What is Zillow Zestimate
The Zillow Zestimate, and other Automated Valuation Models (AVM’s) like it attempt to provide a useful estimate of a home’s current value. This is done without an appraiser visiting the home and without a real estate agent’s expertise. The entire system is automated.
On face value, having a way to quickly assess the value of a home is appealing. However, the Zestimate and other automated estimates are often highly inaccurate and unreliable. These inconsistent results can do more harm than good. Let’s explore the imperfect world of Zestimates and Automated Valuation Models and how they can impact you as a home buyer or seller.
Zillow CEO Zestimate
In February of 2016, a home at 3808 E Madison in Seattle, Washington sold for $1,050,000. The day after it sold the home’s Zestimate was reported to be $1,750,000. This particular home also happened to be owned by the CEO of Zillow at the time: Spencer Raskoff. It was an embarrassing, high-profile example of just how inaccurate a Zestimate could be.
If you had asked random people living in the same area the estimated value of Mr. Raskoff’s former house, their guesses would have likely been far more accurate than the Zestimate. But, that was 2016, and we have made a lot of technical advances since then. The Zestimate and other tools like it should be far more accurate now, right?
How is Zillow Zestimate Calculated
First, let’s look at what Zillow actually says about how the Zestimate is calculated:
“To calculate a Zestimate, Zillow uses a sophisticated neural network-based model that incorporates data from county and tax assessor records and direct feeds from hundreds of multiple listing services and brokerages. The Zestimate also incorporates:
-Zillow FAQ, Aug 2nd, 2022
Home characteristics including square footage, location or the number of bathrooms.
On-market data such as listing price, description, comparable homes in the area and days on the market
Off-market data — tax assessments, prior sales and other publicly available records
Market trends, including seasonal changes in demand.”
The bold “such as listing price” was my markup. It is my contention that the listing price is more than just one of many signals that Zillow’s algorithm considers.
Just Listed and The Magically Updating Zestimate
In recent years, I have repeatedly noticed that the Zestimates for properties I list have seen dramatic swings between the off-market Zestimate, (before I list the home), and the Active Zestimate (after the property is listed). This struck me as a little odd. Why would Zillow need the list price if all the other factors its algorithm looks at are so informative and accurate?
Despite all Zillow’s talk about its sophisticated algorithms, it seems more like the Zestimate relies heavily on what a home is listed for. This had me wondering, If the algorithm is so advanced, why is there often such a huge jump in the Zestimate that just happens to magically align with the list price?
These sizable jumps in the Zestimate happened to me frequently enough, I decided to screenshot Zestimates on a recent listing. Here is the Zestimate a few days after listing, followed by another screenshot after it had been on the market for about a month:
Did the market in this neighborhood suddenly see home values go up over 30% in less than a month? Most definitely not. Prices in the area and in the county during this brief period held relatively steady.
According to the Zillow FAQ, “When a home goes on the market, new data can be incorporated into the Zestimate algorithm.” I would say this is an understatement. The statement also appears deliberately vague. I believe the only new data that Zillow really cares about when the home goes on the market is what the list price is.
Zillow goes on to say, “In the simplest terms, the Zestimate for on-market homes includes listing data that provides valuable signals about the home’s eventual sale price. This data isn’t available for off-market homes.” And, according to Zillow’s own statement of what it incorporates, “data such as listing price” is used.
Beyond simply being a “valuable signal” in their “neural network-based model”, list price appears frequently as the primary basis for the new Zestimate. List price is often very close to what most homes sell for, so using it rather than the earlier off-market Zestimate makes for far less embarrassing Zestimates. If the Zestimate adjusts to list price quickly after a home is listed, then it has a much better chance of being accurate.
If the “state of the art statistical and machine learning models that can examine hundreds of data points for each individual home” simply spits out a number that appears to rely almost entirely on the list price, exactly how valuable or useful is such a tool? Maybe consumers are better off simply looking at the list price rather than the Zestimate?
A Case Study of the Fluctuating Zestimate
The video below will walk you through a more detailed look at the Zestimate for the home referenced above. Please don’t think of this as a unique case though. You too can look at prior sales and you can likely find many similar examples. On most listings, you can click the “Home Value” tab to review historical Zestimates.
Please note the 2021 listing referenced in the video was a listing with a different agent and brokerage. The 2022 listing is when I became the listing agent for this property.
Zillow Zestimate Accuracy
How accurate is a Zillow Zestimate? Based on the single example above, you may be starting to have doubts. However, according to Zillow, “The latest Zestimate model is our most accurate Zestimate yet. It’s based on a neural network model and uses even more historical data to produce off-market home valuations.” Although it may be “the most accurate Zestimate yet”, that doesn’t make it accurate, or reliable. Let’s take a look at some of Zillow’s own numbers:
With 1.4 million homes having Zestimates, 28,000 of them had estimates off by more than 20%. If we’re talking about a $1,000,000 home, that means the Zestimate on those was either more than $200,000 above or below the sales price.
According to Zillow, almost two thirds of Zestimates (67.2%) were within 5% of sales price. These numbers may not appear too bad, until you take a closer look at both their off-market metrics and how Zillow is calculating their accuracy:
With their off market Zestimates being many times less accurate than Active listings, one has to wonder why. Could it be that off market Zestimates don’t have the benefit of relying on a list price? A list price that is typically arrived at by a seller after consulting with an agent familiar with market values and the seller’s home.
What is particularly concerning is the methodology noted in a little footnote below the stats, “Note: The Zestimate’s accuracy is computed by comparing the final sale price to the Zestimate that was published on or just prior to the sale date.”
As we saw in the example given of my recent listing above, if Zillow is using the Zestimate from “just prior to the sale date”, that’s typically the version of the Zestimate has magically aligned close to list price. By Zillow’s own admission, they are evaluating their accuracy by comparing the final sale price to the amount published on or just prior to the sale date.
Let’s take a hypothetical example. An unlisted (off market) home displays a Zestimate of $500,000. The home then goes on the market for $800,000. Shortly after the home lists, Zillow’s “highly sophisticated algorithm” updates to within a couple of thousand dollars of the list price, to $802,000. A month later the home sells for $802,000. According to Zillow, that hypothetical Zesitmate would count as a 100% accurate. Even though it was off by $302,000 before the home was listed!
If a bulls-eye in archery is the same as a very accurate Zestimate, Zillow might proclaim they are a skilled archer. However, a Zestimate rapidly adjusted to list price is equivalent to the archer taking the arrow from the bow, walking up to the target, and jabbing the arrow into the bulls-eye by hand. The skill of the archer isn’t really relevant at that point.
How Location and Neighborhood Impacts Zestimates
I have seen San Diego Zillow Zestimates that are very close to market value and many that are outlandishly off. Part of that depends on how homogenous the homes are in a given area. In some parts of San Diego Zillow has an easier time because the homes in a particular neighborhood are often the same age, size, and sometimes even the same model / floorplan.
For example, a home in Carmel Valley is much easier to predict market value on, vs. a completely unique highly custom home in Rancho Santa Fe. Carmel Valley has many sub-neighborhoods developed by the same builder at the same time, making the homes (and values) much more uniform. If the same floorplan sold four doors down two weeks ago, that can be a pretty good indicator of values in the immediate neighborhood. A neighborhood with similar homes is easier for automated valuation models to be accurate in.
Rancho Santa Fe on the other hand, has vastly varying homes, many with highly unique and custom attributes that can swing value wildly. One 5,000 square foot home might be a total fixer, and another 5,000 square foot home a block away might be designed by a famous architect and recently remodeled with the finest finishes. It is very tough for an algorithm to discern those differences.
Past Performance is Not Necessarily Past Performace
Perhaps even more concerning in terms of evaluating the accuracy of past Zestimates is this note from the Zillow Zestimate FAQ, “Do you ever change historical Zestimates?” One might reasonably think that Zestimates from the past are not altered. Revising past Zestimates could create an incentive for Zillow to make algorithm changes that make prior Zestimates seem more accurate. Here is Zillow’s response:
We occasionally recalculate historical Zestimate values along with major data upgrades or improvements to the algorithm. These recalculations are based on a variety of considerations and, therefore, not every new algorithm release will get a corresponding update of historical values.
-Zillow FAQ, August 2nd, 2022
However, we never allow future information to influence a historical Zestimate (for example, a sale in 2019 could not influence a 2018 Zestimate). Historical Zestimates only use information known prior to the date of that Zestimate.
Upon reviewing the Zestimate history for the former Zillow CEO’s home sale, I was surprised to see that the $1,750,000 off-market Zestimate that was reported at that time was no longer there. Instead, the highest Zestimate shown before and immediately after the sale was $1.3M. Yet articles reporting on this at the time had screenshots of the $1,750,000 Zestimate. This type of changing “history” is misleading at best and downright deceptive at worst.
I get that the algorithm is updated periodically, but shouldn’t historic data stay the same? Isn’t that the point of history, to accurately document what was? Those algorithm updates should apply to Zestimates moving forward, not by making changes to historic information. How useful is history when the history changes based on things happening in the present/future?
How Often Does Zillow Update Zestimates
According to Zillow, “Zestimates for all homes update multiple times per week, but on rare occasions this schedule is interrupted by algorithmic changes or new analytical features.”
It’s not uncommon for a homeowner to complain, “My Zillow Zestimate dropped overnight.” This leaves them to wonder what exactly influenced that change. Like most algorithms, Zillow’s is opaque and you can be left guessing what influenced a recent change in your Zestimate. The biggest jumps I have seen are when a home is recently listed or went off the market. But what if the information the algorithm is using has its facts wrong?
Updating Your Home Facts on Zillow
According to Zillow, there are ways to update your home’s Zestimate. “The Zestimate’s accuracy depends on the amount of data we have for the home. Public records can be outdated or lag behind what homeowners and real estate agents know about a property, so it’s best to update your home facts and fix any incorrect or incomplete information — this will help make your Zestimate as accurate as possible. . . Remember: updating home information doesn’t guarantee an increase in the value of Zestimate, but will increase the Zestimate’s accuracy.”
Zillow does provide a way to update your home facts, as seen in the image below. Simply click on the word “Zestimate” from any specific property page on Zillow.com and you will see this pop up:
Once you’re on the “Edit your home Facts” screen, you will need to enter your address and either create a Zillow account or log in to your Zillow account. Aside from correcting basic facts, Zillow also suggests making sure your city and county have the correct information for your home.
For example, if you completed a permitted addition to your home and the county is still reflecting your home’s prior square footage or room count, that could adversely impact your Zestimate. These types of clerical errors are common, and straightening them out can help with both your Zestimate, and what you might advertise and disclose when selling your home.
How to Dispute Zillow Zestimate or Delete It
There are hundreds of thousands of inaccurate Zestimates and many potential buyers that view them as reliable. It’s not surprising some sellers would like their Zestimates corrected or deleted entirely. Zillow addresses this in their FAQ, “We do not delete Zestimates. However, for some homes we may not have enough data to provide a home valuation that meets our standards for accuracy. In these instances, we do not publish the Zestimate until more data can be obtained.”
If you are a seller that feels your sale is being negatively impacted, blocking or deleting the Zestimate isn’t something Zillow allows. However, there can be a workaround to this in some markets. When entering your listing, some local Multiple Listing Services (MLS) allow your agent to toggle a preference for Automated Valuation Models.
In our local San Diego MLS, this is labeled “AVM” with a yes or no option. If you ask your agent to select no, it can prevent some real estate portals from calculating or displaying an automated estimate. I have not had a client ask me to disallow AVM’s, so I can’t speak to how useful or effective this option is.
If you have a Zestimate or another automated valuation you don’t feel is working in your favor, you may want to discuss this potential option with your agent. Keep in mind though, the Zestimate you see before you list may not be the same as the Zestimate you see a couple weeks after you list. Listing your home at a price higher than the off market Zestimate may be one of the most effective ways to increase your Zestimate. With that said, increasing your Zestimate probably should not be part of your listing price strategy.
Zillow Zestimate vs Redfin Estimate
The Zillow Zestimate is a vital asset for Zillow. Finding out a home’s Zestimate draws in a lot of traffic and perceived relevance. It is not surprising Zillow competitors such as Redfin have come out with their own automated estimates.
Surprisingly, instead of calling their automated valuation tool the “Restimate”, they went with the more mundane “Redfin Estimate.” According to Redfin, “The Redfin Estimate is based on what we currently know about this home and nearby market. The Redfin Estimate is not a formal appraisal or substitute for the in-person expertise of a real estate agent or professional appraiser.” This sounds very familiar. The Redfin Estimate page looks like it could have been written by the same lawyers that drafted the Zillow Zestimate page.
They go on to state, “The Redfin Estimate is highly accurate, with a median error rate of 2.58% for on-market homes.” Not surprisingly, they are touting their accuracy for on-market homes, which come with the very helpful signal of list price. Despite their “highly accurate” assertion, I have also seen the Redfin Estimate wildly off the mark on some properties.
Zillow Zestimate vs Appraisal
Both Zillow and Redfin state that their estimates are NOT appraisals. The problem is, I believe many consumers think of them as similar. The fact that both sites have a “not an appraisal” disclaimer speaks to the fact that some consumers might confuse the two. Unfortunately, you have to click through to the pages about the Zestimate and Redfin Estimate to read this, which most consumers will likely never do.
Zillow Zestimate vs Comparative Market Analysis
Appraisers and most real estate agents rely on a comparative market analysis (or CMA) when estimating market value of a home. Appraisers can use other methodologies, but a comparative approach is very common. It’s a popular way to estimate value in part because it yields generally accurate results. The results are accurate enough to make a properly conducted appraisal the gold standard for assessing market value.
If you hire a real estate agent to list your home, chances are they will conduct a CMA and then give an opinion on the estimated market value. Agents can only give their opinions (hopefully based on local knowledge and market analysis). Only licensed appraisers can conduct appraisals.
According to Zillow, “Our estimating method differs from that of a comparative market analysis completed by a real estate agent. We use data from a geographical area that is much larger than your neighborhood — up to the size of a county — to help calculate the Zestimate. Though there may not be any recent sales in your neighborhood, even a few sales in the area allow us to extrapolate trends in the local housing market.”
Perhaps this description of using data from outside your neighborhood with minimal data explains some of the inaccuracies found in the Zestimate. They seem to be making the case that bigger is better when looking at areas, and “even a few sales in the area” can allow them to extrapolate. Given the importance of the precise area a home is located in (location, location, location), going big doesn’t sound like an advantage.
When conducting a comparative market analysis, the specific neighborhood or even sub-neighborhood is typically very important in finding valid comparable sales. A 2,000 square foot home in City Heights, San Diego will have a very different value than a 2,000 square foot home in La Jolla. Both are in San Diego County, but the homes simply are not comparable due to location, and possibly other factors.
In short, if you have the option of having an experienced local agent coming through your home and conducting a CMA vs relying on an Automated Valuation Model, I would recommend the former.
Why the Zestimate Can Harm Both Buyers and Sellers
According to Zillow, “Millions of consumers visit Zillow every month.” and “A home’s Zillow listing is often the first impression for prospective buyers, and accurate information helps attract interest.” The fact that a Zillow page is often the first search result for a home is part of the problem. Zillow’s exceptionally high visibility also leads consumers to believe they have some authority with respect to estimating property values.
Once a consumer or even an agent sees that Zestimate, it can have a major influence on the perceived value of a home. That value could be accurate, low or high – but no one looking at the number will truly know until the home sells. That may not seem like a big deal, but most people reasonably expect estimates to be accurate to the point of being useful.
If a buyer sees a Zestimate that is lower than the list price, they may pass on a purchase that might have otherwise been ideal. The seller in that same scenario would lose a buyer.
A seller looking to list their home might dramatically under or overprice their home based on an inaccurate off-market Zestimate. Either of those scenarios could cost a seller tens or hundreds of thousands of dollars.
If off-market estimates are grossly inaccurate, maybe they should not be shown at all. And if on-market estimates are rapidly adjusted to align with a list price, maybe list price is a more useful number for consumers to focus on?
Is There a Place for Automated Valuation Models (AVM’s) in Real Estate?
I believe automated valuation tools can be very useful, particularly when viewed with the appropriate skepticism they deserve. I routinely consult them when looking for a very quick, very rough estimate on a home’s value. I also consult them so I know what buyers might be seeing when l list a client’s home. I even have an automated home valuation tool on my website. It too can be wildly inaccurate, and I encourage people not to rely on it.
The problem comes when public perception, and the companies’ marketing of the tool, imply a reliable, accurate tool. This is exacerbated by Zillow’s dominance in individual property address search results. The first thing a consumer often sees when searching for a particular home for sale is the Zillow page and corresponding Zestimate.
For Zillow, its Zestimate AVM is extremely valuable. Consumers seeking out estimated valuations may be seller leads. Zillow has built much of its business off not only acquiring those leads, but then selling their information to agents willing to pay for them.
The huge discrepancies between off market and on market estimates leads me to question exactly how sophisticated these algorithms are. Especially when they seem to rely almost so heavily on the list price, which can have its own challenges as a signal for market value.
When it comes to Zillow Zestimate, Redfin Estimate, or even the “what is my home worth” tool on my own website, I recommend treating them with a great deal of skepticism. If you are to a point where you are considering listing a home (or buying one), please consider talking with one or more experienced real estate agents in your area. A comparative market analysis from a competent, experienced agent that knows your local market and has personally toured your home is more likely to be accurate than any Automated Valuation Model I have seen.
If you are planning to buy or sell a home in San Diego, please reach out to me and I would love to discuss your plans. If you have immediate plans to buy or sell a home anywhere in the world outside San Diego, I am also happy to help. I routinely refer clients to other excellent Sotheby’s International Realty agents through our network of over 1000 offices in 80+ countries.
