What is behind the Zestimate and how accurate are they?
Zillow is the leading real estate website, with a total of 44.19 million visits, excluding those on mobile devices (source). Zillow is rich with information about property value estimates (Zestimates), sales histories, neighborhoods, and schools. Before visiting the site to get an idea of your or another’s property value, be sure to keep a few things in mind:
- Zestimates are a starting point when determining a home’s value. The Zestimate is calculated from public and user-submitted data as well as a variety of MLS’s. It takes into account special features, location and market conditions. This means that Zestimates do not know if the kitchen has been renovated or the carpets are stained; these things can definitely affect the value of the property both positively and negatively.
- The accuracy of the Zestimate depends on the the area. The accuracy ratings include Best, Good, Fair, and Unable to Compute. Zillow reports thier accuracy for each county in California here. Zestimates in Santa Cruz are considered “fair” with only 40.9% of Zestimates within 5% of homes’ true value and 69.9% within 10% of their value. With a median home price of around $800,000 in the Santa Cruz area, a 10% error can cost you $80,000.
- Monterey and Santa Clara estimates are considered “Best” and “Good” respectively.
- Why is it important not to overvalue the home when you list it? Because the longer the home sits on the market, the more likely buyers will wonder what’s wrong with it. Additionally, if you do get an offer for a home that is priced above market value, a bank is unlikely to loan more money than the home is worth (as determined by an appraisal).
If you are selling, the best way to ensure that you have a good understanding of your property’s value is to speak to a local, professional agent who studies the local market regularly. She will perform an in depth analysis of your home, helping you to understand what factors increase and decrease its estimated value. You will gain peace of mind knowing that you have made an intelligent and well informed decision about your listing price.
If you are buying, you will have to make an offer that is both competitive and frugal. Having an in-depth understanding of a given property’s estimated value will put you in the position to do just this.
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