Estimates of home value by Zillow and other online services can be useful, and watching them change over time can be addicting, but they are often wildly off the mark. Zillow acknowledges its estimates, called Zestimates, are just that, and that its computer formula is no substitute for a knowledgeable human, such as a local Realtor.
For example, a Zillow estimate on a home that sells for $500,000 will be off by $50,000 or more in nearly a quarter of cases, according to the company’s data.
“Is a well-informed human better at pricing an individual home than a computer? The answer is yes, of course,” said Stan Humphries, chief economist at Zillow and architect of the Zestimate formula, in an article in the Washington Post. “But [the Zestimate is] closer than you might think.”
Zillow’s claims of accuracy, (along with the flip side of the claims and a little example math):
- Within 5 percent of the sales price 55.5 percent of the time. 44.5 percent of the time, the estimate on a $500,000 home would be at least $25,000 above or below reality.
- Within 10 percent of the sales price 75.7 percent of the time. 24.3 percent of the time, the estimate on a $500,000 home would be at least $50,000 off.
- Within 20 percent of the sales price 87.6 percent of the time. 12.4 percent of the time, the estimate on a $500,000 home would be at least $100,000 off.)
Zillow’s formula takes into account “location, lot size, square footage, number of bedrooms and bathrooms,” plus “actual sale prices over time of the home itself and comparable recent sales of nearby homes” and other details. But Zillow won’t necessarily know if you’ve remodeled your kitchen or if you’ve got avocado-colored linoleum in your bathroom, or if the A/C and other appliances are brand new or on their last legs.
A Zestimate “is a starting point in determining a home’s value and is not an official appraisal,” Zillow states on its website. More accurate, the company says, is a “comparative market analysis (CMA) from a real estate agent” or “getting an appraisal from a professional appraiser.”
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Editor’s Note: The above statistics were based on Zillow data as of Sept. 16, 2018. They are updated periodically.