Zillow is one of the most popular real estate search sites available online. The database contains millions of homes for sale or rent across the U.S. in which users can search based on a variety of factors.
A key feature available to uses of Zillow are automated valuation tools known as Zestimates. Any visitor to Zillow can utilize a Zestimate to see how much a home is worth based on Zillow’s algorithm information that contains comparables and public data.
Looking to see how much a home’s value has changed, seeing how much homes sold for down the street, or getting price for possibly refinancing, Zestimate are great for users needing a starting point in home valuation monitoring.
With that said, there are several reasons that these Zestimates might not be accurate.
Zillow’s basic information
Zillow has an algorithm that updates its property values from public data and user-submitted data. According to Zillow’s site, most Zestimates are within 10 percent of the selling price of the property. Zestimates can only function properly if the data supporting them is accurate, i.e. number of bedrooms, square footage, lot size, etc. All of these items have the potential to be inaccurate which can throw off Zestimates for an entire neighborhood.
Additionally, Zillow allows users to correct mistakes such as a bathroom or bedroom addition. However, inputting this information can have very little effect at all on the Zestimate.
To deal with inaccuracy issues, Zillow offers an estimated range for properties. A smaller range indicates that the Zestimate is more reliable because there is more data available. A bigger range can mean there is less data available. Zillow points out that Zestimates are simply a starting point to determine valuations and should not be considered appraisals. With that said, looking at the high and low end of the range offered might give a better idea of what the home is worth.
In some areas, Zillow places a larger emphasis on certain figures such as the date and price of the last sale. If that information is inaccurate, the Zestimate can be thrown off. Similarly, comparable sales also affect the Zestimate and a mistake in a home’s public record can affect numbers in a neighborhood.
Additionally, Zestimates also account for property taxes paid, tax assessments and other publicly available property data. Tax assessor’s property values can also be inaccurate and are sometimes too high or too low.
What about upgrades?
If a homeowner makes improvements to a property, that usually increases the value of the home. However, Zillow isn’t always aware that any upgrades took place unless there was information passed along to the local property tax assessor. For example, a homeowner could take a permit from the city to add an alternative dwelling unit and that information would eventually make its way into public record and from there, the Zestimate.
Unfortunately, upgrades that don’t require a permit such as a new kitchen don’t get included in Zestimates. So if a neighbors kitchen is still the original from 1990, and the property in question has a brand new kitchen, the Zillow estimate will value each home similarly. This could be an inaccurate home value estimate because a home with a new kitchen could sell for a higher price.
Upgrades aren’t always as valuable as people think. It depends on which upgrades have been done, the local housing market, etc. Just because a new bedroom was added or a kitchen was remodeled doesn’t mean the Zestimate will automatically increase by several thousand dollars. Again it really depends on local real estate markets and what home buyers are willing to pay for upgrades.
Number of home sales
The more home sales that are in an area, the more data Zillow has to work with to formulate a more accurate Zestimate. A hot market like Denver or San Francisco might generate a more accurate Zillow estimate than say a home in a rural area where sales might be more rare.
The bottom line
Zillow’s Zestimates contain imperfections but the point of using the tool is to get a very broad idea of what their home sale price might be. It shouldn’t replace an appraisal or a comparative market analysis from a licensed real estate agent.
There is no perfect assessment of a home values until the home actually sells.