The Real Deal New York

Erroneous Zestimates

Zillow’s wildy off online price estimates hamper sales
By Kenneth Harney | March 01, 2015 07:00AM
Spencer Rascoff

Spencer Rascoff

When “CBS This Morning” co-host Norah O’Donnell asked the CEO of Zillow recently 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 real estate 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 seller’s list price of $425,000. Or a seller might demand to know from potential listing brokers why 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 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, California. 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 Manhattan, the median valuation error rate is 11.1 percent — which could translate into a $109,000 disparity on an apartment selling for the median $980,000. In Brooklyn, the error rate is 10.4 percent. In some rural counties in California, error rates range as high as 32 percent. In San Francisco, it’s 11.2 percent. With a median home value of $1 million in San Francisco, according to Zillow estimates as of December, a median error rate at this level translates into a price disparity of $112,000.

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.

Kenneth Harney is a syndicated columnist.

  • Mainer

    Glad to see Kenneth Harney is still out there and knocking it out of the ballpark. As a long term real estate agent (30 years), I have never ceased to be amazed that people couldn’t figure out by themselves that an on-line estimate based on statistics wouldn’t give them an accurate estimate of home sale prices. The agents selling in the neighborhood are still the best source for determining price.

  • This supports how critical is for a real estate agent to know their numbers and data. Most people have more trust in Zillow than one rogue agent that runs around passing out flyers saying ‘now is a great time to sell or buy’.

  • Bob McTague

    All of these online estimates are a guide not a final determination of the true market price. In my market in Syracuse NY – 70% of all home sellers are overpriced in the first 60 days of listing their property. So, 70% of the agents must have been using an online source to determine their price. :) The point is that most agents are not telling their clients the truth about price or do not know the correct price. So, the seller is always at a disadvantage when figuring out what the true market price is.

    • Craig

      Most agents arent telling their clients the truth? pretty harsh indictment… And I would say highly inaccurate.

      • Bob McTague

        Craig- Let me clarify my comments: In MY market, I track all the data. Yes, the truth is harsh. Agents overprice for the following reasons, to get the listing (not telling the truth), because they do not want to lose to the competition, they do not have the confidence to tell the truth (referral, friend, etc…), do not know the correct price (do not know market data), they do not have any expense tied to the marketing of the home (so taking an overpriced listing does not hurt them), they want to make the seller happy (appease them) by not telling the truth… So, does think make sense or am I not telling the truth :) It is actually our ethical code as a Realtor to not mislead a client as to the true market value of their home. :)

        • JM_66

          The agent telling the client the truth, the buyer accepting the truth, and the agent having the confidence to refuse a listing that doesn’t meet expectations are all completely different issues. Some seller’s are in denial of the facts, and some agents aren’t strong enough to refuse a listing. But let’s not go ahead and say that they don’t tell them the truth. That’s a statement that cannot actually be backed up by facts, but rather assumptions.

          • Bob McTague

            Ok, the truth is that as you say, there is a lot of confusion out there between the buyer and the seller, and the AGENT, is the one that needs to be strong and not accept the listing if they know it is grossly overpriced and does not have a chance to sell. I am not saying that agents are LYING, but by ignorance or default the truth is distorted to benefit someone. The point is why do agents overprice homes, and sometimes (which no one can argue, it is because the agent does not want to lose the listing, so they will tell a higher price… this only may be 20% of the time, but it does happen) We as an industry need to stop sellers from overpricing.

  • emersome biggins

    What to tell your Buyer or Seller about Zillow and Zestimates…. “Zestimates are for entertainment purposes only”.

  • Julie Pierce

    In my state, Utah, we are a “non-disclosure” state. That means that the sold price is not a required disclosure to any county records, or anyplace else, even the MLS. It is only put on the MLS with the Buyer and seller permission. Our MLS does not disclose sold prices publicly, and That means that Zillow has no access to sold values, and therefore, when they create a “zestimate”, they only have access to overpriced properties that haven’t sold. Nothing could be more inaccurate.

    To me, the fact that Zillow believes it can even create a “starting point” for a discussion on properties where they have no access to any information is not just beyond comprehension, it is willfully misleading the public, and that’s unconscionable.

    Then, they want me to pay them for the privilege of using their dysinformation, by giving them money to advertise on their site. Simply Amazing.

    I believe that much like the learning processes around REO, the foreclosure process, and the short sale process, eventually the public will become more savvy, and sites like Zillow will either have to come clean and find a more honest way to make their money, or they’ll die off. Can’t wait.

  • Jerry Vitale

    Over Priced Listings = Sellers AND Agents are BOTH in denial……. just my opinion.

  • Kevin

    I just captured this screen shot of a current listing that I put into the MLS (“Off Market”?) on Saturday, had an open house on Sunday and received multiple offers at or above the $204,900 asking price here in Nashville. People should not be afraid to ask a trusted Realtor for REAL comps, not ones taken from $1 in-family sales, condos, foreclosures, flooded homes, etc. This article hits the nail on the head as to why so many people are afraid to list their house. Too much online research and not enough real communication with professionals. By the time consumers see a home listed on Zillow it’s probably already sold in this town.

  • Bob Bear

    Even a broken clock is right twice a day. Go Zillow!