March 5, 2015
Why Zestimates Are Wrong
Norah O’Donnell recently interviewed the CEO of Zillow on CBS This Morning. Touching on one of the most prominent misconceptions in the real estate industry, she asked him about the websites accuracy when it comes to estimating property values.
What’s a “Zestimate” Anyway?
For those who are looking for information pertinent to the real estate industry, Zillow is ranked the highest with over 70 million visitors in the month of December. In addition to active listings currently on the market and home values, the site can also provide information on dwellings not up for sale. By entering the general location or address into their search database, users can pull up information such as lot size, square footage, number of bedrooms, baths, lot size, taxes and photos. Visitors can also obtain a Zestimate.
After visiting the site, buyers and sellers typically quote the Zestimate to their real estate agent as a part of their own assessment when it comes to the market value of a home. For example, if a dwelling has a Zestimate of $450,000, a buyer might question the listed price of $525,000. A seller may also demand to know why a listing should sell for $395,000 when Zillow has it in their database at $485,000.
Discrepancies such as these are an ongoing occurrence. If you’re selling your house or you’re a real estate agent who is trying to negotiate a fair sale, this can prove problematic, especially when consumers take these figures from Zillow at their word. If the buyer or seller fails to budge, it can even be a deal killer.
O’Donnell’s question posed to the CEO on The Morning Show centered round their accuracy. While Spencer Rascoff, the CEO of Zillow felt that they are a great starting point, the median error rate is closer to 8 percent.
High Discrepancy in Price
On a $500,000 dwelling, that discrepancy could come out to be as much as $40,000. That much of a disparity could create a host of problems in the end when selling your house. Something that O’Donnell failed to ask the CEO of Zillow about was a question about the localized median errors and how they exceed the national median. This could present conflicts for both the buyer and seller when it comes to price. While it’s not featured in a prominent spot on the website, the bottom of Zillow’s home page is emblazoned in small print with the word “Zestimates.” This section offers helpful information in addition to the error rates on valuation per county and state. Some of the figures are staggering.
Some Realtors have implemented their own Zillow accuracy plan by taking data from within their own market place. Out of the 21 homes sold in one month, an agent from Charlottesville, Virginia found that 17 sales had been overestimated by Zillow. This included two dwellings that ended up selling approximately 60 percent under the actual Zestimate.
So what should a consumer do with the information obtained in reference to Zillow’s accuracy rating? They should probably start by taking CEO Rascoff’s advice. The Zestimates should be used as nothing more than a starting point. Experienced agents and appraisers have the valuable tools available to accurately assess, negotiate and finalize home values. Zestimates were never to be deemed as gospel.