How Accurate is Zillow's Zestimate? Not Very. Here's Why

Courtesy: Realtor.com

Ever since Zillow.com launched in 2004, real estate in America has never been the same.   Information about every home in the country is available from this one website on the internet.    

In my opinion, 90 percent of this has been a good thing.   Consumers no longer rely on a real estate agent to show them what listings are available for sale-- Zillow shows them right from their own computer, allowing people to eliminate homes in advance and leaving the best for their tours. But there is one controversial aspect about Zillow that hasn't changed in 16 years-- the zestimate.  

The "zestimate" is zillow's estimate of value.  Using a proprietary formula from an aggregation of public records and other factors, Zillow assigns a dollar value to every home.   

In cities where housing stock is similar in style and age, like Phoenix, AZ and Las Vegas NV, the zestimate is pretty accurate.  But on Cape Cod, where homes have been added to the landscape sporadically for hundreds of years, the Zestimate struggles.   I once listed a rare pond front home with 250 feet of exclusive waterfront, and by comparing that home to the sold price of others in the area that had no waterfront, the zestimate for the property was $200,000 too low.  With every showing, I had to explain to buyers why the zestimate was so far off.  It was a challenge. 

You see, buyers trust Zillow.  They know it's a third-party site, at arms length from both sellers and real estate agents who make money off the sale of a property.  Zillow earns nothing for the these sales-- except it has entered the ibuyer trend, a subject of a future blog.  Mostly, Zillow makes money by selling advertising space to real estate agents. 

Which brings me to the reason I'm writing about the zestimate today.   It seems that one of the co-founders of Zillow, Spencer Rascoff, is selling his L.A. home, for $24 million dollars.  And the zestimate on his property?  $16.1 million-- a difference of $8 million dollars.  Oops.  

​Interestingly, the zestimate bumped up significantly today to $21,844,000 as word of the discrepancy went viral.  Hmmm. 

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Zillow acknowledges the difficulty in assigning a value to an ultra-luxury property like Rascoff's.  There isn't another one like it.  

We know what that's like on the Cape. We can have a 17th century home sitting next door to a manse constructed just last year.  How does an algorithm compare the two?  It can't.  That's the point.  

So when you check out zestimates on Zillow, keep this in mind.   Even the co-founder of Zillow knows what it's like when the popular website misses the mark by a mile.  Take that zestimate with a grain of Cape Cod beach salt. 

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