Zestimates
What is a zestimative?
A Zillow® estimate, or Zestimate®, is a key feature offered by Zillow, a popular online real estate marketplace. It is also the name of its home valuation model that allows consumers to earn Zestimates.
Zestimate includes information from the multiple listing service (MLS), user-submitted details, market trends and specific home facts into its proprietary formula that produces its estimates.
However, there are several reasons why these numbers may not be as accurate as you would like. Read on to find out more.
Key points to remember
- Zestimates allows users to get a basic idea of home values.
- The numbers are based on Zillow’s proprietary Zestimate formula, which incorporates information from sources like comparable sales and public data.
- Ze estimates are as current as the data underlying them, which means they may be out of date or incorrect.
- Ze estimates may not reflect improvements, errors in property taxes paid, or exceptions to tax assessments.
- Since Zestimate also takes turnover rate into account, estimates for homes kept for long periods of time may not be accurate.
Understanding zestimates
Founded in 2006 by former Microsoft executives Rich Barton and Lloyd Frink, Seattle-based Zillow lists information on millions of homes for sale and rent across the United States and Canada.
Zestimate was launched in 2011 with information on approximately 90 million households. Since then, it has expanded its reach and now provides data on over 100 million households.
To determine Zestimates for those looking for home value information, Zestimate studies a multitude of data points for individual homes.
Zillow is unique algorithm updates its collection of property values several times a week, based on information from a combination of public data, industry data, and user-submitted data.
How is a Zestimate calculated?
According to Zillow, to calculate a Zestimate, it “uses a sophisticated neural network-based model that integrates data from county records and tax assessors and direct feeds from hundreds of multiple listing services and tax houses. brokerage”.
Zestimate also specifically reviews:
- The size of the house, its location, the number of bathrooms and other details.
- Active listing information such as listing price, description, comparable homes in area, days on market
- Off-market data such as tax assessments and past sales
- Market trends and seasonal demand figures
Consumers should not view Zestimates as reviews. However, if you want to get an idea of your home’s value, Zestimates can offer users a starting point.
Accuracy of zestimates
According to the Zillow website, Zestimate’s national median error rate for active listings is 3.2%. For off-market homes, it’s now 6.9%. Ze estimates are only as accurate as the data underlying them. So if a home’s number of bedrooms or bathrooms, square footage, or lot size is inaccurate on Zillow, a Zestimate will be inaccurate.
Users can correct these errors. However, Zillow warns that updating a property’s details will not result in an immediate change to that home’s Zestimate. In fact, depending on the type of update, it may result in no change. That’s because a fourth bathroom, for example, doesn’t always impact home values.
In addition to accepting user-submitted data, Zillow addresses inaccuracy issues by reporting estimated value ranges for individual properties. The smaller the range, the more reliable the Zestimate is because it means that Zillow has more data available on that property. Looking at the top and bottom of the range will give you an idea of a home’s value.
Factors Affecting Zestimate Estimation Accuracy
Errors in key figures
Zestimate takes the date and price of the last sale into account in the estimates. In some areas, this information makes up a large part of a Zestimate. If this information is inaccurate, it may distort the Zestimate. Since comparable sales also affect a home’s Zestimate, an error in listing a home’s sale price can affect the Zestimates of other homes in the area.
A Zestimate also takes reality into account property taxes paid, tax exceptions ratings, and other public property tax data. The tax assessor’s property values may, however, be inaccurate. The tax assessor’s database may also contain an error related to the basic information of a property, which results in the assessed value be too high or too low.
Owners who find discrepancies can report incorrect sales data or tax records to Zillow online.
Improvements that are not in the public folder
Sometimes a homeowner makes improvements or upgrades to a property that should increase the value of the home. However, unless the local tax authority has added this information to the public database and record, Zillow cannot use it. Zillow can only update its listings when this information is available.
For example, if you add a permitted fifth bedroom to your home and the property tax assessor believes the upgrade increases the value of your home, your home’s Zestimate should reflect this at some point.
However, if you are installing a brand new designer kitchen which did not require any major license, there is nothing to add to the public record by the evaluator. So Zillow will value your home and your neighbor’s home with its original 1975 kitchen equally (even if your home may fetch a higher sale price).
Upgrades aren’t always as valuable as you think. The value may depend on local housing market conditions and the particular project. So if your home’s Zestimate hasn’t changed since you added that bedroom, don’t assume you can add another $30,000 to the Zestimate.
Conversely, even if your Zestimate is $300,000 but you haven’t updated your home as much as similar homes in your neighborhood, it may sell for less or take longer to find an interested buyer.
Housing turnover rate
The more home sales there are in your area, the more data Zillow has about the value buyers think of those homes. This makes Zestimates more accurate. So if you live in a booming real estate market in the San Francisco Bay Area, your Zestimate might be more accurate than if you live in a rural town where people stay home for decades and sales are rare.
In June 2021, Zillow announced a major advancement in the accuracy of its Zestimates due to an improvement in the model’s ability to respond quickly to dynamic market conditions.
Special Considerations
Zillow Algorithm Updates
Zillow is updating the Zestimate algorithm as it comes up with other ways to improve its accuracy. When this happens, the zestimates can change significantly even though nothing has changed about the houses or the immovable market.
In January 2019, Zillow announced that it had awarded a million dollar contract to a team of data scientists and engineers to help improve the accuracy of Zestimate. The team incorporated additional factors affecting a home’s value into the algorithm, including additional public data, travel times and road noise.
The company was the subject of a class action lawsuit in 2017 brought by Chicago landlords who claimed it misled shoppers with rock bottom numbers. Complainants also said most users treat Zestimates as ratings. According to a MarketWatch report, Zillow said the lawsuit had no merit, denying that its Zestimates were appraisals. Instead, he called them a benchmark where users can start their search for home stocks.
What does zestimate mean?
Zestimate is the model that online real estate company Zillow uses to produce an estimate (also called Zestimate) of a home’s value. Estimates are not exact assessments. They only serve to give an idea of the potential value for owners, buyers and sellers.
How accurate is a Zestimate?
A Zestimate is only as accurate as the information Zillow must rely on. Also, it depends on what you are comparing it to for more accuracy. No home appraisal is perfect. Estimates are intended to be used only as an approximate view of value, not as an appraisal.
Is Zestimate the same as a review?
No, this is not the case. Zillow tries to be clear about this. Zestimate gives a general idea of a home’s value based on the information the Zestimate model has to calculate it. Generally, reviewers will at all times have more accurate data to work with than Zestimate.
The essential
Zillow does not try to hide the imperfections of its Zestimates from consumers. Perfectly accurate estimates from this or even competing sites are not possible. Owners should use Zestimates as a general guideline and compare them to other sources.
A Zestimate should not be considered an evaluation. In fact, a comparable market analysis of a local business Real estate agent and a professional home appraisal are the best ways to learn its value.
Yet even these tools are imperfect. Sometimes there are no recent sales of similar homes. What else, appraisers– who are only humans – can be subjective in their assessments.
Ultimately, there is no perfect assessment of a the value of the house. There are just general benchmarks, such as Zestimate, that we can use when buying, selling, applying for a loan, and when we just need an idea of a home’s value.