In today’s real estate landscape, one question frequently arises: how reliable are online home valuation tools like Zillow Zestimates? These tools have evolved over time, incorporating various factors into their algorithms to provide property value estimates. However, it’s essential to understand both the capabilities and limitations of these digital estimators.
In this blog post, we’ll delve into the methods employed by Zillow and similar platforms to calculate property values. We’ll also shed light on the potential limitations of these methods. Additionally, we’ll explore alternative approaches to assessing your home’s value, including appraisals.
What is a Zillow Zestimate?
A Zestimate represents Zillow’s automated home valuation tool. It’s not designed to replace a professional appraisal. In fact, Zillow’s website clearly states:
“…it should be used as a starting point. We encourage buyers, sellers, and homeowners to supplement the Zestimate with other research, such as visiting the home, obtaining a professional appraisal, or consulting with a real estate agent.”
Furthermore, it’s important to note that financial institutions and lenders don’t rely on automatic valuations like Zillow Zestimates to estimate a property’s value for a mortgage. Only a licensed appraiser’s evaluation is acceptable for mortgage purposes.
Is a Zillow Zestimate Accurate?
We often encounter the question, “How Accurate are Zillow Zestimates?” Zillow provides data on the accuracy of Zestimates for most real estate markets. As of the date of this article, the median error in larger markets typically hovers around 2% of a home’s sale price. However, the issue with Zestimates is that when they are incorrect, the discrepancies can be substantial. For instance, depending on the metro area, Zillow might only be within 5% of the sale price 62% of the time.
We’ve gathered Zillow Zestimate data for Cincinnati, Ohio markets. Here’s what we found:
Cincinnati, Ohio Zestimate Data
Off-market Properties
- Median Error: 8.97%
- Homes with Zestimates: 730.1k
- Within 5% of Sale Price: 31.10%
- Within 10% of Sale Price: 54.17%
- Within 20% of Sale Price: 77.87%
On-market Properties
- Median Error: 2.51%
- Homes with Zestimates: 6.5k
- Within 5% of Sale Price: 75.40%
- Within 10% of Sale Price: 92.75%
- Within 20% of Sale Price: 98.22%
For homes on the market in Cincinnati, Ohio, Zillow is only within 5% of the sale price 75.4% of the time. While this isn’t terrible, if your home falls within the remaining 15%, an error exceeding 5% can be significant.
It’s crucial to highlight that Zillow’s data is considerably more accurate for on-market homes compared to off-market ones. This difference likely stems from Zillow’s ability to utilize MLS data for on-market homes, which should be more reliable than tax records data. Nevertheless, even in Cincinnati, Ohio, Zillow’s accuracy falls short of making it a dependable valuation tool.
How Does Zillow Estimate Property Values?
According to Zillow, Zestimates are generated by integrating:
“…public and user-submitted data, taking into account home facts, location, and market conditions.”
User-submitted data encompasses MLS data from Realtors and information provided by property owners about their homes. Additionally, Zillow incorporates tax records into its calculations. However, tax records are often notoriously inaccurate, particularly for older homes that may have undergone improvements not reflected in the tax records.
Is Realtor.com or Zillow More Accurate?
This is another common inquiry from homebuyers and sellers. The primary distinction between Realtor.com home values and Zillow Zestimates lies in the fact that Zillow employs its proprietary program to generate Zestimates, while Realtor.com relies on various third-party sources to provide multiple home values. According to Realtor.com’s information on home value estimates:
“Our home valuations come from independent, automated valuation model (AVM) providers, whose solutions are used by many financial institutions, insurance companies, and real estate agents. Each AVM provider applies a unique approach and methodology resulting in a range of values that consumers can use as a starting point for discussions with a real estate agent.”
Zillow Zestimates, Realtor.com estimates, and even Redfin Estimates can substantially differ from one another. Each of these platforms employs distinct methodologies to value properties. Moreover, all these websites include disclaimers emphasizing that their valuations should serve as initial reference points and should be followed up with an appraisal conducted by a licensed appraiser.
Conclusion
It’s worth noting that online valuation tools have made substantial progress. A decade ago, tools like Zestimates were notably inaccurate. Today, they can be useful as an initial reference point, but they should always be followed up with an appraisal or a consultation with a real estate agent familiar with the local market.
