How accurate are Zillow’s home-value estimates?
My client was considering selling her Capitola condo. She spoke with several seasoned realtors who knew the neighborhood well. They agreed it would fetch about $950,000. Just for fun, I checked Zillow. Their estimate: $2.4 million!
Obviously, Zillow was WAY OFF. But by nearly $1.5 million? It got me thinking….How much stock should we put into sites like Zillow and Trulia?
Not much, according to the real estate agents I surveyed. “Those sites are great for people coming from outside the area who want to get an idea of the general price points,” according to Mark Miano of Keller Williams Realty in Los Gatos. “But they don’t factor in the all-important improvements – the difference between a completely remodeled house and a dump.”
So how do these sites come up with these estimates? Zillow, whose algorithms are proprietary, explains: The “Zestimate” home value is Zillow’s estimated market value for an individual home…automatically computed daily based on millions of public and user-submitted data points. It is a STARTING POINT (my emphasis) in determining a home’s value and not an official appraisal”.
Zillow states that Zestimates have a median error rate of 7.9%, which means that half the estimates in an area are closer to the error percentage and half are farther off (My client’s condo must skew those percentages!). The site further cautions that accuracy depends on location and data availability in an area. Some counties have detailed information on homes and others do not. The more data, the better the estimate.
For taxing purposes, Counties keep track of real estate transfers within their borders, and the data is available to the public. So if you know the square footage, number of beds and bathrooms, and the size of the lot, and compare it to recent sales of similar properties, you can make an educated guess.
“ZIllow is an algorithm, a machine,” said Michael Hall of Pacific Union Real Estate in Palo Alto. “It’s fine if you want a GENERAL idea. But if you’re serious about understanding your home’s value, you need real-time human market knowledge. I may change my opinion of value based on something I read this morning in the Wall Street Journal!”
Jagi Shahani of Alain Pinel Realtors in Saratoga agreed. “We don’t put much stock in those estimates,” he stated. “They don’t have access to MLS (Multiple Listing Service) data. They go by County data, which includes all types of sales – sales that don’t necessarily reflect market value, like trustee sales, foreclosures, and transfers between related parties.”
“We had a listing in Sunnyvale last year that sold for $685,000,” Shahani continued. “A month later, Zillow estimated the value at $435,000! It’s so random that you don’t know what to do with the information. If it was consistently slightly above or slightly below, you could apply a correction factor, but it’s not.”
“If the home is a cookie cutter, and there are a lot of recent sales in the neighborhood, it can work pretty well,” said David Montagna of Coldwell Banker in Los Gatos. “If the home is unique and there are no recent sales, it’s very difficult”.
And houses are much more than the raw data reflects, according to Montagna. “We realtors make it a point to get to know the house and the neighborhoods,” he explained. “We go inside so that we know the floor plan, the amenities, the upgrades. A well-remodeled house will sell for much more than one that hasn’t been updated in 50 years, or one where the upgrades were done badly. And we know the neighborhood. Is the home close to a school? Is it on a busy street? Do people feel safe? Is there a view? What’s the curb appeal?”
And all realtors I interviewed agreed that there are intangibles which are impossible to quantify. “What’s the mood of the market?” asked Miano. “Are multiple offers the norm? Are people worried that interest rates will be rising? Are Google and Apple hiring? What’s the stock market doing? And what about the Chinese economy? All of these factors, plus many more, will impact our local real estate market”.
It’s fun to see what Zillow or Trulia think you’re property is worth, but only if we take it with a grain of salt. To their credit, Zillow advises that homeowners supplement their estimates by getting a CMA (Comparative Market Analysis) from their favorite Realtor, or an appraisal from a professional appraiser.
And never forget that you’ll never know the TRUE value of your home until someone buys it from you.