We have seen a lot of press surrounding Zillow Group, Inc., as it has emerged after the Zillow-Trulia merger. One of the most talked about subjects involves the “Zestimate” and the debates about its accuracy. So let’s explore a little deeper. Here is a screenshot from Zillow.com that explains what a Zestimate is:
As Zillow states on their website, “The Zestimate home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user submitted data; your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account. ”
So how does Zillow come up with the Zestimate, and what’s in the formula? Here is an explanation from Zillow:
So, how accurate is a Zestimate?:
As explained from Zillow, the Zestimate has a national median error rate of 8.3%, which means half of the Zestimates in an area are closer than the error percentage and half are farther off. “For example, in Seattle, Zestimates for half of the homes are within 6.6% of the selling price, and half are off by more than 6.6%. The median error rate in San Diego, CA is 6.1%. These aren’t small numbers when you have a median price of a home in San Diego being $506,000. That correlates to a difference of at least $31,000+. What is the median error rate in your metro area? Check out the Data Coverage & Zestimate Accuracy Table.
Despite agents, brokers, industry critics, and consumers complaining and debating about the accuracy of the data, I find Zestimates to be an incredible tool for all parties. Zillow, Redfin, Trulia, Realtor.com and many other internet portals are catering to the demand of consumer-friendly real estate information. The key is being able to use the portals as a means to an end. To quote Dale Carnegie, “Knowledge isn’t power until it is applied.” For example, you will generally find the Zillow Zestimates to be fairly accurate in recently built tract-home developments since many of the attributes of the home are very similar, which makes the values easier to calculate with less variables.
However, this can get more complicated when you have older homes mixed with newer homes and dated homes mixed with newly renovated homes along with neighborhoods where some may have ocean views while others back up to hills.
Real estate professionals have the ability to engage with their client to explain why the Zestimate value may need adjustments. The Zestimate model is constantly being improved, which is exemplified in the referenced article about the Data Science at Zillow; but I believe there will always be the real professional component needed to help consumers digest the information. At the very least, it puts the real estate professional in a position to reinforce the value of their services to their client. For example, I had a recent Buyer client reach out to me about the following Zestimate on a condo in San Diego, CA:
As you can see, the Zestimate for this condo is $419,614. Sometimes it is easy to explain the adjustments or factors involved that create such a difference in value. In this case, the condo roughly had a value between $200,000 – $250,000, and I had no explanation for the $169,000+ difference besides a possible glitch or error in the algorithms that Zillow uses. I also educated him on the Data Coverage & Zestimate Accuracy Table. This applied knowledge helped solidify my client’s trust and confidence in me as his agent and the value real estate professionals bring to the home buying process.
According to the National Association of Realtors report, “Highlights from the 2014 Profile of Home Buyers and Sellers”, ninety-two percent of buyers use the internet in some way in their home search process and 50 percent of buyers use a mobile website or application in their home search.
In order to help you provide the best customer service experience for your clients, you must be familiar with how these portals work considering this is the information readily available to them on the internet.
So how can real estate pros work with the Zestimate? See the screen shot from their website:
I must give credit to Zillow for explaining how real estate professionals can use the information from their website. “Understanding how the Zestimate is calculated, along with its strengths and weaknesses, can provide the real estate pro with an opportunity to demonstrate their expertise.”
“Education is the key. As a real estate professional one thing you are always doing is educating your clients on all things real estate. The Zestimate is no different. Armed with an understanding of how the Zestimate is calculated and the Zestimate Data Accuracy table, you can explain – and show Zillow’s own accuracy numbers and talk about why the Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing a home.”