An article published recently in Palisades News discussed the problems with Zillow’s “Zestimate” feature as explained by the CEO of Zillow himself. Spencer Rascoff, spoke on the topic recently at a Harvard-Westlake Real Estate Network event. According to the article he spoke about his accomplishments, his philosophy, how he incorporates social media into the running of the company, and Zestimates—the online values Zillow attaches to properties on its website.
During the talk a man who identified himself as a real estate agent brought up the issue of Zestimates, how he and every real estate agent he knows are forced to spend a lot of time explaining to clients why the values Zillow attaches to properties are rarely accurate. Rascoff immediately acknowledged that Zestimates have a 7 to 14 percent margin of error, which he said is noted on the site. He also pointed out that educating buyers and sellers as to the actual value of a property is the real estate agent’s job, not the job of Zillow.
Rascoff used WedMD as an analogy. His wife is a doctor, and he said part of her job is to correct misconceptions her patients have learned about their illnesses on sites like WebMD—just as correcting misconceptions regarding Zestimate values is the job of real estate agents.
This analogy is good, but there’s an important difference between WebMD and Zillow: When someone looks up their health symptoms on a site like WebMD they read general factual descriptions of symptoms which may or may not apply to them. When someone looks up the Zestimate of a home’s value online, the Zestimate is specific to that home, which implies a higher level of accuracy.
Zestimates are created by computer algorithms gleaned from information gathered online. No one at Zillow goes out to every property listed to assess all the many factors which contribute to property values, such as the condition of the home, the layout, the light, the noise level, the neighborhood, etc. (That’s what real estate agents do.)
These algorithms rely on data culled from multiple listing services and public records about each property and cannot distinguish, for example, between 10,000 square feet of flat land and 10,000 square feet of land that drops down the side of a cliff.
Homes which are priced too high usually sit on the market longer and become stale. Sellers in most cases end up selling an over-priced home for less money than if the home had initially been priced correctly. Therefore, relying on statistically inaccurate Zestimates may lose homeowners money. What is the value of a Zestimate? Zestimates are valuable to Zillow because they help draw more people to the site, which is the goal of every website, as Zillow’s revenue comes from advertising dollars. Zestimates are a marketing gimmick, fun to check, but wrong to believe.
If you trust Zillow’s Zestimate more than the analysis of your real estate agent, find a new agent, one whose judgement you can trust.