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Don’t Let Zillow Home Value Inaccuracies Derail Your Home Buying Plans.

Home Loans UPDATED ON May 6, 2017 BY Tony Mariotti
Don’t Let Zillow Home Value Inaccuracies Derail Your Home Buying Plans.

Is Zillow Accurate? Not Really. Here’s Why.

It’s fun to kill time and see what your home is worth on Zillow. Surely it is a guilty pleasure to dream about your upward, spiraling net worth. It’s also fun to play the prediction game, especially in the fast-moving West Coast real estate markets of California, Washington and Oregon. But here’s the rub: The Zestimate you’re punching up on your screen is very likely inaccurate.

And the company even admits it. I don’t despise Zillow and other listing aggregators for trying; compiling and releasing big chunks of searchable data makes the internet a more interesting place. However, it’s what consumers do with faulty data that makes Zillow’s accuracy errors problematic for buyers and sellers.

So how far apart do home price estimates get? Well, it depends on where you live. To their credit, Zillow tracks data for home values and reports median error at the national, state and local level. In their own words:

Half of the Zestimates in an area were closer than the error percentage and half were farther off. For example, in Seattle, Zestimates for half of the homes are within 6.1% of the selling price, and half are off by more than 6.1%.

Say there’s a home for sale in Los Angeles with a Zestimate of $500,000. The seller now has a point of reference, from a source they trust (or at least want to believe) and that’s psychologically powerful. So what happens when buyer comes along and challenges the $500k listing, figuring the home’s value is really closer to $450k. According to California real estate pros, when buyers and sellers have a difference of opinion based on Zestimates, deals can fall apart. Negotiation has always been a part of real estate; its’ just that there’s never before been a single, massively-scaled influencing force like this (Zillow gets over 70M unique visitors a month and claims 140M across it’s web brands that include Trulia).

Zestimate Accuracy: West Coast

Zillow says its methodology includes a comparison of Zestimates to the final sales prices of homes on or before the sales date. We can paint an interesting picture with their data by starting with broad U.S. overview and then zooming into different regions. Let’s start at the very top.

National Median Error

Of the 116 million homes on Zillow, 103 million have Zestimates. Their own numbers claim a national the median error of 8%. Here’s a coverage and accuracy table from their site for all 50 states.

national zestimate accuracy

State Median Error

Zillow home values for California, Washington and Oregon — while still worrisome — appear to improve slightly, dropping to the mid-six percent range.

  • California – 6.6% / 11M home profiles / 10M with Zestimates
  • Washington – 6.6% / 2.7M home profiles  / 2.5M with Zestimates
  • Oregon – 6.5% / 1.5M home profiles  / 1.5M with Zestimates

Local Median Error

Rural areas are apparently harder to predict. This is where price gaps widen considerably in all three states. Let’s take a closer look.

Zillow California

Inyo County, CA which comprises everything from Death Valley National Park to the small town of Bishop, CA is off by 21%. The median error could be created by low transaction volume (less statistical confidence) and other property disparities (i.e. an aggregated data set that includes both single family homes concentrated along the U.S. Route 395 corridor co-mingled with ranches that sit on vast desert acreage).

Bishop CA Inyo County

In a more densely populated area, such as San Francisco, you’d expect the transaction volume and homogeneity of properties to produce better results. In fact, Zestimates improve somewhat as one “zooms in” on urban counties and cities. For San Francisco, the Zestimate median error was 10%.

But that’s a whopping 10% when you consider the median home price in SF is $781,000. A 10% error there equates to a price adjustment of $78,100.

San Francisco California

Remember, that’s high or low; half are inside 10% and half are outside 10%. That puts $78k up in the air at the mercy of the same 50/50 odds you’d expect with a coin flip. Imagine deciding if you can fund your children’s college education that way.

Zillow Washington

The pattern described above holds up; we see the same home value discrepancies between rural and urban counties in Washington State, too.

The median error in King County (Seattle) is 6.6% while San Juan County (Friday Harbor) slips to 16.3%. Homes in San Juan County are pricey; it’s the Martha’s Vineyard of the Pacific Northwest. As swing up or down by 16% is kinda gnarly.

Seattle WA

Zillow Oregon

The median error in Multnomah County (Portland) is 7.8%, slightly higher than the Oregon State average. Given the population density, that fact that the discrepancy was higher in a metro area was not expected. However, Portland is one of the most active markets in the U.S. so perhaps market sales velocity also creates some distortion in the home value prediction.

But as expected, just up the road from Portland and through the Columbia River Gorge, rural Hood River County’s median error increased to 10.5%.

Portland Oregon

Mortgage Impact

So we know that price discrepancies can effectively shut down buyer/seller negotiations. What about financing? Let’s see how a 10% difference changes the mortgage Loan Estimate.

Below are some calculations using the same assumptions as Sacramento Bee’s ongoing home affordability study:

  • 20% down payment
  • 4% interest
  • 30-year term
  • 1.2% property taxes and insurance (annually, based on home price)
  • 29% front end ratio (annual gross income on housing payments)

Given the assumptions above, and using the scenario of a home that is sold for either $500 or $450k, here’s how that 10% difference plays out.

zillow impact on mortgage payment

A little “more of everything” is required of borrowers on the $500k price tag:

  • $10,000 more down payment
  • $11,947 more gross annual salary
  • $289 more per month mortgage payment

Even More Data Woes

By their own admission, Zillow’s pricing is not accurate. What other challenges do consumers face when using their site? There’s a chorus of real estate agents who’ve blogged about a myriad of other data discrepancies and even the hotly contested battles between Realtor.com and Zillow Group. Being the “go to” online resource for consumers is worth $billions. I’m going to skip the cat fight in this post, but you can read about it here. In terms of data, here’s what else is messed up…

Turns out Zillow and Trulia are also missing data. Their market coverage comes up short; they can’t provide consumers with the breadth of home selection that local real estate agents offer. Your local real estate agent gets better data from their Multiple Listing Service (MLS). Why? Because other real estate agents are creating and posting their listings to their regional MLS in the first place. Tech-savvy agents willing to spend time and money running their own branded web sites are profiting from their ability to display syndicated MLS data.

realfx group homepage

Seattle’s RealFX Group’s web site hosts regional MLS listings.

Sometimes Zillow and Trulia listings turn out to be old. Meaning, no good, expired, out of date. I know an agent who shared an anecdote about trying to help a customer view a particular home they saw online only to find out it was no longer available. I wonder what it was like to look his client in the face and explain to them that their ideal property had actually sold four months prior?

Scraping the web and running data algorithms, as listing aggregators do, is awesome. But there are things only an agent on-the-ground will know. Things that impact a home’s value, like intimate knowledge of neighborhoods, structural issues, property easements are all aspects of valuation that require human insight.

At best, aggregators like Zillow are starting point. Not the final word on home values.

What Buyers Can Do About It

Search Everywhere and Be Skeptical

Home buyers don’t need to completely divorce themselves from searching through the online aggregator sites. Search to your heart’s content. Just be skeptical of the prices you see. Make sure to supplement your search efforts by using your local agents’ sites. They’ll have direct access to regional MLS listings. Identify properties you like. Talk to an agent and get their insights.

Know What You Can Afford: Get Loan Pre-Approval

Having pre-approved for a loan is incredibly valuable, especially in certain markets. Having a lender pre-approval helps save time because you’ll know your loan limit which in turn informs your property searches.

Pre-approvals give you extra power to negotiate with sellers. They’ll take you more seriously. And you can edge out other buyers who are not as organized and ready to buy.

Stay Cool

Don’t fall in love with one property. Shop prices a little higher than your pre-approved loan amount. See if your real estate agent thinks there might be a shot at bringing the price down to the level you can afford. Maybe your dream home’s Zestimate is off by quite a bit – in a favorable direction, of course.

What Sellers Can Do About It

Stay Calm

Try to downplay your your emotions. Don’t get caught up in Zestimates. You don’t know if the home value on Zillow is high or low yet. There’s very likely still an appraisal ahead of you. In fact, If you’ve made improvements to your home over the years be sure to let the appraiser know.

Look Around

Research your house value on multiple web sites, not just Zillow. Hop on Trulia and Redfin and pound on their search tools a bit.

Look at Comps

Look carefully at recently sold homes in your area, comparable homes called “comps” will help you understand the state of the local market. Ask yourself some hard questions about what makes those comps worth more or less than your home. Be honest with yourself.

WRITTEN BY

Tony Mariotti

Tony Mariotti

Tony Mariotti is the founder of RubyHome. In addition to helping folks get home loans, he is a sought-after blogger. His favorite topics are online marketing, real estate and mortgages.

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COMMENTS

  • Great article!

    • Thanks, Steve! Feel free to share with your clients. 🙂

  • Mike

    This let down seems to be happening nationwide . It is a symptom of our weak economy and policies where we spend and do not look at the revenue side . We need to get our national house in order if we want to preserve and have our homes increase in value.

  • Bill Kortsch

    In San Diego the Zillow estimates are consistently below actual market in hot areas like North Park, Hillcrest and Point Loma.

    • Thanks for the feedback, Bill. Yeah, those Zestimates can swing in either direction, up or down. Before I did my research I thought mostly about the pitfalls of overvaluation. Undervaluation is just as troublesome.

  • Jerry

    This article is not done very well. Its purpose is to put doubt in a service that has time and again proved its worth. I saw no examples given of buyers and sellers having a falling out over price that is connected to zillow. That entire segment is anecdotal.

    The article speaks to no one who is seriously considering selling a home. Everyone selling knows, or soon will know that the market is based on supply and demand… and the automatic estimates are based on the big picture. I think the article is targeting buyers who do there own research. We are buyers, who do our research and in truth it has kept our position strong.

    We don’t just rely on Zillow we ask our realtor, our contractor, our would be neighbors and the selling realtor. Everyone knows we are savvy and everyone stays honest with answers. Straight to the point. Only a neophyte would rely on one source…we knew that day one.

    • Chip Issette

      This article is dead-on. Zillow is trash Jerry. You’re smart to not rely on only one source but why rely on one at all that you realize is incredibly inaccurate?

      • Gene dv

        You’re right Chip. Our 2-story home started out as 1728 square feet. We added on an office upstairs which brought it to just over 1900 square feet. Others did the same. Zillow shows homes in the neighborhood that still have the original 1728 as valued at $550K. It lists ours at about $505K. Thus, we have about 200 more square feet and Zillow has it priced at $45K less. I sent Zillow an email and asked them to review the algorithm they use, but they said the algorithm is the algorithm and there was nothing they could do. There needs to be a class action suit by homeowners who have suffered real damages because low inaccurate estimates are used as leverage by buyers to get a lower price.

        • REW

          A class action suit against who, the free market? Do you sue Wall Street when your stocks drop? Zillow is providing a free service displaying statistical approximations based on a complex set of variables and factors. It is up to you to understand what that means.

  • I read this in WISCONSIN (not in any of the mentioned areas) and Zillow is the bane of our existence. Well written! Thank you for sharing a true viewpoint including ERRORS with Zillow.

  • I have seen values inaccurately published between 8% – 15% on residences in various New Jersey counties. It is unfortunate that reliance on their data analysis does not represent true market value, providing potential buyers a misconception of market value and what they will need to pay for properties of interest.

    Alan Chokov
    Alan Chokov Realtors
    New Jersey Real Estate Mediation LLC

  • I’m a Zillow advertiser because that’s where most buyers look first. They’ve always had problems with Zestimates for non tract homes…. its as though if they’ve never spoken with a real estate agent while devising algorithms to guess home values from isolated cubicles. They still need to work on preventing comps from crossing rivers, and maybe discerning the difference between the crack house vs the beach house next door….you know what I mean.

    In January I “claimed” my personal home and it jumped in value 33% for no reason (no Trump branding etc.). A top agent listed a home a block over at about 3x the Zestimate a few weeks ago. A few months back I sold a former broker’s home at $60K below the Zestimate but $50K above comps and what other agents thought it would get… needless to say she was ecstatic.

    Do your homework. Use the Zestimate as an opener. Its not going away.

    Jeff Grenz
    Broker
    Equity Properties

  • D. SMITH

    Zillow is a handy tool. I have the App on my phone and when I want a quick “snapshot” of a property or a neighborhood that I’m considering buying in, it is quite handy. It is only a starting point!
    You absolutely have to do your homework when buying or selling, Zillow, tax valuations and brokers using MLS vary wildly in their valuations. MLS is the best place to get the most accurate local data, but they are not infallible either. I flip houses in the Boston metro-west area, and have proved them wrong many times by 10% or more on the buy and sell sides. One example: after restoring a large home I was told, by the top listing agent in my area, to price it at $1,950,000. I physically went to 4 other houses in the same neighborhood that were for sale at the same price point, compared the pros and cons of each one. I then went back to the Broker and told her I wanted $2,150,000 for the property. She laughed, and said whatever, its your house. My house was listed that weekend and sold in 4 hours, for full price, to a guy off the street. I made an extra $200k that week because I did my homework.

    • Paul

      Great example of how an agent, with full access to the MLS and is considered an area expert, still couldn’t accurately assess the sales price of a home. She was about as far off as Zillow is in the SF area, hmmmm…

  • Sandra Robinson

    Thank you for this article. I can use it in my newsletter if you don’t mind. Very relevant and timely.

    • Hi Sandra. Thanks for the compliment. I would absolutely love an included synopsis and link to the article. With respect to the copyright, please do not copy and paste the whole thing. 🙂

  • Paul

    Nice article, but in the spirit of providing accurate information it should be mentioned the margin of errors of agents pricing. This article assumes agents price homes correctly 100% of the time, meaning the price entered on the market is the price it sells. To be as accurate as possible, this article needs stats showing how far off agents are in pricing homes – initial list price to sold price. I’d imagine the average of 8% margin of error Zillow produces would become more accurate than the author suggests. Like Jeff Grenz said, its a starting point that isn’t going anywhere so best to figure out a way to use it to your advantage.

  • Chip Issette

    Tony:

    I would add a quick experience that recently took place. Because the Zestimates are traditionally quite low in my area we have been advising clients (prior to listing), to “claim” their address and edit the facts about their home with hopes that the zestimate will climb. I had a client with a Zestimate of $100,000 and a house with zero history (not actively listed or sold in last 25 years). He went on Zillow and changed bedrooms from zero to 4 and baths from zero to 2. He also added unique features, types of flooring, repair/ replace history and many other positive influencers. When he finished and hit the enter button, his Zestimate immediately fell to $75,000. After my brokerage did what a Realtor does, we determined that the house is worth $130,000 and we are now listed. Whatever process Zillow uses is not reliable. What’s worse is, we Realtors supply all of this data free of charge (MLS feed) and then pay Zillow to give us the leads produced. What a crock! My favorite part of Zillow includes the Premier Realtors being featured in my area that I have never heard of! One of these agents is soliciting my agents to buy his leads from this area as he works in a market that is 1.5 hours away. When will Realtors unite and put an end to this? Quit supplying these third party sites and they are finished.

    • There is certainly a lot of frustration to go around. Not only from a pricing standpoint but from the whole lead generation angle. One of the best ways to counter Zillow on the lead gen front is to start your own web site and create a new blog at least once per week. Once domain authority climbs, agents can enjoy their own leads (oh, and they’ll be 100% exclusive, too).

  • Every realtor squirms at the mere mention of any of the Z- words. Paul, you are right on about agents being just as far off as Zillow. A particular home is only worth what someone will pay for it, not the neighbors home. There are infinite factors that determine what a home will sell for. I could spend an hour typing in the 1st 10,000 off the top of my head. Zillow is a very useful links tool as Jerry is wise to point out giving the buyer more power. I’ve fired 2 agents in the last month because of their inadequacies. I have found better Homes with better schools for less, than any other agent could. Of course these agents despise zillow, trulia, realtor.com, etc because we can do all the work for them and put the bad agents out of business.

    • Paul

      Not to mention the commissions that further convolute the actual sales price and give more validity to Zillow’s inaccuracies.

    • Chip Issette

      Zillow does exactly the opposite Heath. It empowers weak agents that will spend money to buy leads, yet they know virtually nothing about contracts, neighborhoods, selling, pricing etc. This really isn’t an opinion as I watch it happen on a regular basis in my market.

  • Troy Flint

    Nice synopsis of the advantages and pitfalls of Zillow from both the buy and the sell side. I appreciate that it’s data-based and provides accessible examples to illustrate the main arguments. We’ll be using this as a reference as we shop for homes in Sacramento. Great job, Tony!

  • The article left out the most important element regarding Zestimates- THEY ARE CRIMINAL! When Zillow (as you say with 140 million buyers on their website every month) publishes false information regarding home owners property value being severely lower than their actual value, they in fact steal profits from those home owners which were rightfully earned by them. The buyers see the property as worth less (worthless) and move on to the next home which Zillow is saying is actually worth buying. It is illegal to steer potential buyers away from the homes but they’ve been doing this for almost a decade now. They know it is criminal, that’s why they’ve even changed their historical Zestimates data. What can home owners, investors, Realtors, Real Estate Agents, Real Estate Brokers and mortgage lenders do? Class Action Lawsuit! This is an easy, open and shut slam dunk case for any attorney and should be done asap so these clowns stop causing foreclosures, short sales, expired listings, and lost profits to home owners needlessly.

  • Something else buyers and seller can do… Listen to their realtor! I tell clients to look at Realtor.com because the property status is updated daily and usually right. But, comps will always have to be done by a professional and not a piece of software that can’t take into account the property condition.

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