Z-Estimate By Zillow – Are You Prepared To Bet Your Home On It?

Z-Estimate By Zillow – Are You Prepared To Bet Your Home On It?MAKE SURE NO ONE IS LOOKING. Write yes or no on a sticky note and turn it over.

I write this article as a Realtor who has both buyers and sellers burned by Zillow’s Zestimate numbers. Rarely have I seen the Zestimate numbers be spot on. Until yesterday, I never knew that Zillow actually had a rating system for how accurate their own numbers are. Remember Zillow is not a Real Estate Sales Company. They are a marketing company or as their site says it, “…a marketplace dedicated to empowering consumers with data, inspiration and knowledge…. And connecting then with the best local professionals who can help.” Zillow has only been around 12 years, but is often the preferred choice for information over Realtors who’ve been in the business for double or triple that time. 

When looking at Zillow’s own rating system for their Zestimate, there are a few bits of details that stand out. Visit https://www.zillow.com/zestimate/ for specific details. First, Zillow feels that it’s important to explain their star rating system, because Zillow’s definition of a STAR is different from every other company that has had a star rating system.

STARS: - ZILLOW versus EVERY OTHER COMPANY

4 Stars - Best Zestimate - Excellent

3 Stars – Good Zestimate - Good to Fair

2 Stars – Fair Zestimate - Not Good

1 Star – Tax assessors value or unable to compute - Poor

0 Stars – No Valuation - N/A

Zillow’s Rating system clearly shines a positive light on themselves and how they view their own accuracy no matter what their score is. It's like being in school at the ratings are A+, A, A-, B+, "No Data Provided" for other grades (including B, B-, C+, C, C-, D+, D, D-, & F). When has it ever been acceptable for a school to omit any lower grades? When has anyone ever had such a skewed scoring system. This scoring system is used to show their current self rating system by State and City.

But that’s not the only thing they rate themselves on. They also rate themselves in data coverage and accuracy:

Within 5% of Sales Price

Within 10% of Sales Price

Within 20% of Sales Price

Median Error

These numbers are especially scary when looking at my own local area of Miami/Fort Lauderdale (2.1 million homes):

Within 5% of Sales Price – 52% Accuracy

Within 10% of Sales Price – 73% Accuracy

Within 20% of Sales Price – 87% Accuracy

Median Error – 5%

It’s even scarier when you look at cities like Houston where the data is left blank even 1.9 million homes with Zestimate. Now that’s scary! I can only assume that statistical percentages below a certain threshold are so low that they leave them blank of their report.

Zillow says that “…Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing the home.” It’s up to a Realtor to accurately price the home. The problem is that For Sale By Owners almost exclusively use Zillow to price their homes because Zillow fails to inform home owners that the number does not accurately price their home. This in turn leads FSBO’s to sell their homes initially and then share their discontent with Realtors for listing their homes for less when the Realtor is really pricing their home to sell based on current market trends not highlighted in the Zestimate.Zillow is essentially a marketing tool designed to rally up sellers into wanting to sell their homes. With increased sellers placing their homes on Zillow, this creates an uptick in buyers who click on the properties to speak to Realtors representing them. Except the Realtor you’re clicking on, may not be the Realtor associated with the property. In many cases, this Realtor has paid a premium to Zillow to advertise on their behalf to increase the numbers of Buyers they may list. Zillow isn’t making direct profit from buyers and sellers, they’re making profit on Realtors.

In the end, homeowners are risking the value of their homes and their personal time when they rely purely on Zillow’s Zestimate, which Zillow admits is not the most accurate when used as the only means of valuating a home. The lesson to learn here is that a good Realtor will supply concrete data that will tell you the value of your home based on current market conditions. As a seller you may not agree with the Agent, but wouldn’t you want the most accurate number, not the most favorable?

So going back to your Sticky Note, how confident are you with your answer? Are you willing to bet 10 or 20% of your home's value on it?