Real Estate Deal Analysis & Advice

How Accurate Are Zillow Zestimates? I Tested the Home Valuation Tool Post-Upgrade

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We all want a quick, one-stop shop to value properties these days, especially when investing out-of-state or when buying in volume, where it’s hard to look at dozens of properties every single week. Conveniently, many websites have popped up with handy algorithms to provide us the answer to the rather subjective question: How much is this property worth?

Such sites include Trulia, Redfin, Realtor.com, and eAppraisal, but the most famous of all is Zillow, with its tried-and-sort-of-true Zestimate.

Of course, this begs the question: How much can Zillow (or any of the others, for that matter) be trusted?

Should You Trust Zillow’s Zestimate?

The short version is that Zillow is a good place to start but should never be relied upon for a final determination of value.

This is much different than my answer five years ago when I would have said that Zestimates are pretty close to worthless. But Zillow has continuously been updating and improving their software. The newest version even sounds slightly Orwellian. (1)

“The Zestimate revolutionized real estate when it launched in 2006, using facts from public records to estimate a home’s value. With today’s update, it can now, in a sense, ‘see’ in photographs features that humans would instantly understand, such as curb appeal and natural light. The new Zestimate uses neural networks and computer vision to distinguish between high- and low-end finishes and to incorporate the value of features like updated bathroom fixtures, fireplaces, and remodeled kitchens. The Zestimate also now uses real-time data from for-sale homes, including list price and how long a home has been on the market.”

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Related: 5 Factors to Investigate BEFORE You Buy That Property You Found on Zillow

How Accurate Are Zillow’s Estimates After Updating the Platform?

Zillow also publishes a list of how its Zestimates compare to actual sales prices based on county, state, and metropolitan areas for both on-market and off-market (for sale by owner) sales. For the nation on the whole, here’s what their data says (2):

For states, the median error ranged from 1.4 percent for on-market sales to 11.1 percent for off-market sales.

However, I am a bit skeptical about the “neural networks” ability to evaluate listing pictures with a high degree of accuracy and believe that, at least in part, the list price itself affects the Zestimate. To illustrate this, here’s the last 12-months of the original listing price versus the price sold in Kansas City, Mo.:

Pretty close indeed.

In August 2019, the average sale price in Kansas City was $208,198 and the average list price was $212,167. This is a 1.9 percent difference, which is exactly the same as the median error for Zestimates versus on-market properties sold in the United States last year.

As an example, we just sold a small two-bedroom home. We ended up going over budget on the rehab and therefore failed to “BRRRR out.” The Zestimate was at $83,500, but my valuation of the comparables made me believe it was worth more.

We listed it for $94,900 and immediately the Zestimate jumped up to $96,100. Then, we sold it for $93,000.

Now, perhaps those “neural networks” saw that our listing pictures had very nice finishes in them and our property was in really good condition. Sure, but it was originally intended to be a rental, so while the work was well-done, it was nothing fancy. So, while the Zestimate is only off by 2.3 percent now, it was off by 11.4 percent before we listed it.

Thereby, a better way to evaluate the quality of Zestimates may be appraisals, which would eliminate the listing price as a confounding variable. That being said, in Zillow’s defense, without the listing pictures, it can’t evaluate the property’s condition very well and appraisals are by no means perfect either.

Related: Attention: PLEASE Stop Searching for Real Estate on Zillow and Trulia

Appraisals vs. Zestimates: Which Are More Accurate?

We just got appraisals on 12 properties we are refinancing, and here’s how they compare to the Zestimate:

Admittedly, some of these appraisals I disagree with to an extent—but not necessarily in the direction that would help Zillow. Overall, there’s quite a range with the Zestimate, including half being over 10 percent off the appraisal and two being over 20 percent.

Therefore, I think it’s fair to say that Zestimates are not that great when it comes to off-market properties and are probably, at least in part, only so accurate on listed properties because the list price is also accounted for. In that way, they are riding off of the work of real estate agents, investors, and homeowners, who valued the properties themselves before listing them.

Despite advances in technology that allow for photo recognition and the like, there is only so much these programs can do. They can’t evaluate the condition of properties with no pictures. They can’t take into account major structural issues or recent upgrades.

It’s also all but impossible to differentiate between two things that are listed the same way but are realistically of very different value. For example, take a finished basement. One house may just have a basement with a painted floor and walls that gets water in it every fall. Another may be a walkout basement with plenty of sunlight that is fully furnished and decorated. It’s very difficult for an algorithm to tell the difference.

The Bottom Line

In summary, Zillow is a good place to start, as are the other websites with similar tools. If you don’t know the value of properties in a particular area, then check the Zestimate to get a rough idea. Then, you’ll at least have some idea whether a property is worth pursuing or not.

But that’s about where its use ends. Never rely on the Zestimate for what your offer or strike price should be. For that, you’ll need to do a good old-fashioned comparative market analysis.

References

  1. http://zillow.mediaroom.com/2019-06-27-Zillow-Unveils-Smarter-More-Accurate-Zestimate-That-Sees-Unique-Home-Features-Incorporates-Greater-Real-Time-Data
  2. https://www.zillow.com/zestimate/

How do you feel about Zillow? Have you had any good or bad experiences with Zestimates?

Share in the comment section below. 

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.

    Mark JOhnson Investor
    Replied 2 months ago
    Zillow has changed and is not accurate. I have an excellent method to drop appraised tax values in my area. As soon as the county accessors drop their value, zillow follows. It has little to do with market value.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied 2 months ago
    I would say Zillow is an OK ballpark number, but overall I agree. Zillow uses various indicators like the county value and list price (at least I think they do) which just follow other people's work and doesn't really help that much when trying to come to a value on a property.
    Bob Davidson from San Francisco, CA
    Replied 2 months ago
    In California Tax Assessor "appraisals" are not useful due to Prop 13 setting tax values. I've found Zillow to be highly accurate in the San Francisco area including for high value (over $2.0 million) properties. Also, about three years ago, the United States Bankruptcy courts accepted Zillow as an estimate of current value. I do drive the comps.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    Oregon has the same thing. Which is good because otherwise property tax rates would be completely unaffordable. But presumbably Zillow also uses tax assessments and that would make them even less reliable in California and Oregon.
    Robert Horton Professional from Camden, South Carolina
    Replied 2 months ago
    At best, Zillow is about as accurate as the tax assessment and we all know not to use that estimate in real estate. If you want to test Zillow, find that home in your neighborhood that looks the worse on the outside with the grass a foot high and check out the Zestimate. In real estate sales it never fails that a homeowner thinks the Zestimate is wrong while they want to base their offer to purchase another home on the Zestimate.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    I think that's a good way to think about it, although I think tax assessments are even worse and often systematically so. Like in Kansas City they are all low. They do this, I'm sure, to make it harder to challenge the taxes. After all, they could just charge a lower rate and have them assessed closer to market. This year, however, they jacked the taxes up an enormous amount (we had one house we've owned for over seven years go up over 500%). We've had something close to a tax revolt because of it. Everyone is pissed.
    Joseph M. Rental Property Investor from Sacramento Area, CA
    Replied 2 months ago
    From my experience, the Zillow estimate is more like the wall the dart board is hung on, not the exact location of the dart board. For an accurate assessment of value, there is nothing that will replace knowing your area(s) that you invest in, keeping up with that local market(s), developing GOOD quality contacts and having boots on the ground. Anything less is called speculating.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    I would say the dart board itself (just not anywhere close to the bulls eye) and not the entire wall, but yeah, more or less.
    Cindy Carriger Rental Property Investor from North Richland Hills, TX
    Replied 2 months ago
    Thanks @andrew_syrios for sharing the list of your Appraised property values v. Zestimates - that really shows the volatility of Zillow's 'accuracy'...it's not much to hang your hat on, particularly for non-listed property. Seems the novice or out of area investor might be better off getting the 'ball-park' value from the Tax records or possibly a combo of online resources (2 or 3) in addition to the Tax Value. Eye-opening data!
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    Honestly, at least here in Kansas City, I don't trust the tax assessments either. In fact, I think Zillow is probably a bit better than them.
    Katie Rogers from Santa Barbara, California
    Replied 2 months ago
    I have found Zillow to be mostly accurate in my community. However, I agree that the Zestimate sometimes seems to reflect the list price, and I have seen a few cases where the seller over listed their house by as much as 20%, and Zillow followed . I have also seen cases where Zillow assumes a certain standard appreciation rate, and thus overvalues a house that has been steadily deteriorating due to deferred maintenance.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    I should have mentioned that I think Zillow is much better with "cookie cutter" houses than houses with any odd parculiarities. That might be why it's better in your neighborhood.
    Kevin McGuire Rental Property Investor from Seattle, WA
    Replied 2 months ago
    Wow, I love the focus on data and depth of your analysis! This is probably the most analytical post I’ve seen here. Thanks for putting this together, you turned a discussion usually based on opinion into a factual one. Thanks for writing it!
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    Thanks Kevin!
    Daryl Luc
    Replied 2 months ago
    The one trend in the data that didn't get any print: The slower the market, the more accurate Zillow becomes. ie: really expensive markets and 'off season'. Speed of market matters. I guess the corollary to be drawn is to determine if the numbers you see matter, consider where you are in market timing. What would scare me is if an agent was using Zillow and not their MLS data which is much more timely and should comport with their own experience during the short term.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    I think this is definitely true. They are usually behind, but regardless, I think the biggest thing is they piggyback on others work by taking the list price as the main thing that effects the Zestimate.
    Chand King from Arizona
    Replied about 2 months ago
    Thanks for the article! As stated above, Zillow is atleast a place to start. Definitely would talk to real estate agents in the areas you are interested in.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 2 months ago
    "A place to start" is probably the motto real estate investors should take with regards to Zillow.
    Alan DeRossett Investor from Thousand Oaks, California
    Replied about 2 months ago
    I work with AI and neural networks now and have been impressed with how Zillow has updated pricing in the next 3 years it will become even more accurate as other sensors are used t record many other attributes of the property. Sound, indoor Air Quality, Water Quality at the tap can all easily be measured now and available soon to look at before purchase. The image recognition for finishes is now very good. I now use Automatic License plate readers on security cameras and it was easy to install. Realtors can take photos from phones and upload them for image analysis.
    Gary Stevens
    Replied about 2 months ago
    Regarding single family homes in a homogeneous neighborhood Zillow is pretty good for price and rent zestimates. I find Zillow to be completely off base when zestimating multi-family. Still it is better than nothing, but nothing is better than a good agent that works the area. Also area property managers are a wealth of information.
    Sam Shueh Real Estate Agent from Cupertino, California
    Replied about 2 months ago
    There are so many of these AVMs out there. Trulia which is owned by Z estimator is also different. The fact is Z made a name out of itself claiming they were accurate. Needless to sy the CEO sold and purchased deluxe home in Seattle was off like >30%. CEO was not alarmed he sold low and bought higher than his Zesti. Z is facing challenges these from Wall Street analysts as the company business model is not clear to many. It is a company that has been struggling to stay in its core business and be good at what they do.
    Cindy Chan Rental Property Investor from San Diego, CA
    Replied about 2 months ago
    This article is great and considers the quantitative information to evaluate the accuracy of Zestimates. I would add that there is another factor that possibly motivates Zillow to be INaccurate. From May to June of this year the Zestimate for one of our properties in a hot LA County neighborhood fell a whopping 30%! And it has been flatlining since. Is it a coincidence that this happened right around the time Zillow announced they were entering the flipping market in LA via its Zillow Instant Offers program? I think not. https://la.curbed.com/2019/5/9/18563453/zillow-offers-ibuyer-house-flipping It is arguably a conflict of interest for Zillow to claim they have (or are working towards) the most accurate property value estimator while at the same time they are incentivized to keep values low so they can buy low now to sell high later. Doing so allows them to increase their profits in the face of Wall Street pressures. I also agree with many here that it’s best to use other methods for valuation. As fellow poster @Joseph M. says, Zestimates are more like the wall the dart board is hung on.
    Jon Shefsky Realtor from La Verne
    Replied about 2 months ago
    This was a great quick read! It’s very common for buyers and sellers to get price delusions (high and low) from zestimates in my market.
    Grant Bennett Lender from Tulsa, OK
    Replied about 2 months ago
    Solid points. I had a similar thing happen when I sold a property last year. I kept thinking the Zestimate was a little low, and on the day we listed it, the Zestimate shot up about 20k.
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied about 2 months ago
    My opinion is that Zillow seems designed to run deliberately high in order to push the market, and that it operates as is a shill for the RE industry- I have NEVER seen a "Zestimate" that was lower than the actual value. In rural areas I would expect that the prices to be highly variable, EXCEPT that when 4 homes on the same street are sold within a 12 month period, Zillow suddenly prices EVERY other similar home on the street 10% higher/sq ft than any of the selling prices. If a 900 sq ft home sold for $107k last month after being on the market for 6 months, why would every similar 900 sq ft house within a city block as somehow worth $124k? Also, some Zestimates are just pitifully bad--- the Post Office parking lot is NOT worth $500k, my 1980's manufactured home was NEVER worth $270k (and certainly not in 2010!), etc etc etc. I suppose that on some level I should be grateful ffor the over-evaluation as I'm looking toward a refi, but I don't think my small local banks will be fooled by Zillow.....
    LEONID ORLOV Investor from Hermosa Beach, California
    Replied about 2 months ago
    Terrific assessment of Zillow pricing.. I totally agree, it a good place to start Too many factors automated methods cant take into account
    Abi Wegman from Santa Rosa, California
    Replied about 2 months ago
    I’ve noticed that, at least in my area, nearly 100% of homes for sale are priced at the Zestimate. If the Zestimate falls, they lower the list price. I’ve also noticed that for my own home, if I click on “Edit Details” and then immediately save, WITHOUT CHANGING ANYTHING, my Zestimate will grow 5-7%, which represents tens of thousands of dollars in valuation.
    John Michael Thomas Flipper/Rehabber from Inland Empire, CA
    Replied about 2 months ago
    Thanks for including the data - without the data everything is just opinion, and it will always vary. I'm not sure the data you included supports your conclusion, though (that the Zestimate is a good place to start). Of all the data you included, the data that matters most is your comparison between the Zestimate and the appraisals you got (I'll talk about why the appraisals are so important below). On average, the Zestimate was off by more than 11% on those. And let's face it, 11% is a huge error when it comes to home pricing. In Southern California (where I live), a 10% error means at least $50,000 in most areas - and over $100,000 in many areas. That could make the difference between profit and loss for some investors (especially when Murphy shows up during the rehab). And bottom line, if the estimate is off by 10% or more, I don't even think it's a useful place to start - it's just wrong, and probably not any better than doing a thumb-in-the-air guesstimate based on a quick eyeball of recent sales on the Zillow map. It's important to understand that official appraisals carry *alot* more weight than any automated valuation you can get (anywhere). That's because when you get someone under contract to buy your house, the buyer's bank won't look at any automated valuations - they'll send an appraiser. And if the appraiser says the value of your home is lower than the already agreed sale price, then depending on the type of loan they have and the bank they're using, you may have to drop the price for the bank to approve the loan, or the buyer may either need to put more money down to cover the difference or may not even be allowed to buy the home. So if the automated valuations are significantly different from what an actual appraiser would value the house at, they may not just be wrong, they could cause a sale to fall out (which costs time, and therefore money). The best way to get a valuation is to hire an appraiser. This costs money though. The next best way I know of is to do the work to get your own comps. If you have access to MLS data, or other investor tools that pull MLS data, you can run your own comps by pulling all properties in a 1/2 mile radius of the subject property in the past 6 months (though I suggest you limit to the past 3-4 months if you're doing a rehab, since some of the comps you get at the start will expire by the time the rehab is done). Then filter to properties with the same number of beds, +/-1 baths, +/-25% sqft living area, +/-50% lot size. And then manually look at each of those to see if they're a real comp or not. You can't avoid the manual part, because that's what an appraiser does - manual comparisons to make sure they're comparing apples to apples. (Note: I know a couple hard money lenders that use almost this exact same process to do a "desktop valuation" to verify ARV). If you don't have access to tools which allow you to perform this kind of search, you can still use Zillow to pull your comps manually. Set Zillow to show only sold properties, filter by number of beds, and manually look at all properties which match (within about 1/2 mile) to see if they're real comps. This takes a little more work than when using the MLS (since Zillow doesn't allow as fine-grained filters), but still allows you to pull your own comps without too much manual work.
    Christopher Davis Rental Property Investor from Nashville, TN
    Replied about 2 months ago
    The bottom line us really, you can't predict a home's sold price to an exact 100% perfect mark. Buying homes is an emotional, qualitative experience. It's not a precise mathematic equation, though an appraisal may approach this. If a home is worth $98,356 to one person, it's worth $96,923 to another person. And the appraisal is $97,439. You can't predict that. It's not necessary for Zestimates to be 100% perfect. But if they are within 5%, or at most 8%, then I think that's pretty good.
    Christopher Davis Rental Property Investor from Nashville, TN
    Replied about 2 months ago
    I've got to learn to proofread!