Why is Zestimate unreliable? To answer that, we need to go over how this tool works and the various factors that impact its valuations.
How the Zestimate Works
The main selling point of Zestimate is that it can provide an estimated home value for almost any home in the U.S. To do that, this tool relies on public and user-submitted data, which means that its accuracy can depend on how much data is publicly available. For instance, some homes may have an “unknown” number of bedrooms, which Zestimate can’t account for.
Since homes on the market have more available public data, their estimations are usually more accurate than for homes off the market. According to Zillow, the median error rate of the Zestimate for on-market homes is 1.9%, whereas the error rate for off-market homes is 7.5%.
Factors That Impact the Zestimate
Now you know why Zestimate is usually a bit off in its valuation, but which factors can influence it? Well, there are plenty of potential examples, but here are a few common considerations:
• Home improvements: Are you planning on renovating a kitchen or bathroom soon? Though these projects will undoubtedly add value to your home, they often don’t require permits, which means Zestimate won’t take them into account.
• Neighborhood: Since many comparable homes aren’t on the same street, Zestimate won’t break down data street by street. However, it’s a known fact that some streets fare better than others on the market, particularly in dense neighborhoods.
• Algorithm: As it gains access to more data, Zillow keeps refining the Zestimate algorithm. Oftentimes, you’ll see your home’s Zestimate value go up or down without you doing anything, which is a sign that certain data points now have more weight in the algorithm.
The Problem With Zestimate
So, the Zillow Zestimate may not be completely accurate, but it’s still a valuable tool, right? Well, it would be – if it wasn’t for the fact that many homeowners aren’t aware of the above issues. Due to Zillow’s sheer popularity and its Zestimate marketing, many people believe that their Zestimate is an actual appraisal when the two could be thousands of dollars off.
The bottom line: if you want to get a reading of a home’s value, Zestimate can be a good starting point. For a more precise estimate, though, your best bet is still to hire a professional real estate agent who is familiar with your area.
