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Zillow Challenged On Accuracy of “Zestimates”

Published by: Betty on 10th Feb 2015 | View all blogs by Betty

Zillow Challenged On Accuracy of “Zestimates”

 

The CBS morning talk show, “CBS This Morning,”  addressed a major real estate issue last week when they invited Zillow CEO Spencer Rascoff to discuss the company's controversial “Zestimates”, or automated value estimates for homes.  With more than 73 million visitors in December alone, Zillow is easily the world's most popular real estate information website.  In addition to active listings of properties currently on the market, the site also provides information about homes not for sale.  This information often includes square footage, number of bedrooms and bathrooms, photos, property tax information and so-called “Zestimates”.  

CBS's Norah O'Donnell asked Rascoff about the accuracy of these “Zestimates”, to which the CEO replied that they are a “good starting point,” but added that on a nationwide basis the “Zestimates” have a median error rate of about 8 percent.  Of course that's the national rate, and localized error rates are often higher, and the difference has killed many a real estate deal.  The problem with Zillow's estimates is that buyers and sellers will look up their homes, or homes they're looking at, and take Zillow's figure too seriously.  If a buyer is looking at a home priced at $400,000, and the Zillow estimate is only $365,000, he will likely refuse to pay any more than that.

 

While Rascoff cited an 8 percent median error rate nationally, “Zestimates” can be off by quite a bit more than that in some markets.  To their credit, Zillow does publish a list of major markets with their corresponding error rates, though it's not featured prominently on the website.  To find this information, one would have to scroll all the way down on Zillow's home page and click on “Zestimates”, sending the user to a page that defines and gives background information on Zestimates, how they're calculated and median error rates for various markets.  One of the biggest error rates, according to Zillow, is for properties in Somerset County, Maryland, where the median error rate is a staggering 42 percent.  In Manhattan, meanwhile, the error rate is just shy of 20 percent.  With a median home price of $1.24 million, that means that the average “Zestimate” for Manhattan properties is almost $250,000.

 

Local agents around the country have done their own analysis on Zillow's Zestimates, and most have concluded that Zillow's figures are off enough to jeopardize deals.  In fact, many found that Zillow was wrong on every listing they looked at.  It's not likely that Zillow will stop publishing Zestimates, so real estate professionals around the country will just have to keep explaining to their clients that those figures are not intended to be exact valuations of properties.

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