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Zillow's Zestimates have been a hot topic of discussion since they were introduced in 2006. From the surface they seem to be the perfect tool to help the general public find out how much their home is worth. Unfortunately, you can add this to the ever-growing list of things that work in theory, but have a difficult time performing as they should in reality. In true Humboldt fashion, our markets reality poses an even bigger issue for Zestimates, for a litany of reasons. The biggest of which is the size of our market. One way Zillow makes money is from real estate agents who pay them advertising fees to be pictured alongside local listings so that when a prospective buyer has interest in a listing, they'll call that agent who is advertised to see the property. Given the smaller size of our market, Zillow makes less money from it, which then gives the company less incentive to ensure that the information they're supplying is accurate. Additionally, we have a wide range of type, size, and quality of properties, which further exacerbates the inaccuracy of these home value estimates as they are built upon cookie cutter averages and don''t take into account a homes unique features or it's current condition.
A Zestimate is not a forward-thinking tool, Zestimate’s track the market instead of driving the market. Because of that there will always be a bit of a lag in price. Their information also depends on what is available to them. Meaning in some areas where there is an abundance of recent information on surrounding houses, the Zestimate is likely to be more accurate than in areas with little recent information. Zillow’s accuracy has a median error rate of 7.49%. An error rate refers to the frequency or proportion of errors in a set of data. Essentially, this means that half the time, Zillow’s home value estimates are within 7.49% of the actual value.
The graph below further exemplifies Zillow’s median error rate for a typical $500,000 Zestimate in various geographic locations. So, for example, if the Zestimate of a home is $500,000, using the national median error rate of 7.49%, that means your home could actually be worth $37,450 more or less than Zillow’s estimated value. In other words, your home’s value could be as much as $537,450 or as low as $462,550.
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