There is such a thing as a free lunch. Thanks to Zillow’s star of stage and screen, Spencer Rascoff (I can’t turn on CNBC without seeing he’s grinning likeness these days), I and a room full of die-hard real estate professionals in search of the truth were treated to a session on Zillow’s offerings. Mostly, I was there for a refresher on the mystical Zestimate. The yummy veggie sandwich was a bonus.
If you are a home buyer, you know the Zestimate as the indisputable, final word in a property’s value – unless, of course, it seems high. Then you just disregard it as so much drivel. Ditto home sellers who peer from the opposite end of the looking glass. To sellers, when it’s a big, attractive number, the Zesimate is revered on par with a tablet delivered from Mt. Sinai, while lower numbers are discounted quicker than a spiral ham on the day after Easter.
As for agents, well, Zestimates are a bane to be tolerated. Steve likens them to the proverbial broken clock – right a couple of times a day. But we continue to get whopped upside our little broker noggins with these magic numbers at open houses, at showings and at listing appointments. So, for all of you who are currently reloading the Zestimate bazooka for the next time you run into me in the produce aisle, here is what Zestimates are (and aren’t), according to the nice man who fed me yesterday.
From the Zillow web site (and you have to look hard to find it):
A Zestimate home valuation is Zillow’s estimated market value. It is not an appraisal. Use it as a starting point to determine a home’s value.
Well, no. I don’t use it as a starting point to determine value, nor would I recommend that the consumer do. But, Zillow also provides a “value range” that is more useful.
The Value Range is the high and low estimated market value for which Zillow values a home. The more information, the smaller the range, and the more accurate the Zestimate.
Here are the talking points for what makes a Zestimate and the factors affecting their accuracy:
- Zestimates are developed using a complex, magic algorithm and a lot of big, scary computers.
- Factors considered in the algorithm include past sales in the area, past sales of the particular property, tax records, and probably a bunch of other stuff I forgot to write down.
- Zestimates are not the midpoint of the “value range.” (Don’t ask me why.)
- Homes in areas with a lot of comparable, recent sales will enjoy a more accurate valuation, as will homes with more recent prior sales.
- Homes which are unique, which haven’t turned over in a long time, or for which the tax records are incomplete (no square footage, wrong data) will have the most flawed Zestimates.
- When a home is listed for sale, the property information is updated to reflect the information provided in the listing. So, if the tax assessor shows that your home has two bedrooms and your listing reflects twelve, the information is updated.
- When a sale records, the Zestimate is adjusted to reflect the sale price (duh).
- This one is pretty cool. When a sale records, the algorithm notes the difference between the prior Zestimate and the actual sale price. This “delta” is then used to adjust the property’s Zestimate in the future. In other words (and I am sure Spencer will correct me if I got this wrong), if my home had a Zestimate of $500,000 yet I sold it for $550,000, then the delta is 10%. When that ornery little algorithm determines my Zestimate to be $600,000 next November, it will adjust it and deliver a valuation of $660,000 to reflect that my home was indeed special.
As time goes on, Zestimates will become more accurate. They have to, because there will be more actual sales data from which to draw. But the valuation tool will always be a best guess, if even a very smart one. Until Zillow’s computers are able to join me for a walk-through and see the living room where the tenants have been changing the oil in their Harleys or the master bathroom where the fixtures were imported from the Versaille Palace, the Zestimate only be like that broken clock.
How accurate are they? Here is Zillow’s own chart.
In San Diego, the median error is 13.1%, which means that the Zestimate can be expected to fall within an approximate 26% range of value. Only 40% of the homes sold in San Diego sold within a 10% striking distance of their Zestimate, and 63% within 20%. Obviously, if the my own broker price opinions had this degree of accuracy, I would be summarily drummed out of the corp and living in a refrigerator carton in Placerville.
That being said, consumers are going to continue to arm their value arguments with their own Zestimates when it is convenient. Just be aware of the limitations. Unless Zillow is willing to buy your home, the Zestimate is not a reflection of your home’s true market value. It’s just a “wag” which will get a little better over time.
Just for fun, I pulled up one of our listings in Scripps Ranch. This home is currently offered at $579,000.(Subliminal message: You should buy it.)
The Zestimate shows a value of $645,000 which, had it been right, would have resulted in 18 hungry buyers throwing body blocks as I refilled the brochure holder last weekend. As it is, this home is still available. At least they gave me a $129,000 “value range” within which to maneuver, even if the range is in slightly smaller print.