value of any given property.  The question remains, how close can these auto-generated values get?

More and more consumers are relying on sites like Zillow and Trulia for their personal research on real estate and properties in their area.  Zillow in particular was one of the first listing syndicators to provide automated opinions of value called “Zestimates”.  Originally, these Zestimates were based solely on tax assessment values provided in the public record.  Since most tax assessments are notoriously inaccurate with regard to actual market value, Zillow’s original Zestimates were off the mark both high and low by a large margin (15% or more of the eventual actual sales price).

Data MiningBut here’s the thing about how networks and data mining work.  Over time, Zillow has amassed a tremendous amount of sales data as well as continued access to the public record.  Like a baby whose initial arm and leg movements are simply random wavings and kickings which progressively become more refined movements allowing the child to perform coordinated actions like rolling over, then crawling, then the familiar staggering of early toddler-hood.  It appears Zillow has reached its own toddler-hood but it is still far from the Algorithmaccuracy that a licensed real estate broker (human being) can provide.

Have you seen this?  At the very bottom of the Zillow web-site is a clickable link called “About Zestimates”.  When you click on that link you’ll be taken to what amounts to a methodology and accuracy explanation of the Zillow Zestimate process.  If you click on the “States and Counties” section you can review Zillow’s Zestimate performance as compared to actual sales data for the same properties.  In Larimer County, for example, only 43% of the Zestimates came within 5% of the actual sales price. That means 57% of the homes Zestimated had a greater than 5% margin of error.  Consider this:  The average price of a home in Fort Collins is in the $230,000 price range.  If that’s the range you’re looking in, even with a 5% swing, the Zestimate you receive could be between $218,500 and $241,500.  That’s a total swing of $23,000.  That’s a huge margin when you’re trying to figure how much house you can actually buy (or sell, for that matter).

Broker Price OpinionThis is where using a professional, licensed real estate broker is critical.  These individuals have access to all the current data as well as pools of experience to get you a much narrower margin of error on the value of any given home.  Determining value is numbers based, yes.  However, there is an artistry to viewing the data with an experienced eye that takes into account information not available to the algorithms like paint colors, interior finishes, nearby schools, etc. 

The next time you’re cruising around Zillow, drop to the very bottom of the page and take a look at the accuracy table for your area.  Then call your local real estate broker and ask them for their own accuracy table of recommended list price to actual sales price data.  I’ll bet it’s better than Zillow’s by quite a bit!!

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Rainmaker
443,608
Kathy Stoltman
Rockwood Realty - Ventura, CA
Ventura County Real Estate Consultant 805-746-1793

Hi Chris,  I work with an investor who always looks at the Zillow price and I always have to tell her that it is a guide, but not an exact value.  Round and round we go on this subject, but I think she is beginning to understand as she now has 7 rentals in her name.

May 31, 2012 09:41 AM #1
Ambassador
1,882,924
Chris Ann Cleland
Long & Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Northern VA

They are either wildly high or low in my area.  Very rarely on target.  Good explanation.

May 31, 2012 09:54 AM #2
Ambassador
1,120,224
Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Chris - That's an excellent explanation of how Zillow and others work, as well as why they're not ready to replace the local expertise of a competent local real estate agent. Thanks for pointing out how to get to, and use, the margin of error information - we've found that doing that with Zillow-fixated clients really helps them understand the limitations of these types of valuations.

 

May 31, 2012 10:09 AM #3
Rainer
96,276
Chris Hardy
Elevations Real Estate, LLC www.BuyFortCollinsHomes.com - Fort Collins, CO
Northern Colorado Real Estate

Kathy -What an awesome testament to your consultation that your investor has done so well!!!

Chris Ann - Thanks again for stopping by and reading the post.  Yeah, it varies quite a bit here, too.

Dick - Thanks again for your ever-astute observations (and agreeing with me).  It is nice to have a tool on their own site that validates what we do as humans.. : )

May 31, 2012 11:05 AM #4
Rainmaker
541,536
Diane Daley
Caron's Gateway Real Estate - Northumberland, NH

Very drastically in this area as well, really have to compare and fine tune them, Thanks for sharing.

May 31, 2012 03:00 PM #5
Rainmaker
679,905
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggresive & 560 FICO - OK, Colorado Mtgs

Cant this be summed up as - You get what you pay for? from memory, I am pretty sure Zillow is free and its data is priced accordingly

May 31, 2012 09:30 PM #6
Rainmaker
694,753
Lanre Folayan
Keller Williams Capital Properties-Buy a home in Washington DC. Sell a home in Washington DC - Washington, DC
Buy a home in Washington DC. Sell your DC Home Now

Chris I just sent this to someone who responded to a blog that I wrote with you can use Zillow to find the estimate of your house. They dont know that Zestimates are not accurate.

August 13, 2012 05:40 PM #7
Rainer
96,276
Chris Hardy
Elevations Real Estate, LLC www.BuyFortCollinsHomes.com - Fort Collins, CO
Northern Colorado Real Estate

Lanre- I'm glad you found this useful and hope it helps you and your sellers come to a resonable conclusion on where to price their home!

August 14, 2012 06:43 AM #8
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Rainer
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Chris Hardy

Northern Colorado Real Estate
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