Are Zillow Zestimates Any Good?
The answer is... well sorta
Zillow’s Zestimate has become all but synonymous with a quick and easy way to price out a piece of real estate, or at least a single family house. At the same time, it’s been routinely bashed by many investors as a wholly unreliable metric. After all, Zillow lost $881 million in a foolish effort to use it’s valuation tool to become the market maker of real estate.
So isn’t it obviously worthless?
The answer, like with many things, is somewhere in between.
How Accurate Are Zestimates
Zillow itself released a study claiming its valuations came within 1.9 percent of the sale price for listed sales and 7.7 percent for non-listed sales.
That sounds quite good but there are some problems, though.
For one, back in 2019 I checked what the difference in the list price of a property was with the sales price in Jackson County, Missouri (where I work). And it turned out to be *drum roll*…
That should be a clue about what is going on here.
We don’t sell much, but we did sell one house back in 2019 and I check Zillow beforehand. The Zestimate was $83,000. I disagreed and listed it at $94,900. The Zestimate jumped to $96,500 overnight. (It sold for $90,000.)
In other words, the Zestimate seems to leech off of the more traditional valuation work of real estate agents by closely mirroring their list prices.
I did another small test by comparing the appraisals we had on 12 properties that we were refinancing (something Zillow wouldn’t know about) and the Zestimates. While appraisals are by no means perfect, the comparison is at least somewhat illustrative. The average difference was 11.37 percent.
There are just too many factors for an algorithm to fully account for, especially given many can’t be properly accounted for at all (condition, quality of materials used, structural issues, livability of finished basements, etc.). The best you can do is get a ballpark figure and that’s what the Zestimate really is; something that’s generally within five to 15 percent of the actual value.
When to Use the Zestimate
The Zestimate should never be relied on, but it can be a useful tool if you used correctly. The proper way to do so is to use is to use it to help sift out whether a potential deal is even worth considering and spending any time on.
You will miss some this way. For example, we bought a package of newer built homes in an older area. The few newer comps all sold over $200,000 but the Zestimates were in the $130,000s. Had I accepted that at face value, I would have missed a great deal.
But if you have a lot of deals coming at you, you need to be able to sort out ones that likely won’t work. For areas you don’t know very well, Zillow can help do that. Just remember, it’s much better with cookie cutter homes and not odd or rural properties.
And, of course, you should never, ever, rely on a Zestimate by itself.