The real estate website Zillow offers an online home valuation known as a Zestimate. Some homeowners find the Zestimate to be accurate, while others dismiss its findings. What factors affect a Zestimate? Can you rely on one?
Algorithm valuations from afar
Launched in 2006, the Zestimate uses algorithms to calculate the estimated value of a property. The algorithms gather and analyze publicly available information on a home and surrounding properties. This data includes tax appraisal records, the home’s square footage and the number of bedrooms and bathrooms. The history of sales prices on the house as well as comparable properties nearby are factored in, as is information that owners and real estate agents supply. Zestimates are computed three times per week.
The algorithm can also produce Zestimates of the rental rate value of properties.
What the algorithms cannot know
Like any automated system, the Zestimate is dependent on the data it gathers. The more accurate the data entered, the more accurate the Zestimate. The amount of publicly available information varies by state. As properties sell, valuations become sharper. Zillow says its margin of error spans five to nine percent, depending on the market.
What Zillow’s algorithms cannot account for are intangible factors that must be seen by human eyes to understand. The Zestimate does not take into account the architectural style of a property, whether it is currently fashionable or outdated, the property’s condition or needed repairs. A pleasing floor plan or an awkward one doesn’t compute by numbers.
Because of these factors, home sellers may believe the Zestimate for their home is too low and buyers may think it too high. Intangible factors will always stir some amount of uncertainty with so-called “robo-valuations.”
Seek professional advice
Automated valuations have a place in the real estate marketplace, but should never be the sole information relied upon. Whether you are a buyer or seller, consult a real estate agent to conduct a thorough analysis and help you determine the fair market value of your property or of houses you are considering for purchase. A good agent pulls comparable properties, knows neighborhoods, predicts future prospects for a community and brings many other factors to the table. A computer algorithm can never take such knowledge into account when setting a property value.
Related – Setting the Right Price with the Right Agent