New automations in many fields give consumers better access to information. Zillow uses such an automation to produce the Zillow Zestimate. To discover if Zillow's Zestimates are accurate, we need to first understand how they calculate the Zestimate and then how a Realtor or appraiser determines the value of your home.
When Zillow gives a Zestimate, their algorithm crunches the sale prices of supposedly similar properties in the same geographic area. Then they take an average of those prices to come up with a price for your property.
The problem with this method is that computer programs are not capable of differentiating between the innumerable things that influence price.
A live human, either a Realtor or an Appraiser, can tell if the property is custom built with extensive trim and high end features. We account for the view and whether the road is a through street or a cul-de-sac. A Realtor or appraiser knows if a super-steep driveway will reduce the desirability, and thus the value, of a property. We see whether a home has been well-maintained and is move-in ready. Conversely, the Realtor knows how buyer's will react to a fence whose rotting panels show it is well past it’s expected life. An agent or appraiser can tell you if the home, in a 1950’s subdivision, has been gutted and remodeled. If so, they will compare the property only to other homes in the neighborhood that have had similar remodels.
Zillow can’t tell you these things. Because there isn’t a technology sensitive enough (yet) to identify, categorize and put a price on these types of variables. Estimating a property’s value is one of those things that is simply not yet ready for automation. Is Zestimate accurate? In many cases, it is not.
How accurate are Zillow Zestimates? In some limited cases, however, Zillow can get accurate numbers. The Zillow numbers are more accurate when a neighborhood fits the following criteria:
In these cases, the Zillow Zestimate is likely similar to what an appraiser or Realtor could tell you.
If your neighborhood has homes that are both production and custom built, the Zestimate does not differentiate between them. You will simply get an average of the prices of the homes. For example, if there are homes of similar square footage selling for $250k for a basic square box with few upgrades and $400k for a custom built home with high quality finishes, your Zestimate might tell you your home is worth $325k. This simply isn't a useful number, even if it is just an estimate. Or, excuse me, a Zestimate.
Are you interested in knowing your home’s value? Contact me here for a Custom Market Analysis, calculated by a live person. 🙂
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Ellen is the founder of Harmony Realty, a socially conscious realty company. Ellen believes in empowering her clients through education and open communication. Ellen is a number-cruncher at heart and takes great pleasure in following and analyzing the trends of the housing industry. She loves communicating the big picture to her clients and helping them to understand how the market affects their sale or purchase. Her honest and down-to-earth approach allows her clients to make informed and intelligent decisions to get the most out of their offers and negotiations.
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