What is the Zestimate?
The Zestimate is Zillow’s automated home valuation tool. When you go to zillow.com and look up your home, you will see that Zillow provides a Zestimate of your home’s value. It is important to note that the Zestimate is completely automated based on a computer algorithm, and there are no humans involved in determining the Zestimate for your home.
To calculate the Zestimate, Zillow uses public records data such as
- Home characteristics
- On-market data
- Off-market data
- Market trends
How accurate is the Zestimate?
Let’s take a look at what Zillow says about the accuracy of the Zestimate, from the Zillow FAQ.
I must point out here that Zillow is discussing their error rate in terms of the “median error rate”. Median means the number that is in the middle of the data set. It is not an average. So when they say that the median error rate for off-market homes is 6.9%, that means that half of the Zestimates for off-market homes will have an error rate less than 6.9% and half of them will have an error rate that is greater than 6.9%
Significant difference in Zestimate accuracy between on-market homes and off-market homes
Notice where Zillow points out the difference in accuracy between on-market and off-market homes? An on-market home is a home that has been listed for sale, and an off-market home is a home that is not currently for sale.
What do you think the crucial difference is between an on-market home vs. an off-market home?
The main difference is that with most on-market homes, a real estate broker has analyzed the home’s characteristics and compared it to recent sales of similar homes to arrive at an estimated market value. The real estate broker helped the seller choose an appropriate asking price for the property. When a property gets listed by a real estate broker onto the Multiple Listing Service (MLS), Zillow gets that data and updates the Zestimate for the property.
There is no substitute for human expertise and intuition
Another way to look at it is that the real estate broker has provided a human input that Zillow then uses to make the Zestimate more accurate. That human input, in the form of the expertise and intuition of the real estate broker, is what makes the error rate so much lower for on-market properties when compared to off-market properties.
If you follow the Zestimate of your home or the homes around you over time, you’ll notice how the Zestimate seems to magically change for a particular property when it gets listed for sale in the MLS. That’s because the real estate broker helped the seller select an appropriate asking price for current market conditions, the price was input into the MLS at the time of listing, Zillow received that price and other data through a data feed shortly thereafter, and then Zillow’s “neural network-based model” incorporated that asking price into the Zestimate.
You will also see that the change in Zestimate is often quite drastic after a property is listed. That tells us that not only is Zillow incorporating the asking price into the Zestimate, but the amount that the Zestimate changes also tells us that Zillow places great importance on the MLS asking price in comparison to its other data sources. Otherwise, the Zestimate wouldn’t change much after a property is listed.
In other words, the MLS asking price (which was arrived at through human expertise and intuition) appears to be more heavily weighted in Zillow’s model than the other non-human sources of data are.
Example: Seattle metropolitan area
As an example, we will take the data breakdown that Zillow provides for the Seattle metro area. Even though we are farther south here in Thurston County, the Seattle metro area is the closest area where Zillow provides a breakdown of the accuracy.
The above table illustrates Zillow’s data about the accuracy of the Zestimate. It shows the percentage of on-market and off-market properties that are within each margin of error category.
A real estate broker will provide a more accurate value estimate than a Zestimate will
They key takeaway from this information is that in order to get an accurate estimate of your home’s value, you need the expertise of a real estate broker. The Zestimate will get you into the “ballpark” of your home’s value, but it is not going to be accurate enough to determine an asking price for your home.
So if you want to know whether your home is worth $400,000 or closer to $500,000, the Zestimate can help you with that.
But when you are going to sell your home you need human expertise and intuition in order to determine an accurate asking price for the home. The best way is to get a market analysis from a real estate broker.
Get an accurate estimate of your home’s value
We offer a free consultation and analysis to help you determine whether selling your home is the right move for you. This is more than just a “free market analysis” that any real estate agent can provide. We take a consultative approach, and we see ourselves as trusted advisors, not salespeople. We will go deeper to help you identify and evaluate your options, and bring up things to consider that you might not have thought about already.
Our free consultation and analysis includes:
- Listen to your goals and needs (we listen more than we talk)
- Help you figure out whether selling now is right for you
- Prepare you by setting realistic expectations
- Make suggestions for property improvements, staging, and marketing
- Tell you how much your home is worth and how much cash you’ll get when you sell
Learn more here: https://mysoundhomes.com/how-much-is-my-house-worth/