How Zestimate Can Cost You Thousands (and what to do about it)

Zestimate is not accurate.

If you know anyone selling their house, you need to share this with them. Sellers can lose tens of thousands of dollars relying on Zestimate to price their home. We've gathered research from independent studies, Zillow's own disclosures, and our own research to show how Zillow is routinely off by $40,000 on a $200,000 home.

 I want to equip my clients with the facts about Zestimate and other online valuation tools. You'll learn how accurate Zestimate actually is, the 6 reasons why all valuation tools are inaccurate, and most importantly, the actual way to price your home. 

Free Seller Resource: Don't rely on automated valuation tools. Request a complete price analysis for your home, with neighborhood history, competition analysis, and a clear optimal price range for your property.  Learn more here.

How Zestimate and Online Valuation Tools Hurt Sellers

There are two main ways automated estimates hurt sellers. They drastically underprice or overprice the house.

Believe it or not, between the two it may be better to underprice.

Pricing Too Low Can Cost you Thousands

The most obvious way Zestimate & online home valuation tools hurt sellers is by lowballing the valuation price. 

As we’ll show, these estimates can easily be off by tens of thousands of dollars.

In fact, lets look at a few examples I pulled from the Omaha market in preparing this article. 

In Omaha, 8.3% of houses fall outside a 40% price range. If your house is estimated at $200,000, you have an almost one in ten chance that you are pricing $20,000 too low (or more). 

On a $400,000 house, that number increases to $40,000! 

Pricing Too High Can Cost you Months AND Thousands

On the other side, blindly following Zestimate can lead to severely overpricing your house. 

In many ways, this is worse than underpricing your home. 

First, overpricing your house will dramatically lower the number of buyers interested in your property. There is a strong chance that your property sits on the market. And sits. And sits. 

As time passes, it costs you preparation, energy, constant worry, and anxiety. Eventually, buyers will begin to associate the long time on market with negative feels towards your house. 

Natural questions arise, including "What's wrong with that property?" or "The sellers must be getting desperate". Houses that have been on the market for a long time beg for low offers, and ultimately you will have to make a number of concessions as many buyers decide not to take a risk. 

To illustrate, I want to share an example I found in Omaha at the time of this writing. 

Omaha Example: Zillow guessing  $39,997 off of a $200,000 home (20%)

I don't know the owners of this property, or how they arrived at their initial price point.

That being said, it is a great case study in the dangers of overpricing. 

1st Price: Overpriced the market by $15,000+

This property was initially listed on July 11th.

Unfortunately, it was overpriced by $15,000, and languished on the market day after day, week after week. 

As more time passed, it became apparent that buyers were not interested in buying at $215,000. In many cases like this, sellers become more desperate to sell. Every week that passes costs them time, and makes their property appear worse in the eyes of buyers.

2nd Price: Underpriced tax assessment by $8,200

Again, there needs to be a caveat here. 

You should never price your house based on tax assessments. However, as a general rule of thumb, in an appreciating market like we have in Omaha, you expect the tax assessment to be significantly lower than the actual market value of the property. 

I bring this example up to show how the market punished the seller for overpricing.

Here, the total assessed value is at $208,100. 

The relisted price (and ultimately pending sale price) is $199,900, off of the initial price of $215,000. 

The change took effect on August 9th, 2018. And they still had to wait 21 days before an offer was accepted. ​​​​

Free Seller Resource: Don't rely on automated valuation tools. Request a complete price analysis for your home, with neighborhood history, competition analysis, and a clear optimal price range for your property.  Learn more here.

The Problem With Zestimate

Zillow makes no claims that their Zestimate tool is an appraisal. 

“It is not an appraisal. It is a starting point in determining a home's value…. We encourage buyers, sellers, and homeowners to supplement Zillow's information” - Zillow

The problem is that like every other small print, we are all quick to skip. Most buyers and sellers believe Zestimate is accurate.

The confusion directly hurts families.

As of September, 2018, Zillow has 404 Consumer Reports, with an average rating of 1.5 starts out of 5.

Complaints range, but Zestimate’s failures are a common theme.

The Facts: How Accurate is Zestimate and Other Online Valuation Tools?

We’ve collected the data, both on the national and local level, to assess how accurate Zestimate is at evaluating your home's price. 

The evidence is clear. Zestimate is a horrific option to price your house on. 

Independent Study: McEnearney Associates

One independent study reported by the Washington Post studied how accurate Zestimate was across 500 houses.

The method was simple. They took note of houses actively on the market, notated what Zillow estimated the house at, and then compared the estimated price to the final sales price. 

What were the worst performing estimates?

One house was overpriced by 256%. 

One most underpriced house was 62.8%.

​The Facts: How Inaccurate is Zillow in Omaha, NE?

We have two key findings to show you.

First is Zillow’s own disclosed stats on Douglas County.

Every quarter, Zillow discloses the accuracy of their Zestimate tool. Here is how it performed in Greater Omaha over the last three months.

Zillow reports accuracy by giving a range around their Zestimate guess. The way they report this metric is misleading, making it appear more accurate than it really is.

For example, Zillow reports that 18.7% of houses are more than 10% off their estimated price. However, what this really means is that 18.7% of houses in Douglas County fall outside a 20% estimated band (Zestimate plus and minus 10%).

That is ridiculous.

In writing this article, we decided to portray the statistics in this way: are they outside or inside the range they specify.

  • Zestimate Price Inaccuracy w/in 40% range: 8.3%
  • Zestimate Price Inaccuracy w/in 20% range: 18.7%
  • Zestimate Price Inaccuracy w/in 10% range 40.5%

To put these numbers into context, image a standard, $200,000 house. 

“Imagine your house is estimated at $200,000. Zillow says the house could be worth anything between $160,000 - $240,000, and still 8.3% of houses should have been priced above or below that. That is an $80,000 mistake on a $200,000 estimate.” - Stephan Serrano, Realtor NE Realty

Check Your Own Home

It's also fun to see how much variance exists between the online valuation tools. 

Trulia and Zillow are owned by the same company, so go ahead and check their best guess at one of them. 

Then, compare it to how RedFin or values your home. 

Three different online portals, three different algorithms, three different prices. They are all inaccurate for the same reasons...

Why are Zestimate & Other Online Valuation Tools so Inaccurate?

This begs the question: Why are online home valuation tools so inaccurate?

Despite the advances in tech, a number of factors persist that will make any automated valuation useless.

1. Home Updates/Remodels

Zillow cannot see what updates you’ve made to your property.

There is some confusion on this point, because Zillow allows users to submit data about their house. This gives a false sense of accuracy. 

The truth is, Zillow does not use this data in their Zestimate.

Zillow discloses plainly that while they prompt users to submit data, “there is no way for us to systematically gather and verify the type of remodel or build information where the value is based upon how the final product appeals to the buyer. Because of this, the algorithm can’t use that information. “

2. Home Negligence

Like updates, Zillow and other online valuation tools cannot assess negligence. While a buyer can see decay, smell soiled carpet, spot sporing mold, and experience unkept houses, Zillow cannot.

3. Changing Markets

Local markets can change week to week, and across neighborhoods.

Omaha especially carries a number of diverse areas. Neighborhoods like Dundee and Benson can have dramatically diverse price changes across streets. This makes data aggregators cough up nonsensical estimates to what a home is worth.

4. Community Development

Again, Zillow can’t incorporate community development in it’s price valuations. Omaha continues to develop communities at an incredible pace. Recent successes include Aksarban and Blackstone.

5. Timeframe of Sellers

Your timeframe matters in price. Ultimately, if you must sell the house quickly, price is a huge lever that can be used to ensure your success.

6. Design & Taste

An algorithm can’t assess design or aesthetic. Meanwhile, buyers assess a house heavily on these factors.

Free Seller Resource: Complete price analysis for your home. Includes neighborhood history, competition analysis, and the optimal price range for your property. Learn more here.

Next Steps: How to Actually Get an Accurate Price

We believe there are four factors that directly impact the price of your home. 

  • Previous Sold Houses: Ultimately, appraisers and buyers will use previous like houses as a starting point to evaluate what a fair price is. 
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    Condition of Your Home: The actual condition, ammenities, and unique features of your house will directly impact the price range.
  • Current Market: Likewise, the current competition on the market will influence how buyers see your property. 
  • Seller Motivation: Your personal goals will influence what an acceptable price should be.
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    Marketing PLan: Lastly, the strength of the marketing behind a listing will impact how much demand there is for the property, and what prices will work. .

I would love to sit down and share how I guide sellers through these five factors. Shoot me an email ([email protected]) or text (at 402.312.9447) when you're ready to take the next step. 

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Once a week or so we send an email with our best content. We never bug you; we just send you actionable advice to help you (and the people you love) prepare for your next home. 

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