Zillow is a popular website that provides "z-estimates" that purport to calculate the value of every home in the United States. Zillow tries to accomplish this task by using a sophisticated logarithm which compares factors which affect home values, but here's a typical story I have heard from home sellers in Northern Virginia:
Our home was recently appraised for 650K. Zillow estimates the value at 521K. The estimate makes us one of the lowest priced homes in the subdivision. We have all upgrades in our home and it is the largest of the homes that were originally built in this subdivision. It was appraised at 750K before 2009. Our home has a basement. Neighbors do not have basement on one side and you appraised higher. Really? -- James E. - Fort Hunt
If you search the web for the phrase "Can I trust Zillow?" or "Can I trust Z-Estimates" you'll find countless testimonials by angry homeowners and skeptical home-shoppers who have discovered the hard way just out inaccurate Zillow's pricing can be. Many people report that Zillow's estimates have a margin of error of about 20%. Even if we assume the margin of error is only 10%, in Northern Virginia that means a "z-estimate" is only within $50,000 of the actually market value. If the margin of error is an astounding and impressive 5% that means that a z-estimate is within $25,000 of the asking price.
Yet Zillow (for now) remains wildly popular with some people. Home sellers and home buyers should know that there is not a single local municipality, county, or mortgage lender that uses Zillow for tax assessment or appraisals. Our advice is to take estimates from any online site at arm’s length. Putting too much stock into a computer logarithm can cause you inflate your sense of worth or irk you for how little it believes your property is worth.
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7 Reasons Why Z-Estimates Are Inaccurate
- Hyperlocal Details --- Zillow takes into account the Zip-code of a street or the town your in, but no computer can take into account the hyper-local information that really impacts sales price. The computer doesn't understand that this house has south-facing windows and that house has a power-tower dominating the view from the picture window. It doesn't understand that corner lots are more valuable in this subdivision because they are larger lots . . . except at the corner of Oak and Maple because Maple Street is a very busy road.
- Interior Conditions --- No online computer calculation can consider the condition inside homes on the market (much less homes that are NOT on the market). Zillow doesn't know who redid the kitchen and who has pet-stains on the carpet. And they never will. Even if everyone on the planet started reporting the amount of money spent on repairs and improvements . . . a computer can't tell you how much those improvements are worth. Some people spend a lot of money to make improvements that are in poor taste. Some people spend a little money and do the work themselves.
- "Make me move" --- In the past, homeowners not represented by a real estate agent, could list their home for sale on Zillow and set a ridiculous price called a Make Me Move Price. Make Me Move is a function that allows homeowners the ability to “test” a market price without a homeowner having to use a Realtor or real estate agent. Zillow's actual calculation is proprietary, so I don't know if the Make Me Move prices are factored into the Z-estimate calculation. However, I know that if you search a particular address on Zillow and glance at the results, it's possible to find a number of overpriced homes. In reality true market value is based on what a real life buyer is willing to pay for your home at the time when your home is advertised for sale. Value has nothing to do with "Make Me Move".
- Architecture and Style --- Let's face it: some houses are prettier than others. Some houses have better landscaping. Some houses have better paint jobs. No computer will ever be able to measure the beauty of a home. Even if it could, every individual's standard of beauty is different. A house is only beautiful if it's beautiful to you. But a house is more valuable if it's beautiful to many people.
- Distressed Property and Family Sales --- When Zillow calculates the value of a home it considers all nearby sales. It does not consider the fact that one home is a short-sale and another was a sale because of a divorce (which could be inflated or under-valued) or a "give-away" sale to a relative.
- User Estimates --- Because of the outcry from homeowners about the values of homes Zillow implemented features that allowed consumers to build their own z-estimates. Without an objective third-party to measure and offset some of the information input by consumers an estimate can be even more inaccurate than a computer generated estimate
- Zillow is inaccurate. --- How do we know this? Because Zillow tells consumers the information is inaccurate and recommends that consumers verify estimates by checking with a real estate agent or appraiser. That's because Zillow is NOT in the business of providing free estimates for consumers. Zillow is in the business of selling advertisements to real estate agents like me. Zillow knows that only real estate agents, brokers and appraiser have access to 90% of all property sales. Only a real estate professionals will know which amenities, neighborhoods, property styles, updates and selling situations actually affect market value and how much of an impact they make. More importantly if Zillow gets too accurate they can't sell advertisements to Realtors.
Zillow's goal is not to provide accurate estimates. Zillow goal is to attract clicks, traffic and eyeballs.