Are Zestimates Accurate? The Trust About Zestimate Accuracy
With the increasingly impressive boom of technology comes one very important thing: More access to information for all. Twenty years ago, it was very difficult for the average client to look for homes on their own, whether for fun or for serious buying purposes. Sites like Zillow and Realtor.com give the public previously inconceivable access to market data and listings.
But, more information is a double-edged sword. How accurate is that information? In the case of Zillow, this question is particularly important. Zillow is, by far, the most visited real estate website in the United States. Users rely on them for accurate market information and up to the minute updates on local listings.
Seemingly every day, a real estate agent talks to a prospective seller about a possible price for their home. Then, the inevitable statement of, “Well, the Zestimate says it is worth…” People gravitate towards Zestimates to give an accurate portrait of their beloved home’s potential price. Some even use those numbers in lieu of a licensed Realtor and attempt to sell the home on their own with an inaccurate price.
Since Zillow’s information is used so regularly to sell a property, it is crucial that they provide reliable data. Millions put their trust in Zillow for Zestimate accuracy. But, before sellers hurt their listings and their financial futures, it is important to ask the big question: Are Zestimates accurate?
The short answer is…
No. Zestimates are very regularly inaccurate. But, just how inaccurate are they? According to Real Estate Decoder, Zestimates typically miss by at least $14,000. They reached that conclusion based off of Zillow’s own estimate that their margin of error is typically 6.1%.
Apply that 6.1% margin of error to the median home price in the US in May 2016 of $229,737 and you get approximately $14,000.
Now, let’s apply that figure to the Colorado Springs market. In May 2017, the median sales price for an existing single-family home came back at $270,000. Applying that same 6.1% figure, this indicates that Zestimates in Colorado Springs are off by $16,470. That’s a huge chunk of change that’s lost due to an inaccurate Zestimate.
The consequences of pricing your listing incorrectly
Some sellers think, “Well, my Zestimate says the home is worth X, so I want X in my pocket.” Their thinking is that listing the home at any price is fine. Someone will buy it. Unfortunately, that’s just not the way it works. Let’s say you live in a red-hot real estate market like Colorado Springs, Denver, etc.
Houses routinely go on the market and sell within 1-5 days, after receiving multiple offers over list price. Your Realtor recommends selling your house for $275,000. He or she comes to this figure by analyzing multiple recent sales in the neighborhood and using mathematical models from appraisers that they know and trust.
The Realtor believes this price will create a bidding war with multiple offers, which will boost the price above the original list price. But, your Zestimate came up with a figure of $290,000.
Well, $290,000 sounds a lot better than $275,000! You tell the agent you want to list it at $290,000. You put the house on the market and….nothing. A couple of showings here and there, but no interest in making an offer. Before you know it, two weeks have gone by. Your house is now an outlier in a hot market.
Everyone knows that the house is overpriced, so they move on to more reasonably priced homes on the market. This causes prospective buyers to ask other questions, like “What is wrong with this house besides the price? Are there other reasons that people aren’t buying it?”
After a couple weeks on the market, the price will have to drop anyways, yet those questions will still linger, especially if houses fly off the market within a week. The decision to follow bad advice winds up costing you even more than the approximately $16,000 that the Zestimate quoted.
Zillow admits that their formula is inaccurate
The above image comes directly from Zillow. It indicates that their Zestimate should not be used as a serious suggestion of price, but rather as a starting point for discussion. Just like Wikipedia should not be used as an actual form of research, but as a starting guide that will lead you to more accurate and authoritative answers.
It’s important to note that Zillow is currently facing a lawsuit based on the placement and inaccuracy of Zestimates on their website. This is important to think about and should give everyone pause.
Inaccurate Zestimates cause problems across the entire real estate industry. A buyer sees a home listed for $200,000, but the Zestimate says the home is only worth $185,000. They assume the sellers are greedy and they want more than the home is worth, even though the sellers hired a qualified agent who did the homework and settled on an ideal price for the home.
On the flip side, sellers severely overprice their homes and alienate scores of serious buyers, making their home the least desired on the block.
Pictured: A poor real estate agent in the middle. Thanks, Zestimate!
So, we’ve answered the question “Are Zestimates accurate” with a resounding “No.” The solution is the same as other problems: hire competent professionals. Hiring a qualified real estate agent is the key to pricing your home correctly. They have the experience and the expertise to correctly price a home the first time.
If you’re more of the DIY type and you don’t want to use an agent, you should hire a qualified appraiser to take a detailed look at your home. Zestimates and Zillow do not take into account unique upgrades to homes which add thousands of dollars in value to your home. This is a key factor in a lack of Zestimate accuracy.
Of course, it costs money to hire these experts, but pricing your home incorrectly based off of an inaccurate website will cost you far more than agent fees or the cost of a good appraiser.
It is exciting to look at your home online and see that you’re sitting on a potential gold mine. Before you sell, take the necessary steps to make sure that you make the most money possible. When dealing with hundreds of thousands of dollars, it is important to be prudent and ensure that your home gets the attention from the public it deserves, and the big offers that come with being a coveted property in a hot market!
If you wouldn’t write your Master’s thesis using just Wikipedia, then don’t use Zestimates to sell the most important asset you own. Are Zestimates accurate? Hardly. But, utilized properly, they are a helpful tool and foundation for the beginning of the home selling process.