You’ve seen the commercials, you know, the ones where people find their dream home and just know they can afford that house in the neighborhood they can’t afford to buy in because the Zillow Zestimate said so. It’s a nice commercial, but it’s not telling you the truth.
Automated valuation models
Zillow, and others, use something called automated valuation models or AVMs to figure out the value of a property. They use it to help buyers make a buying decision, given that 90% of buyers start their search for a new home on the internet.
The technology works something like this. They amass tons of information that are publicly available sources and put them through a sophisticated algorithm to predict value. It seems like it should work like a charm, but Zillow’s Zestimates are rather inconsistent.
Several factors that will affect pricing
A Realtor will tell you that the market can change from week to week and neighborhood to neighborhood. No algorithm, however sophisticated, can do things like quantify the value of a kitchen that was recently updated or a poorly maintained home.
That means that there are several factors that will affect pricing that aren’t part of the AVM. What it really can only do is look at closed sales in a particular zip code and get the average.
That is certainly not going to give you the right figure of either a sales or a buying price. If that neighborhood is out of reach it’s a pretty good bet that the AVM estimate that says you can buy in is most likely off. If you want to know for sure, call a Realtor.