The Zestimate - How Accurate Is It?
Chances are, if you have ever been remotely interested in knowing the value of your home in the last 10 - 15 years, you've probably consulted Zillow.
Key Takeaways
- The Zestimate can be somewhat accurate in certain circumstances.
- You still need a human to help you make a more informed estimate of your home's potential sale price.
- I have seen the Zestimate wildly wrong in both directions.
OK, let's all admit it. We've been curious about the possible sale price of a home - be it our own or perhaps a neighbor's - and the first thing we did was consult Zillow. Before I became a Realtor in 2018, I did the same thing! Intuitively, I knew the Zestimate - Zillow's home price estimate - probably wasn't completely accurate, but for a non-real estate professional, it was the best tool I had to gain some insight into my home's value.
The real question is, just how accurate is the Zestimate?
A Little History of Zestimate
First, a little history of the Zestimate. According to a 2016 article in Geek Wire, the Zestimate was birthed in 2006 when the founders of Zillow wanted to estimate the value of homes they were looking to purchase. After manually estimating home values using public data, they decided to create an algorithm that they could incorporate into their website. And, so, the Zestimate was born.
According to Zillow's own website, they constantly make changes to the algorithm in order to improve its accuracy. And this takes us to our central question: Just how accurate is the Zestimate?
The Accuracy of the Zestimate
Zillow's website says that for an off-market home, the median error rate of its Zestimate tool is 7.49%, while it is 2.4% for actively listed homes. Zillow also lists a table showing the error rate for the top metro areas in the United States. For DFW, it says that the off-market error rate is 5.98%.
According to their own explanation of the error rate, the "median error rate for the Zestimate for off-market homes means that half of all off-market homes are within the median error vs. the selling price, and half are not."
An added - and perhaps more useful - statistic that Zillow provides is the percentage of homes in which the Zestimate is within 5% of the final sale price of the home. In Dallas/Fort Worth, this number is 43.46%. This means that over 50% of homes sold in DFW close at prices that are more than 5% away from the Zestimate.
Perhaps an example will best illustrate this. Let's say that a home sells for $350,000. This means that there is a greater than 50% chance that that home's Zestimate would be less than $332,500 or greater than $367,500 before the home sells. Was the Zestimate accurate? To some degree. But that's a pretty large price differential, especially if you need every dollar from your home sale!
Let me provide you with a real-world example. For the sake of privacy I will not reveal the address of this home. Suffice it to say that the home is located in Arlington, Texas. I am looking at actual MLS data for this particular home as well as the historical Zestimate data for the home. The home is in the middle of a typical middle-class Arlington neighborhood; it is in no way an "outlier."
This particular property had a Zestimate of $270,900 as of May of 2024. The home went on the market in June 2024 and sold two weeks later for $237,000. That's a 12.5% difference!
The Zestimate Explained
Here is Zillow's own explanation and definition of its Zestimate: "The Zestimate® home valuation model is Zillow’s estimate of a home’s market value. A Zestimate incorporates public, MLS and user-submitted data into Zillow’s proprietary formula, also taking into account home facts, location and market trends. It is not an appraisal and can’t be used in place of an appraisal."
I think this explanation is crucial, and to Zillow's credit, they are telling us that this tool is only a rough estimate and nothing more.
The reality is that a home's sale price depends on countless factors. There is no way that Zillow or your appraisal district or anyone else can know every detail about your home unless you have given them every detail. As a result, the best that any automated tool can do, whether it's the Zestimate or your local appraisal district's tools, is provide an estimate based on a great number of assumptions. This is why there is no substitute for utilizing a real estate agent or appraiser to estimate the sale price of your home. Even then, it's really just a guess, but at least the guess is based on all known details at the time.
Conclusion
So, is the Zestimate worth using?
In my opinion, if you bought your house in the last few years and haven't updated it any since, there is a good chance the Zestimate will be fairly on point. But if you've owned your home for some time, unless you feed Zillow lots of personal information about the wear and tear and upgrades you've done, chances are the Zestimate will not be very accurate.
Correspondingly, if you're just nosy about your neighbors' home values, you probably won't get accurate estimates using the Zestimate.
I have no doubt that the day will come when automated tools will be far more accurate, so I won't stand on a soap box and preach to you that you will always need to use real estate agents and appraisers. But for now, even our best automated tools still have a pretty wide margin of error. If you really want to get a fair estimate of your home's worth, call a real estate agent or appraiser!