It seems like the popularity of Zillow.com is rapidly growing. I’ve heard a few times lately, “Oh, I’ll just check my home’s worth on Zillow!”
These people are referring to Zillow’s Zestimate. The Zestimate provides an estimated market value of a home. This is done by entering data on the subject home and comparable homes into an algorithm. Unfortunately, the resulting estimate is oftentimes very inaccurate. See the table below, provided from Zillow’s Zestimate Accuracy page. Find the line for El Dorado County, which includes South Lake Tahoe. Homes here sell within 20% of their Zestimate only 75% of the time! This means if you were selling a home worth $500,000, there would be a 25% chance your Zestimate would be under $400,000 or over $625,000. As a buyer or seller, giving the Zestimate substantial credibility in these cases would obviously be disastrous.
Many factors can really skew the Zestimate. The facts about your home can be incorrect. Zillow could pull bad comparable properties. Oftentimes, Zillow won’t adjust for location, conditions specific to your market, and especially remodeling. I’ve even heard of sellers entering data for overpriced comparable listings in order to boost their Zestimate.
Zillow readily admits that the Zestimate is inferior to a Comparative Market Analysis or an appraisal. Moreover, they’re making significant strides in improving the Zestimate. In a January 10, 2008, press release, Zillow announced that they increased their database from 70 million to 80 million homes. They also upgraded their algorithm. These improvements resulted in a 12% boost in accuracy.
Apply this boost in accuracy to our $500,000 South Lake Tahoe home, however, and there will be a 25% chance the Zestimate will be under $412,000 or over $610,000 now. So while still a fun tool, the Zestimate remains just that – a fun tool. If you want to know your home’s value, get a Comparative Market Analysis from a real estate agent.