How accurate is Zillow? It is one of the most
popular resources for determining a home’s value. Yet, you don’t need to look very
far to find negative opinions of its estimates. With so much conflicting information about
Zillow, is it possible to determine its accuracy? The answer is “yes.” In the next few minutes
we’ll explain the meaning behind the Zillow numbers. You’ll see that Zillow home values
differ from comparative market analyses and appraisals. You’ll learn that Zillow provides
valuable information that can be a significant aid when you are buying or selling a house,
but there are limits. Let’s start with “what is Zillow?” Foremost,
Zillow is an online real estate database. Access to this database is free. As with many
other free sites, its revenue stream comes from various forms of advertising. It also
offers a marketplace for mortgage loans. Our focus in this video is its house valuation
feature called “Zestimate.” The existence of Zillow is a logical result
of the Internet. It starts with the vast amount of public information available about houses
throughout the United States. Information such as property tax records, home sales,
and other public records are key ingredients that can give you a detailed picture of real
estate properties. However, the data can be overwhelming and difficult to gather.
Before the Internet and Zillow, you could get summaries of this data from multiple listing
services–commonly called MLS–by contacting a real estate agent. An MLS database gathers
all the pieces of public information and puts them into a form that makes it much easier
to compare different real estate properties. Much of Zillow’s database consists of this
same information. With the advent of Zillow, anyone can view this public information in
a convenient form. What specifically do we mean by a home’s
value? An exact definition of property value can get complicated, and it’s easy to find
many special cases. But essentially, the value is the highest price someone will pay for
the house on the open market. A good way to estimate a home’s value is
to look at its recent sales history. This tactic has the benefit of taking into account
the value of features specific to the house. However, most homes go more than ten years
between sales. So the next best thing is to look at comparable, nearby houses that have
recently sold. There are typically four different types of
property evaluations that are present during the process of selling a home. The property
tax assessment; the Zillow Zestimate; a comparative market analysis; and a home loan appraisal.
Each of these evaluations is used for different purposes, and therefore is calculated in different
ways. All four evaluations consider the physical
attributes of the property, including the size of the lot, the area of the living space,
the material of construction, the age of the house, etc. Assuming there are no errors in
recording, these are considered facts of the property and therefore do not require any
interpretation by a professional. It is at this point that the evaluation methods
differ. The property tax assessment, the comparative market analysis, and home loan appraisal all
employ professionals who use subjective judgments, while following specific guidelines, to arrive
a final property evaluation. A skilled professional, with years of experience can develop very
accurate property value estimates. Zillow takes a significantly different approach.
The property value is determined only by the physical facts, sale events, and Zillow’s
computation formula. The process is completely objective, with no human bias. Being entirely
objective sounds good, but it has drawbacks. For example, there is no direct consideration
of the condition of the carpeting, beautiful landscaping, or high-end kitchen appliances.
Let’s compare a Zillow estimate to a comparative market analysis. A comparative market analysis
will typically identify a few comparative properties (also known as “comps”) that
recently sold in the neighborhood and extrapolate a house value. Then the value is adjusted
for particular conditions that are unique to that property. Zillow, on the other hand, works differently.
It doesn’t use just a few comparative properties to extrapolate the value. Instead, by using
extensive statistical analysis, it compares the sales of many homes across the entire
area to get a bigger picture. But unlike a comparative market analysis done by a professional,
there are no special adjustments for subjective factors that are unique to the property. It
relies 100% on the computational engine and will not make special adjustments to a Zestimate
for any particular property. Perhaps the most common misinterpretation
of Zillow information is looking only at the single Zestimate number. Zillow’s advantage
is its ability to access and analyze a large amount of data. However, the amount of data
it possesses varies significantly by region. Before you look at any Zestimates, you must
determine the accuracy for your county or city.
To find this information, click on the Zestimate hyperlink on the bottom of the Zillow homepage.
From there, follow the Hyperlink to the “states, counties” data. Your area is rated by one
to four stars. If your area has only one star, the Zestimate should probably not be used
at all. If you are fortunate enough to have an area with 4 stars, the data available to
Zillow is extensive, and the results will be the most accurate.
But the number of stars doesn’t help us quantify the accuracy. Zillow provides several
different numbers that help gauge the accuracy. But some can be misleading, like the range
shown for individual houses. There are a couple numbers that can give us
a better idea of Zillow’s accuracy for a particular area. For example, let’s take
a look at Portland Oregon–a city with 4 stars. Note that less than half of the Zestimates–44%–are
within plus or minus 5% of the actual selling price. That means for a $300,000 house more
than half of the estimates are off by more than $15,000. We do see that nearly 75% of
the estimates end up within 10% of the selling price. But that means the variance is plus
or minus $30,000 for a 300,000 home. Relying solely on a Zestimate to determine
a selling price for your home is probably not a good idea. And Zillow states as much.
It is not a good substitute for an appraisal. Though it may be a good starting point, the
Zestimate appears to have minimal utility for a seller.
Buyers may find the information more valuable. As a buyer, you don’t have the luxury of
having an appraisal done for all the houses at which you are looking. Even if you personally
visit a house, it is easy to be deceived by the size of the house, the lot area, and how
it compares to other houses in the area. You need to do a quick calculation based on the
facts. Zillow is great for that. From there, you will need to factor in other things that
Zillow does not consider, such as the condition of the roof, how modern is the kitchen, and
how level is the yard. We have shown you that Zillow can be handy
tool when buying a home. Like any tool, you need to understand its strengths and weaknesses.
Now that you know more about it, we think that you will find Zillow to be a valuable
aid for a home buyer. If you liked video and want to continue to
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