Why Zillow Estimates are Wrong

Blog Post Image
Real Estate

You want to know how much your home is worth, so what do you do? If you are like many buyers and sellers around the country, you go to Zillow to get a valuation of your home. But how does Zillow actually work?  Is it accurate? Can you rely on it? Should you rely on it? 

 Sites like Zillow utilize an automated valuation model (AVM) to determine the worth of a property. Automated valuation models rely on basic property characteristics like the number of bedrooms and baths,  square footage, publicly available data, price trends and local market information to arrive at an estimated value for a property.  The name AVM says it all - it is an automated model.  It does not allow for variables that will give you an accurate valuation. 

 Zillow works on the averaging principle. Using a complex proprietary math equation Zillow analyzes numbers from past sales (comps) to estimate your home's worth.  Simply stated, Zillow values your home without ever seeing it.  Obviously a valuation without seeing your home is going to be only an estimate.  Even Zillow CEO Spencer Rascoff said that the Zillow estimates are only a starting point with an 8% median rate of error.

Why isn’t Zillow Accurate? There are several reasons for this.

 Zillow does not have a way of evaluating property condition and capital improvements. Zillow doesn’t know if I still have the pink shag carpet from my childhood or the new Brazilian cherry hardwood floors I put in last year in my basement. It doesn't know anything about my home except square footage and the number of bedrooms. Even if my home is surrounded by homes that have a similar square footage, do I really think my Zestimate is going to be accurate if it can’t take into account property condition?  

Zillow doesn't have a way of evaluating the location of a particular home within the community.  You know that a home under a high voltage transmission line is going to have a different value than one in the same community on a quiet cul de sac out of sight of that power line.  A home near the playground of the local elementary school will likely have a different value than one backing to a high school parking lot.  

Zillow doesn’t distinguish between colonials and ramblers, condos and single families.  A valuation model limited to bedrooms and square footage won’t distinguish between architectural styles but everyone will agree that there is a difference in consumer preference between colonials and ramblers or condos and single families that will affect value.

Zillow doesn’t distinguish between types of sales. A property sold between family members may well have a different price than the same home sold on the open market.  Similarly a property sold as a short sale or after a foreclosure will be valued differently by consumers – but not by Zillow.  But you know very well that your neighbor’s short sale did not bring the same price that you should receive for your home. 

As a local Realtor with 20+ years of experience, I understand those differences.  If you are interested in finding out the real value of your home, please call me at 480-528-4340 for a complementary, no obligation analysis that considers all the relevant variables or email me at bill@billbissetsellsit.com! Don't guess! Find out!