Country club Lifestyle Realty(CCLR) from Sugarland has published a report about their recent analysis/survey on the accuracy of Zillow’s Zestimate for Houston area homes. The results was really an eyeopener to many of us as it underestimates the property value most of the time to 10-25%. The report also concurs closely with Wallstreet Journals findings published in 2007. Let me share some more important things about this report so buyer/sellers can better understand the numbers from Zillow.

What is Zestimate?

Zestimate is zillow.com websites patented estimation of the home’s value all across the nation. If you go the Zillow.com and type in your home address, it will pull almost all data about your home and provide an estimated today’s value for your home. Many buyers and sellers use this estimate value nowadays as a benchmark to negotiate their real estate transaction instead of using the comparative analysis provided by their local realtors. They think that Zillow does a better job in getting the properly value by pulling all data together. But the truth of the matter is, this Zestimate never provides an accurate or closest value. The reason being the methodology used to determine the value.

What is wrong with Zestimate?

As reported by The Wall Street Journal, Zillow’s estimates utilize sales prices, past sales history, tax assessment data, and general home size. In addition they seek to obtain a value through similar comparable homes. Based on this information, why then is Zestimate wrong and why so much random variation when compared to actual sales?

The approach as stated by zillow appears sound; however, after reviewing this statement the error becomes apparent. First, tax assessments can vary significantly from home to home. Some homes may be homestead while others may not have been re-assessed for several years. Second, past sales history (as most real estate agencies and banks will attest) provide no indication of current or future performance. The housing economy can change quickly as evidenced in 2008. Third, the general home size leaves out the amenities associated with homes and communities. For example, gated communities generally increase the home value. Upgraded kitchens and bathrooms on a 1970’s home can impact the overall value. The overall condition of the building and lawn clearly influences the sale value. Even the energy rating of a home can have a significant impact.

What is the impact?
As they proved in their report using some 90 homes around Houston, Zestimate is not a reliable number. But unfortunately many home owners and buyers use this inaccurate number without knowing they are using an inappropriate number that can really impact their transactions.

For Sellers:
For a given home owner there is only a 1 in 5 chance their Zestimate is within 2% of the actual value and a 1 in 3 chance the value is within 4%. The same 1 in 3 chance also exists for a Zestimate above 10%. Overall these results are not impressive. So Sellers might lose lots of dollars if they sell their home just taking Zestimate into account.

For Buyers:
They can convince sellers that Zillow is an accurate representation of their home’s value and get great deal out of it. In other scenarios they may lose out on the house of their dreams by insulting the home owner with a low ball offer. They might miss out on good deal as well.

Conclusion
I wouldn’t recommended a buyer/seller to use Zillow’s Zestimate to negotiate any offer. Zestimate should be used with discretion that it can never predicate the property value property due to lot of unknown factors. Zestimate should be take with grain of salt and always use the realtor Comparative Market Analysis(CMA) to base or negotiate your transaction. Realtor’s can provide CMA without any agreement so don’t hesitate to call me or any realtor in your area. Internet is loaded with data which is good but knowledge from data only comes from experts who can decipher it properly.

You can read the full published report at CCLR website.

About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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