Zestimate is Zillow’s proprietary home price estimator. To determine a property’s Zestimate value, Zillow looks at public records, comparable sales, current housing market data, and MLS listing inventory, among other things. Their proprietary algorithm takes this information and comes up with what Zillow considers an accurate estimate of a home’s most likely selling price.
The idea behind Zestimate is simple. It’s there to help home sellers determine a value for their home as well as to help buyers understand whether or not the home they’re considering buying is actually a good deal.
Many home buyers tend to put their faith in a Zestimate. However, the accuracy of Zestimates is not great. In one notable example, Zillow co-founder Spencer Rascoff sold his home for 40% less than the Zestimate value.
A Zestimate price estimate can be very accurate under the right circumstances, such as if it's on a home that recently sold. The simple fact is that Zestimate estimates are only as accurate as the data that they're derived from. This means that a lot of the accuracy of Zillow’s algorithm will depend on the amount of data available and making sure that the home is being compared to similar homes. If there isn’t much data to go on, then you are probably going to have an outlier that is highly inaccurate. If the conditions of the home’s sale aren’t standard, they tend to be way off.
Generally speaking, Zestimate numbers on newer homes that have recently sold will be more accurate than those on older homes that haven't sold in decades.
A professional real estate appraisal is far more accurate than a Zillow Zestimate. You should keep in mind that Zestimate is just an estimate based on available data, and will often miss vital information on a home's condition and renovations. A Zestimate cannot function as an appraisal and you cannot use it to get a loan and should not take the value too seriously. If you really want to understand a home's value you should get an appraisal done.
Nope! Zestimates are not guaranteed to be accurate or to provide a good idea of what the price of a home truly will be. They’re simply meant to be a baseline idea of what most other places in the area sell for. Even Zillow admits that they cannot provide perfectly accurate Zestimates.
While we were trying to find the full scoop of the accuracy measurements, we were able to get some interesting statistics behind Zestimate:
- Between 70 to 80 percent of all homes in the top 25 major metropolitan areas of the country were sold within 5 percent of the Zestimate price. This means that Zestimate remains fairly reliable.
- Over 99 percent of all homes in the top metropolitan areas of the country were sold within 20 percent of the Zestimate price. So if you want to get a very loose idea of how much you should pay, then you can feel okay with relying on it.
- Not all homes will have a Zestimate estimate. That means that you may not always get the full scoop on your home. This can be a pretty big downer if you’re the type of person to take a look at Zestimates around the area before you make a bid.
- Homes that are listed for longer than one year tend to see their Zestimate change. This is because the algorithm switches from “on market” to “off market” at the end of a year.
Zestimates are never stationary. In fact, the truth is that there are a lot of reasons as to why your Zestimate would end up being different from one day to the other. Here are some of the most common reasons why a Zestimate may change…
1. New Data From Various Sources
New data can get added at any time, and when it does, it will improve the accuracy of your home’s Zestimate. If the system receives information about tax records, sudden home sales nearby, or an increase in rent in apartments nearby, the algorithm will change its answers accordingly.
2. New Entry From The Owner
More often than not, homeowners end up choosing to add information to their house’s profile. This is done to help encourage buyers, give them an accurate baseline value, and more.
3. A House Going On/Off Market
One of the more interesting things that can occur with Zestimate is the change that happens when a house is bought or sold. This will change the score and also force an update to happen via the algorithm.
4. An Algorithm Change
Like most other statistical features, there are always going to be a better way to get more accurate information. Zillow is not a company that slacks when it comes to a major feature like Zestimate. This means that they are always looking to improve their algorithm.
Zestimate’s algorithm can change at any moment, and it often does. Depending on how the algorithm is altered, your home may or may not show a change in Zestimate pricing. Sometimes, the change is negligible with the update. Other times, it’s noticeable.
Let’s say that you decided to add some data to the profile of your home. You might be curious about when the data will be reflected in the Zestimate price. Zestimate checks the data in its algorithm multiple times per week, which means that most price points will change within one to two weeks.
If Zestimate has enough data available to a home, they will also include past Zestimate values as the home’s price increased year over year. This can help buyers get a loose idea of whether or not their home will appreciate quickly—though it is still a rough estimate.
Zillow does this as a way to help homeowners look at the trends of the neighborhood’s property values. If you are a real estate investor, this can be useful. With that said, it’s still best to look at overall neighborhood trends that are backed by official data and approved by your realtor.
Both Zillow and Redfin claim to offer accurate home value estimates, but a Redfin estimate tends to be more accurate. The median error rate for a Zillow Zestimate is 7.5 percent higher than the property’s actual value at the time of sale while Redfin’s residential home value estimator is only off by 1.5 percent from the actual sales price.
For the most part, Zillow’s Zestimate seems to be more of a marketing tool to whet the appetites of buyers rather than a tool for real estate professionals. However, this doesn’t mean that you won’t have your own options on using it as a tool for your real estate agent. Here are the most common uses:
- Some agents use a lower-than-asking Zestimate as a way to bargain and negotiate. This can be a good way to open up a door for negotiation or similar.
- Other agents might use it as a measuring stick of how much commission they may get from a deal. Agents still have to keep an eye on the bottom line they have when they are working towards on a financial level. Zestimates can help them plan out their moves.
- Using Zestimate as additional data can also help people who might want to get as much information as possible. We all hear about buyers who want to know every little detail about a house before they buy it.
- Some agents also use the Zestimate as a “low bar” for the price point they advise people to ask for their homes. Because Zestimates are trusted, many agents use them as a way to guide people on what they should accept as the minimum.
While a Zestimate is great for advertising when a home is on the market and a potentially good deal, you shouldn't rely on Zillow to find out how much your house is worth. A Zestimate is not meant to be something that acts as an appraisal nor are they meant to be the final decision maker on the value of a home. If you’re considering purchasing a house, it’s always best to get a professional appraisal of the home.