On February 8th, the LA Times published an article highlighting some of the problems caused by Zillow’s automated property value estimates, known as “zestimates”. The LA Times called zestimates “one of the most sensitive perception gaps in American Real Estate”.
Why does this matter? For one thing, Zillow is the world’s most popular online real estate website. 73 million users visited Zillow in December alone! In addition to showing active listings, Zillow also shows information for properties that are not on the market. This information includes square footage, number of bedrooms and bathrooms, as well as a “Zestimate”. Millions of buyers and sellers quote these estimates to real estate agents as gauges of market value. How accurate are these estimates, and what kinds of issues do they cause?
The LA Times article states that disparities in ZIllow estimates occur on in LA on a daily basis, and such disparities negatively impact deals, especially if the buyer or seller won’t budge from the Zillow estimate. In many cases, Zillow inaccurately estimates market value. As Tim Freund, an agent with Dilbeck Real Estate in Westlake Village adds, “Consumers often take Zestimates as gospel. It can kill a deal.” Which brings us to ask- why the disparity? How accurate are Zillow estimates?
When “CBS This Morning” co-host Norah O’Donnell asked Zillow CEO Spencer Rascoff how accurate Zestimates were, he replied that Zillow estimates are “a good starting point, but have a median error rate of 8% nationwide”. 8% may not sound like much, but on a $500,000 house, this could mean a $40,000 disparity.
However, what Rascoff did not address was the fact that localized median error rates can be much higher, leading to many price conflicts between sellers and buyers. At the bottom of the Zillow website, there is some helpful information about valuation error rates by state.
The median error in Boston is 7.4%. So what does this mean for you, if you’re a buyer or seller in the Boston area? When discussing your home value with local real estate agents and appraisers, keep in mind that Zillow estimates are a starting point- not the absolute value of a home!
See the Full Article Here: http://www.latimes.com/business/realestate/la-fi-harney-20150208-story.html
Accuracy of Zillow Estimates by City and State: http://www.zillow.com/zestimate/#acc