Understanding Zillow’s “Zestimate”

The leading online real estate brand Zillow has has an undeniable influence on Lamorinda real estate. One of the most common questions we hear from sellers is “Zillow said my home is worth $X… is that right?” In just a few years, Zillow’s catchy “Zestimate” tool has captured the attention of eager sellers and buyers curious to understand home prices.

But how much weight should you place in the Zestimate? Could your home be worth more? Or less? The truth is, Zillow is good at some things, and not at others. Here are three key things to understand about Zillow.

1. Zillow is an excellent historian, but it’s not a spot-on predictor.  
Zillow’s Zestimate is largely based on public records. This includes the previous sale price of your house (if one exists) and the price per square foot of recently sold homes nearby. Using these records and some market appreciation trends, plus some top secret Zillow code, it tries to calculate what your home might be worth.

But Zillow doesn’t know anything else about your home or nearby properties, because it has not been inside them. It does not know what upgrades you (or your neighbors) have made. It does not know that there is a PG&E tower right next to the house down the street that sold last month dragging down it's value compared to yours, or that the listing around the corner was a complete “tear down.” It does not know if your bathrooms and kitchen are updated, or if your yard is beautifully landscaped, or if you invested in a new roof. In an area like Lamorinda, where homes and lots vary widely along a single block, there are many “soft” factors that Zillow’s algorithms will always be blind to. I attended a Zillow conference last year and one speaker reported that the Zestimate is often off the mark by as much as 20 percent in one direction or another. This is why.

2. Zillow is useful for overarching market-level trends.
Because Zillow aggregates recent sales data in a market from the public records, it is a reliable source for market-level trends. It’s a great way to see if overall prices have gone up or down in your area over time. If you go to the Zestimate chart for a property, alongside it you will also see the average price for all homes in that area over time (1, 5 or 10 years). It also shows things like a walkability score, photos if they exist and more. You can also see when a property last sold and for how much. These are great ways to educate yourself on a market, and these tools weren't readily available to consumers before Zillow and it's competitors came along. They have really put some great information in consumers' hands.

3. Zillow and Realtors: It’s a love/hate relationship.
It is difficult to tell a client that their home is worth a lot less than they think it is because they have been led astray by the Zestimate. Nobody wants to be the bearer of that news, and it's a hard way to kick off a client relationship. Less frequently, some homes are worth more than Zillow estimates, but the owner, putting too much stock in the Zestimate, gets discouraged. With all the confusion that the Zestimate creates, you might wonder why agents engage with Zillow at all.

As imperfect as it is, Zillow has built a powerful marketing platform for property listings and real estate agents. More than 90% of today’s buyers, especially young buyers, use the internet in their home buying process. Agents want to be front and center when they begin their search. Zillow’s revenue comes from agents who advertise on their site, and many do for the exposure it offers (including me).

Zillow is also a great way to publicize a “Coming Soon” listing, which can be a benefit to clients who are selling. As the #1 consumer brand in online real estate, agents can try to build anticipation for a listing in advance of coming on the market. 

As in every other industry, technology is changing the way real estate is done and consumers and agents will adapt. In this case, the burden is on agents to educate consumers about the accuracy of algorithms, and that the only way to get a true sense of what your home is worth is to have a skilled, honest and active local realtor come through your home and see the whole picture, not just the numbers in the county tax record.