The Zillow Zestimate

So what, exactly, is the Zillow Zestimate? This is Zillow’s proprietary home valuation tool, which can deliver an online estimate of value for most homes in the U.S. It relies on both public and user-submitted data, and its accuracy is partially dependent on just how much relevant data is publicly accessible. Some homes, for example, may have an unknown number of bedrooms – which impacts Zillow’s ability to price it accurately.

There’s a few terms that are important to understand:

• Estimated home value: an approximate amount your home would sell for, based on what other, similar properties have recently sold for.
• True market value: what people are actually willing to pay for a home.
• List price/asking price: this amount is set by the homeowner, on the advice of their agent. It may or may not reflect the true market value.

Because homes on the market have more info publicly available, their Zillow Zestimates tend to be a more accurate reflection of value than homes that are off market (such as yours, perhaps).

Zestimate launched in 2011 and was quickly an industry game changer. Its inception has been both welcome and controversial.

Zestimate was embraced by consumers, because it allows them to gain valuable information about their home’s worth with a single click. Before, this process may have involved identifying a lot of individual data points and talking to a local Realtor. Now, homeowners can do a quick, casual check on their home’s value every month if they want.

However, Zestimate has also been controversial, because it’s not an appraisal – but consumers often treat it like one, which can lead to a misunderstanding of how much their home is really worth. These misunderstandings can have real-world consequences if consumers misprice their homes. But more on this below.

How accurate is Zestimate?

The Zestimate is often less accurate than your Realtor’s estimate and can be thousands of dollars off. According to Zillow’s Zestimate page, “The nationwide median error rate for the Zestimate for on-market homes is 1.9%, while the Zestimate for off-market homes has a median error rate of 7.5%. This means that the Zestimates for half of all on-market homes are within 2% of the selling price, and half are not.”

This may seem like a negligible percentage – and for some homes, it is.

However, take the example of a home with a true value of $600,000. If the Zestimate is 7.5% off, the home Zestimate could be as high as $645,000 or as low $561,000. And 7.5% is only the U.S. median – in a market like Pittsburgh, where the median error rate is 11.3%, the Zestimate range jumps from $532,200 to $667,800 for a $600,000 home – a range of over $100,000.

According to Real Estate Decoded, this breaks down to a typical error of $18,000 for an unlisted home.

Duvora’s 2019 case study “Exactly How Bad Are Zillow “Zestimates?” samples three homes per city in three major cities (Chicago, New York, Los Angeles). The study, which selected homes at random, indicated just how wide this range could really be. For homes in LA, the Zestimate was fairly accurate – hovering close to -5% for all homes. The New York homes, though, were all dramatically undervalued by the Zestimate.

The author of the case study concluded that one issue was that the Zestimate, due to its reliance on comparables (past sales), often can’t pick up on the rapid price surges that happen in a seller’s market (which won’t necessarily be reflected in past sales).

Here is how an example home fared in each market:

• Chicago: Sold -9.45% below Zestimate
• New York: Sold +60.07% above Zestimate
• Los Angeles: Sold -4.9% below Zestimate

So: while the Zestimate can give homeowners an idea of very basic worth, it can also be pretty misleading.

Can you dispute the Zillow Zestimate?

Many homeowners worry that when the Zillow Zestimate is such a widely used tool by homebuyers, a lower Zestimate can adversely affect their ability to sell their home. After all – if a buyer thinks your home is worth $200,000 after visiting Zillow, it’s going to be harder to convince them to pay your asking price of $240,000. (There was even a Zillow Zestimate lawsuit by homeowners for this reason – but the court sided with Zillow.) 

So how can you update the Zestimate?

• The first thing you should do is register with Zillow and claim your property. Once you’ve verified your identity, you’ll be able to edit information like how many bedrooms you have, remodeling details, etc.
• Zillow uses public tax records as the basis of off-market Zestimates, so having your home appraised – and therefore updating the public tax records – will ultimately impact the Zestimate.

If you can, it’s a good idea to double check your Zestimate before you go to sell so you can work to resolve any inaccuracies, since it may take time for these changes to be reflected in the Zestimate price.

What sort of factors impact  Zestimate accuracy?

You know now that the Zestimate can be off sometimes: what factors play into this? It turns out, there’s a few big ones.

“Zillow can’t see inside your home, they don’t know what features it has, they don’t take into account upgrades you may have, and it doesn’t take into account your neighborhood versus another neighborhood in the same zip code,” explains Baltimore-based listing agent June Piper–Brandon.

Consider how relevant these are to your home and neighborhood:

Home improvements

According to a 2019 report from Trulia, about 90% of homeowners surveyed planned to do a home renovation – with the bathroom and kitchen being the most cited projects. This “Should You Renovate Before Selling?” guide has more specific information on important metrics like ROI – but in general, these projects add value to your home. Projects like bathrooms and kitchens, though, often don’t require permits – which means the Zillow Zestimate won’t be automatically taking them into account.

Housing turnover

Hot neighborhoods are easier to price than neighborhoods with slow turnovers, since recently sold homes mean more comparables.

The Neighborhood

Zillow often can’t break down data street by street – since comp. homes might be further away – yet most homeowners are aware that some streets fare better than others on the housing market, especially in dense urban neighborhoods.

The Algorithm

Zillow is constantly adjusting the algorithm it uses to determine the Zestimate. Remember, it’s a computer that decided this – not a person. You may see your Zestimate go up or down over time when Zillow updates how it weighs different data points in the algorithm.

Piper-Brandon explains all this at greater length:

“Zillow will take all the homes in a zip code and bundle them together, and then average all the single family homes with about 1,500 square feet and 3 bedrooms and 2.5 bathrooms together – and that’s the value they give.

So, for example in 21060, a zip code in Anne Arundel County, they will take a 1032 square foot rancher – some have a basement, some don’t, but Zillow doesn’t differentiate and one street is really nice with desirable homes, one has several distressed properties and the homes aren’t as well kept but again – Zillow doesn’t differentiate.

So, your home is on the nicer block, but the value will be lower because it is compared to others on a worse block, whereas the ones on the worse block are higher but in fact the value is lower and less desirable. That’s why you need a Realtor that is familiar with the demographics and dynamics of the community, rather than a computer on the other side of the country.” 

Why the Zestimate can impact your home selling experience

As any experienced Realtor can tell you, emotions influence how we buy and sell homes. Fall in love with a great house that you “have to have,” and it’s harder to make logical financial decisions when it comes time to bid. Similarly, if you believe the Zestimate to be more or less accurate – only to have a professional appraisal indicate your home is worth far less – you may struggle to feel good about the selling process.

Confirmation bias also means that people are more inclined to believe data that backs their beliefs – and it’s well-known in the real estate industry that people often believe their homes are worth more than they actually are. Even if you know there’s a possibility that the Zestimate has overestimated your home by thousands of dollars, because it matches your belief about your home, it can unduly influence you to treat the Zestimate as “accurate.”

You may even overprice your home with the hopes of obtaining the Zestimate number, and fall into the trap of having fewer interested buyers – which means staying on the market longer, and eventually having to discount the price.

What you can do to get the most accurate reading of your home’s value

Understanding your home’s true market value can help you decide whether, and when, to sell. Here are a few ways you can better understand your home’s value.

• Make use of competing home value tools available through Redfin, Realtor.com, and Trulia. According to Marketplace, Redfin’s estimation tool is more accurate for homes on the market.
• Take a closer look at the comparable homes that have sold in your area. Since you know your neighborhood and the general condition of some of the homes there, it may be easier to see that Zillow’s Zestimate prices your home the same as your neighbor’s – but you know you’ve updated the kitchen, installed a new HVAC system, and taken out the outdated carpeting, and they haven’t.
• Talk to an experienced local agent, who can view your home and give you a knowledgeable and more precise estimate of what your home is worth.

Should you sell your home to Zillow?

You may have heard that Zillow buys homes from homeowners. In 2021, however, Zillow decided to shutter the iBuyer side of its business – meaning that you can no longer sell a home to Zillow directly (though many of its competitors still exist).

This was big news, especially because Zillow was using its own Zestimate to make offers – but the tool was too out-of-line with the actual value of homes for it to be a successful business model for them. In other words, Zillow’s own failure to launch in the i-Buyer space only highlighted the potential inaccuracy of their Zestimate tool.

If you decide to work with an alternative i-Buying company, here’s what you should keep in mind:

• You may get to skip dealing with buyers, but there’s often no discount: most i-Buyer companies charge you extra for the convenience. A typical seller might pay a 6% agent fee, 1-2% closing costs, a 3% service charge, and deductions for repairs.
• Homes sold to iBuyer companies tend to net owners less profit than they would on the open market, precisely because there is no competition or negotiation; you either accept the price they offer, or you can’t sell a home to them.
• However, selling with iBuyers can be a good option for homeowners who are dealing with distressed property, inherited property, or an extreme time crunch that makes it more appealing to quickly sell a home – rather than focusing on making the most profit from the sale.