Why is the Zillow Zestimate Wrong?


In a previous post “How Accurate is the Zestimate?” we revealed that in Middle Tennessee, the Zestimate misses the mark by over 5% more than half the time. Compared to my own office’s accuracy rate (our homes sell on average at 99.4% of the list price), online home value websites are terribly inaccurate. In fact, later on I will demonstrate with Zillow’s own published data just how inaccurate the Zestimate is.

If you’ve seen one, you’ve seen them all

As a reminder, we use “Zestimate” and “Zillow” as generic terms for “automatic online home value estimate” like we use “Google” to mean search online. Unless specified otherwise, the facts apply to all similar websites, such as Trulia or Realtor.com. They’re all inaccurate, Zillow just happens to be the most popular.

How can they get it so wrong so often?

But why is Zillow so inaccurate? Why is every automatic online home estimate website inaccurate? Shouldn’t their accuracy rate correspond to their million-dollar marketing budgets? I’ll tell you why.

There are two primary reasons that automatic home value websites will always be inaccurate:
1. Each website is using its own algorithm to calculate value.

That’s right, a computer takes publicly available data, runs the numbers according to the company’s special formula, and spits out a number. Zillow has an algorithm, Trulia has an algorithm, Realtor.com has an algorithm. A computer takes publicly available and user-submitted data, plugs it into a formula, and spits out a number. No human who knows your neighborhood, your home’s condition, and local market is involved in the computer’s estimate.

Why is that such a bad thing? Shouldn’t a computer running a formula be unbiased? Sure, you could argue that it’s unbiased, but that’s not the question.  Here’s the only question that matters: Is it accurate? The evidence is clear that it’s not. A computer alone cannot give an accurate estimate of your home’s value. A real estate professional using a computer with current market data absolutely can, it happens every day.

That was the first reason.  The second reason has to do with the information available to Zillow, Trulia, Homes, Realtor, etc…

OK, but shouldn’t an unbiased computer algorithm still be more accurate? It’s all about the data…
2. The data plugged into the algorithm is always incomplete.

Think about two types of data: “hard” data that can be easily measured, such as the square footage of a property, and “soft” data that cannot be easily measured because it involves some degree of personal taste or opinion, such as the convenience of living near a major highway. A computer can only measure “hard” data accurately. How does that work?

Hard and soft data

The “hard” data: Zillow does include some sales data, but that information is frequently out of date. Numbers are pulled from tax records – when these are available online to the estimating website. Many times even basic data (such as number of bathrooms) is missing from the calculation because it just didn’t transfer from the county website to the Zillow website. Sometimes an online estimate is provided based only on a tax assessment that may be years old.

The “soft” data: In addition to providing hard data, homeowners may comment on the nice features of their homes, and provide pictures. Zillow at present doesn’t have a means to verify or include these things in their Zestimate. In every case, the impressions and opinions of real estate professionals and potential buyers is completely left out of the Zestimate equation.
Contact me today to find out what your home is really worth.

They don’t calculate it all because they can’t

That’s right, the Zestimate takes into account only some of the “hard” data and basically none of the “soft” data. Does that matter? Consider this example: Here’s an home for sale on Zillow: 3 bedrooms, 2 bathrooms, 2-car garage, bonus room, 1578 square feet, 1 acre lot. Nearby similar homes sold for an average of $195,500 at $123.89 per square foot. The market has increased about 3% annually. Zestimate algorithm says: $201,363. Isn’t that a good price? How do we know?

Even assuming all of the hard data is correct (and often it’s not), the Zestimate cannot possibly calculate the “soft” data – the information that people subjectively gather as they view the property. The sights, smells, condition, layout, and other things that can only really be interpreted by a human being with interest in the property.

Adding the human to the equation

Consider what it would do to your willingness to purchase the property (and how much you would be willing to spend) if…

  • The home reminds you of your grandparent’s home, which you loved
  • You can immediately picture yourself living there
  • The grass in the yard is soft and the landscaping is perfect
  • The interior layout suits you
  • The closets seem huge
  • Everything is sparkling clean inside and out
  • There are only 3 houses on the market within 2 miles at this size and price range
  • A nearby company is expanding, and 150 additional people are expected to move to the area in the next three months

Or, would your opinion of the home’s value change if…

  • There are a dozen other houses just like it coming on the market every day
  • The “1 acre” lot is .25 acres of lawn and .75 acres of mud
  • The yard has been neglected
  • Something has clearly been chewing on the interior trim
  • The interior layout feels awkward and cramped
  • Part of the square footage is an addition that may not have been completed to code
  • Everything needs cleaning, inside and out

As they say, the devil is in the details.

Really, do they really miss that much data?

It’s difficult to imagine an “estimate” that doesn’t include the true number of bedrooms, bathrooms, accurate square footage and lot size, but it happens all the time. I have run across many value estimates on popular sites that claim 1 acre lots when the public records (and my own measuring tape) indicates that the lot is a fraction of that. I have also seen online estimates that didn’t include bedrooms, baths, and square footage in Rutherford, Davidson, Williamson. Sumner, and Wilson counties, and it happens elsewhere too.

What’s the lesson here? You just can’t rely on automatic online home value estimate websites to give you an accurate estimate or facts. If you want to know the real value of a property – what a willing buyer in today’s market will pay – you need to talk to a real estate professional.

So, how far off are Zillow numbers in my area? Find out in my next blog post: Just How Inaccurate is the Zillow Zestimate in Tennessee?

Have you read the other posts in this series?

Contact me today to find out what your home is really worth.

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Aaron Lovett is a full-service Realtor in Smyrna, TN, working out of the regional office of Weichert Realtors, The Andrews Group in Murfreesboro, TN. His service area includes Smyrna, Murfreesboro, Christiana, LaVergne, the remainder Rutherford county and surrounding areas.  Aaron has lived in the area for over a decade. He takes pride in helping home buyers and sellers reach their real estate goals.