Articles

Washington D.C. Real Estate: ‘Zestimate’ Miscalculation

A Washington Post article was recently emailed addressing Zillow.com inaccurate ‘Zestimates,’ Zestimates are online real estate appraisals based on Google search and tax benefits.  According to the research below a Zestimate matches a Sales Price 3% of the time.  On average the Zestimate is +/- 25% a recorded price, which equals +/-$250,000 per $1,000,000.  Not a small figure.  As a realtor, I have noticed that Zestimates create false expectations for buyers and sellers.

Zillow offers estimates of your house’s value. But the error rate can be high.

February 6

Zillow offers estimates of your house’s value. But the error rate can be high.
Share on Facebook Share on Twitter Share on Google Plus Share via Email More Options

Resize Text Print Article Comments 74
By Kenneth R. Harney February 6
When “CBS This Morning” co-host Norah O’Donnell asked the chief executive of Zillow last week about the accuracy of the automated property value estimates — known as Zestimates — that can be found on his company’s Web site, 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 an address or a general location into a database of millions of homes and probably 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 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 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 chief executive 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 Web site, 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 19.9 percent. In Brooklyn, it’s 12.9 percent. In the District, Zillow is unable to compute an error rate. In Somerset County, on Maryland’s Eastern Shore, 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, Va., 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, Calif., 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.

Luke Buchanan delivers in-depth, local knowledge regarding NW Washington neighborhoods. Luke is proficient in relative-valuation and formerly worked as a strategist for an advertising firm in Santa Monica. If you wish to learn more about your home's worth, please call or email to schedule a free real estate consultation today. You may also visit Luke Buchanan's blog or Facebook, to find additional information that may further guide your real estate decisions. Hobbies include: golf, grilling, image editing, photography, running, skiing, tennis, travel and yoga

0 comments on “Washington D.C. Real Estate: ‘Zestimate’ Miscalculation

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s