In our business, the Zestimate gets thrown around a lot. Realtors frequently hear potential clients mention it like the value is solid as stone.

I’m here to open your eyes.

What is the “Zestimate”?

The Zestimate (from combined words Zillow and estimate) is Zillow’s market value tool that allows consumers to get an idea of what a home is worth in today’s market. For those unfamiliar, Zillow.com is a major player in the real estate industry and educates consumers on their local marketplace.

The Zestimate is an automated valuation model (AVM) that pulls sold property values in the vicinity of said home and gives the average price sold. Zillow says it factors in ‘hundreds’ of variables. However, it does not take into account condition or improvements made to the home. Furthermore, the luxury market has the worst margin of error, according to Inman.

Key pointers taken from Zillow’s FAQ page:

Foreclosures are not included in algorithm.

Data is refreshed daily.

A Zestimate is not a substitute for an appraisal.

How accurate is the Zestimate?

Zillow publishes a ‘Data Coverage and Zestimate Accuracy’ chart. The national average of error rate is 7.9%. For us in Cochise County the accuracy is listed as “Fair,” which is one step up from ‘unable to compute.”

More specifically, look here:

Zestimate Accuracy

Homes on Zillow

Homes with Zestimates

Within 5% of Sale Price

Within 10% of Sale Price

Within 20% of Sale Price

Median Error Rate

Cochise

** (Fair)

99.7k

47.5k

41.5%

58.5%

76.3%

6.9%

In Cochise County, only 48 percent of homes on Zillow have a Zestimate, and the majority of those homes are sold at a sale price within 20% of its Zestimate. Twenty-percent is substantial. To give this perspective, for a $200,000 home, that means a margin of error totaling about $40,000. Wow!

To further prove the inaccuracy of a Zestimate, one only has to Google the recent PR disaster when Zillow’s CEO Spencer Rascoff sold his home in Seattle, WA, in February 2016 for 40-percent less than its Zestimate. According to Inman, Rascoff’s home Zestimate was valued at $1,750,405, so a 40-percent difference meant $70,000. That is a big margin of error. If the Zestimate had been accurate, do you think Rascoff would have sold for so low? I doubt it too.


What is to come?

According to HousingWire, Zillow announced on June 8, 2016, they have ‘drastically improved’ the Zestimate’s AVM that will take the national margin of error from 8% to 6%, and will launch this soon [date unknown at time of this article].


The bottom line

For you as the homeowner or potential buyer, it is important to know that a Zestimate is not fully accurate and is not a substitute for a Realtor’s Comparative Market Analysis (CMA) or an Appraiser’s property report. It is a guideline and a starting point for discussion.


About the Author

Katherine Mullen is a licensed Realtor with close to 4 years of active sales experience in Cochise County. A Tierra Antigua Realty agent, Mullen also has a master in business administration and is an avid researcher of all things real estate. You may contact her here: katherinemullenrealtor@gmail.com.

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