zestimate

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.

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You know that you want to sell your home. You also know that getting your listing out wherever people can see it can help you sell for the best price, right? Wrong!

Many sites are way off and one, Zillow.com, has a tool called a “Zestimate” which is supposed to give you an estimate of your home’s value. Problem is, it is very inaccurate, and it will make your home look overpriced.

“Advanced algorithm”?

Yes, the fact is that in most of these cases, the Zestimate appears to be considerably lower than the asking price. Zillow claims that when they come up with their Zestimate, they use specific types of information and an “advanced algorithm” to come up with a figure.

From their FAQ’s:

“We use proprietary automated valuation models that apply advanced algorithms to analyze our data to identify relationships within a specific geographic area, between this home-related data and actual sales prices. Home characteristics, such as square footage, location or the number of bathrooms, are given different weights according to their influence on home sale prices in each specific geography over a specific period of time, resulting in a set of valuation rules, or models that are applied to generate each home’s Zestimate. Specifically, some of the data we use in this algorithm include: Physical attributes: Location, lot size, square footage, number of bedrooms and bathrooms and many other details. Tax assessments: Property tax information, actual property taxes paid, exceptions to tax assessments and other information provided in the tax assessors’ records. Prior and current transactions: Actual sale prices over time of the home itself and comparable recent sales of nearby homes.”

Imperfect information

The problem comes in with where they actually get the information. For instance, some states don’t publish any information about real estate transfers, including sales price.

The physical attributes are put in by the seller, not a real estate professional. When buyers see that inaccurate Zestimate, they think that it’s the actual value and that you are overpricing your home. It makes for bad negotiating.

Trust your Realtor

Your best bet is to trust your Realtor to truthfully and expertly evaluate and value your home. Then let your Realtor choose the sites that have your listing.