The Real Deal New York

The scoop on Zestimates: They’re a “good starting point”

Zillow's automated property value estimates help in talks with agents, appraisers: OPINION

February 06, 2015 03:30PM
By Kenneth Harney

spencer-rascoff-cbs

Zillow CEO Spencer Rascoff (credit: CBS)

When “CBS This Morning” co-host Norah O’Donnell asked the CEO of Zillow last week about the accuracy of the website’s automated property value estimates — known as Zestimates — she touched on one of the most sensitive perception gaps in American real estate.

Zillow is the most popular online real estate information site, with 73 million unique visitors in December. Along with active listings of properties for sale, it also provides information on houses that are not on the market. You can enter the address or general location in a database of millions of homes and likely pull up key information — square footage, lot size, number of bedrooms and baths, photos, taxes — plus a Zestimate.

Shoppers, sellers and buyers routinely quote Zestimates to realty agents — and to one another — as gauges of market value. If a house for sale has a Zestimate of $350,000, a buyer might challenge the sellers’ list price of $425,000. Or a seller might demand to know from potential listing brokers whey they say a property should sell for just $595,000 when Zillow has it at $685,000.

Disparities like these are daily occurrences and, in the words of one realty agent who posted on the industry blog ActiveRain, they are “the bane of my existence.” Consumers often take Zestimates “as gospel,” said Tim Freund, an agent with Dilbeck Real Estate in Westlake Village, Calif. If either the buyer or the seller won’t budge off Zillow’s estimated value, he told me in an interview, “that will kill a deal.”

Back to the question posed by O’Donnell: Are Zestimates accurate? And if they’re off the mark, how far off? Zillow CEO Spencer Rascoff answered that they’re “a good starting point” but that nationwide Zestimates have a “median error rate” of about 8 percent.

Whoa. That sounds high. On a $500,000 house, that would be a $40,000 disparity — a lot of money on the table — and could create problems. But here’s something Rascoff was not asked about: Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. Though it’s not prominently featured on the website, at the bottom of Zillow’s home page in small type is the word “Zestimates.” This section provides helpful background information along with valuation error rates by state and county — some of which are stunners.

For example, in New York County — Manhattan — the median valuation error rate is 19.9 percent. In Brooklyn, it’s 12.9 percent. In the District of Columbia Zillow is unable to compute an error rate. In Somerset County Maryland, the rate is an astounding 42 percent. In some rural counties in California, error rates range as high as 26 percent. In San Francisco it’s 11.6 percent. With a median home value of $1,000,800 in San Francisco, according to Zillow estimates as of December, a median error rate at this level translates into a price disparity of $116,093.

Some real estate agents have done their own studies of accuracy levels of Zillow in their local markets. Last July, Robert Earl, an agent with Choice Homes Team in the Charlottesville, Virginia, area, examined selling prices and Zestimates of all 21 homes sold that month in the nearby community of Lake Monticello. On 17 sales Zillow overestimated values, including two houses that sold for 61 percent below the Zestimate. In Carlsbad, California, Jeff Dowler, an agent with Solutions Real Estate, did a similar analysis on sales in two ZIP codes. He found that Zestimates came in below the selling price 70 percent of the time, with disparities ranging as high as $70,000. In 25 percent of the sales, Zestimates were higher than the contract price. In 95 percent of the cases, he said, “Zestimates were wrong. That does not inspire a lot of confidence, at least not for me.” In a second ZIP code, Dowler found that 100 percent of Zestimates were inaccurate and that disparities were as large as $190,000.

So what do you do now that you’ve got the scoop on Zestimate accuracy? Most important, take Rascoff’s advice: Look at them as no more than starting points in pricing discussions with the real authorities on local real estate values — experienced agents and appraisers. Zestimates are hardly gospel — often far from it.

  • Surbiton

    The main issue is that inaccurate Zestimates are an “End Point” and not a “Starting Point: as Spencer Rascoff claims, as Zillow refuses ALL reasonable requests by Homeowners to correct or delete and erroneous Zestimate.

    When I questioned the ethics of such outrageous behavior by a $4Bn Nasdaq company Rascoff stated in an email that “thanks to the First Amendment Zillow can publish any opinion on a homes value. I still cannot believe that any CEO could be so arrogant in treating consumers with such disdain even though he accepts a Zestimate “Median Error Rate of 8%. In reality the real impact of inaccurate Zestimates is significantly higher as Clareity Consulting published a report showing that 17% of all Zestimates are more than 25% inaccurate.

    It is time our elected officials caught up with technology and introduced some form of Regulation to protect Homeowners from Zillows nonsense, as a minimum there needs to be a DoNotZestimate Opt Out in the same way as Phone Users can opt out of unwanted spam phone calls by registering with DoNotCall.

  • Scott

    Are you kidding with that comment? They have every right to publish a Zestimate and you as a consumer or homeowner have every right to ignore it. The truth is there needs to be more education out there about property values. Any competent real estate agent will be able to properly education buys and sellers about Zestimates. Local property tax appraisers for years have been publishing “values” of homes. Zestimates appear to be nothing more than that with some additional information (best I can tell).

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