Many of our clients have asked us to explain how Zillow arrives at the price of homes using the word ‘ZESITMATE’. I came across this article and felt it explained it very well. The article is written by Elizabeth Weintraub, top Realtor in the Western United States and real estate author.       

“Prospective home buyers often want to get pricing information for various properties without having to always rely on a real estate agent. This is where real estate sites like Zillow.com come in very handy. However, can you really rely on the site’s value estimates? Many have wondered whether Zillow provides accurate data with its Zestimate home price estimates.

Zillow is a business website, established to get eyeballs on a bunch of homes for sale and, in turn, to sell advertising to real estate professionals. It isn’t a real estate company with a group of agents.

Zillow bases many of its value conclusions on opinions formed by using algorithms that process data collected from various sources. No matter how great the algorithm is, opinions are not facts. If Zillow and similar sites truly had their finger on the pulse of the real estate market, any of these sites could’ve predicted the collapse of the housing market which they did not.

Understanding Zillow’s Zestimate:

Zillow acquires data by amalgamating all the information on housing it can gain access to. It mixes and merges data from various sources into one source. Many computerized programs exist that can forecast the value of a home. Even real estate agents use computerized programs, but the difference is real estate agents don’t rely on those programs alone like Zillow relies on the artificial intelligence used to assemble its Zillow Zestimates.

At least for now, Zillow can’t predict how a buyer will feel when she enters a home. Zillow can’t tell you whether the interior has been updated, if the workmanship is superior, whether the materials used are inferior, or whether a school around the corner has decreased the value of homes backing up to the football field or any other number of factors real estate agents appraisers use when they know the neighborhood and have inspected.

The following four typical homes were actual home sales, and the price outcome is compared with their Zillow Zestimates at the point of sale, to highlight some of the variations in the two values.

One property is two houses on a lot in Midtown Sacramento, located on a busy street near the railroad tracks and close to freeway noise, across from a commercial property. Zillow estimated the value of that home at $380,733, but it sold at $349,000, after almost 6 months on the market, with plenty of exposure. In this case, the Zillow estimate was about 9% too high.

The second home was a custom waterfront property in the Pocket area of Sacramento. Zillow valued that home at $983,097, yet it sold at $1,085,000, which was 10 percent more than the Zillow estimate. If the sellers had relied on the Zillow estimate, they would have lost more than $100,000, which is no small change.

The third home was a reconstructed home in an exclusive area of Davis, California, near the University of California, Davis. Zillow valued that home at $1,230,563, but it sold for $1,495,000, and for cash, with no financing involved. That Zestimate was more than 20 percent too low.

Finally, the fourth home was a lakefront home in Elk Grove, California. Again, the Zillow estimate was too low, at $488,711, and it sold for 16 percent more, which included the buyer’s lender’s appraisal, at $565,500.’’

The Lake Oconee area has such a variation between lake homes, gated community homes and homes outside the gate. There is no way you can use a guesstimate. Your home is your palace and you deserve to get the highest price on your home.  

THOUGHT FOR THE DAY: A happy wife makes a happy marriage.