Can The Zestimate Be Trusted?

Can we trust the Zestimate? Zestimates have been considered gospel for home valuation by many over the years but Zillow, the creator of the Zestimate, is leaving their home flipping business called iBuyer and laying off 25% of their staff ( 2,000 jobs) after substantial losses and a surplus of 7,000 homes worth $2 Billion that they may have overpaid for and have yet to sell. This will likely have a huge impact on the markets in which these homes are located. With all the data gathered via their site, Zillow still seems to have massively misjudged the cost and timing of flipping homes. 

Home price predictions have always been part of Zillow’s appeal. The company publishes value estimates for 104 million properties and the Zestimate is featured prominently on home listing pages across the site. However, famously, in 2016, the then CEO Spencer Rascoff’s home sold for 40% under its Zestimate.

How is the Zestimate quantified? Zillow does not share the exact formula for its estimates, but says it uses “statistical and machine learning models” to “examine hundreds of data points” for each home. Data points include things like square footage, location and the number of bedrooms and bathrooms. The information comes from property records and local multiple listing services. The Zestimate also takes into account tax assessments, prior sales and, if the home is on market, the listing price and how long it has been available. In the most recent update to the formula in June, Zillow says it made the estimates more responsive to market trends and seasonality. 

While all of this information can be helpful, the Zestimate does much better in homes in planned communities where all the homes are very similar than a neighborhood or town where each home can be wildly different in size and shape and type such as Marin. 

Zillow is also not physically entering a home and can’t see the room that faces the neighbor’s wall, or how the light or lack thereof enfuses the rooms, feel the settling of the floors or smell the cat pee or mildew. These are some of the real world issues that can have a huge impact on the value of a home. The Zestimate should be considered one form of measurement for consideration. Real estate is a hyper local business and the fantastic flameout of iBuyer is a testament to that. With the financial stakes involved in a unique and high value market such as Marin , it’s important to have experienced human real estate professionals who focus on this market to help give the final assessment of value.